Penalty Abatement

My husband has owned a small home improvement business for 23 years. In early 2004 he suffered a heart attack and didn't work again until late 2004. During this period of time our income was much lower and we failed to file the 2003 returns promptly because of his health issues and have been hit with non-filing penalties. Do we have any ground to dispute this?

Absolutely, this is clearly a case where there was a hardship and the primary officer of the company was unable to handle the day to day affairs. Although its not a certainty, complete documentation of the details of the illness, including a statement(s) from your physician(s) will go a long way. In addition, medications and orders to refrain from business activities help to build the case as well. If your husband has filed his returns promptly in the past and has been in good standing he stands an excellent chance of an abatement of the penalties.

Tax Resolution Representation

What can a Tax Resolution company offer me that I can't do for myself? The IRS has a toll free help line to assist taxpayers with everything from filing old returns to settling tax liability.

First you must understand, the IRS operates in the manner that best serves the US Treasury. Once tax liability is assessed the IRS wants to resolve your case as quickly as possible and move on to the next file. This means getting as much as possible as soon as possible! When an Enrolled Agent negotiates on your behalf they know the IRS and what will work in your best interest. There are a number of potential options in settling a tax debt and the Enrolled Agent is there to tell you what your options are. Think of it like this, if you were charged in a court of law for a major offense you would likely hire an attorney to represent you. Many consider the IRS to be the single most powerful law enforcement agency in the world and when dealing with them you need to be prepared with someone with the expertise to represent you. There are countless stories of taxpayers who made things worse by handling it themselves.

Back Social Security Pay

Three years ago I was injured on the job and after months of waiting I was finally awarded Social Security that is retroactive to the date of injury. I finally got a sizeable amount of money in the mail in April and dont know how I should file it. My wife thinks I should refile the last three years and add the amounts for each year to the other returns and I was told it was to be reported on my '08 as income. Are either of us right?

Although the income covers a period of 3 years or so the income was realized in '08 and is typically filed in the year it is recieved. However, you might elect to review the prior years and apply the income to those years and see if it benefits you to refile. If the savings is greater than the cost of refiling those returns you may elect to do so.

Currently Not Collectible

My employer just received a notice in the mail from the IRS that my wages are to be levied to cover tax I owed from 2002. This will break me! My wife was also working at that time and has since become a stay at home mother to take care of our twins who were born in 2004. I make more than I did at that time but our household income is much lower since she no longer works. I am the sole support of a family of 5 and I pay out almost everything I make to support my family. Is there anything I can do to stop them from taking my check?

This is not an unusual thing to have happen but it sounds like it can be resolved. As a taxpayer you do have rights and the IRS has to leave you enough money to live on. Obviously the IRS needs to know this information because it sounds as if 1 paycheck lost could present an extreme hardship on your family. The IRS will do a financial analysis to determine your ability to pay. They will figure all household income and compare it to all of the household bills. This analysis considers not only your payments on debt but your familys cost of living as well. If it is determined the ability to pay does not currently exist your tax liability can be regarded as Currently Not Collectible. This will give you temporary relief from the threat of a levy. However, you must act quickly because the IRS can levy up to 85% of your wages if you are W2'd and up to 100% if you receive a 1099 as a self employed contractor. This is in addition to a potential levy of any bank accounts you may have.

Penalty Abatment

My father was a silent partner in a fast food franchise with his brother. They were the only owners and had it classified as an "S" Corporation. My dad provided half of the money and owned half of the business but doesn't get involved in the day to day operations. His brother ran the business completely. The company had 6 employees but had to close. My dad and uncle sold the business and have been assessed a Civil Trust Fund Recovery Penalty in excess of $90,000. My dad doesn't have that kind of money and is afraid of losing his retirement, his home and his automobiles. What can he do, I thought he was protected by incorporating?

What has happened is the company failed to file Form 941's. They are the quarterly forms that are filed when the business pays payroll taxes. The IRS is very aggressive on these because it is regarded as theft. The company withheld money from the employee and did not pay it to the IRS as they are obligated to do. In this case the IRS will assess the Civil Trust Fund Recovery Penalty (CTFP) against anyone who was an officer of the company or had check writing authority. Although your father may have been completely innocent the IRS doesn't know this.

First of all the CTFP is not $90,000 per owner, it is $90,000 total whether there are 2 owners or 20. However, I believe your father has an excellent case for penalty abatement. As a silent partner, if he had no access to books, no check writing authority and was an owner in name only he may be able to eliminate his personal liability or get a reduction. The CTFP goes after the owners outside of the "S" Corporate veil because the owners could run up a tax bill, file bankruptcy and open another company and continue on doing this. This process is called pyramiding. This needs to be dealt with immediately because it is the highest level of IRS enforcement and they can not only place liens on his property, levy his wages and seize any other assets, he could face criminal prosecution if he is found to be responsible

Economic Stimulus

I haven't received my Economic Stimulus check yet. I owe $4200 to the IRS and we were supposed to get $1500 back. Are they going to keep this money or will I eventually get any of it?

I'm afraid the IRS will hang on to this money and any future tax refunds or stimulus checks until the balance is paid in full or the collection statute expires. Although I'm sure this is not what you wanted to hear, take heart in knowing over one third of your balance has now been paid and an Installment Agreement could get rid of this burden pretty quickly.

Collection Statute End Date

I filed my 2003 federal return on time and got a letter from the IRS saying I owe $14000. Can the IRS stay after me forever or until the entire amount is paid?

No. There is a Collection Statute End Date (CSED) of 10 years. From the time you file your return the IRS has up to 3 years to assess tax liability. The date the tax is assessed begins a 10 year period of time during which the IRS can collect from you. Once this 10 year statute has expired you cannot be held liable for the debt. This applies to liens as well, once the statute expires the lien is automatically released. However there are certain actions that can extend the CSED such as Bankruptcy, a Collection Due Process Hearing, a pending Offer in Compromise, military deferment for those out of the country and for taxpayers currently living outside of the US. In some negotiation the IRS will accept certain repayment terms if the taxpayer agrees to extend the statute. Also, since nonfiling can be regarded as a criminal offense there is no statute on an unfiled return.

Forgiveness of Debt

I recently recieved a 1099-C in the mail for Cancellation of Debt. I had a home that was foreclosed on in 2006 but that home was sold and I no longer own it. Why is the IRS trying to collect taxes on something I don't own?

The 1099-C you received for Cancellation of Debt is treated as income in the eyes of the IRS and should be reported as Other Income on Line 21 of your return. For example, if you owed $100,000 on the home and the foreclosure process yielded a sale price of $75,000, this amount is $25,000 short of satisfying the mortgage against the home. Since the lender is not paid the full amount that is owed they file the 1099-C treating the $25,000 shortfall as taxable income if they have been unable to collect any of the balance due. There is also a form 1099-A that is issued in the event of Abandoned Property where the owner simply vacates the property with no intention of redeeming it.

Substitute for Return

I own a small business and haven't filed my returns for the last 4 years and the IRS is sending me a bill stating I owe taxes during that period of time. How can this be and how do I fix it?

Likely what has happened is that the IRS has discovered you had income that was unreported and they filed a return on your behalf. This is called a Substitute for Return(SFR) and probably includes penalties for failing to file on time. When a SFR is filed it is done so in the best interest of the US Treasury filing as Single with standard deductions. If a SFR is filed and there is liability the IRS will assess the balance and pursue collection. If a refund is due the IRS will leave it as unfiled. The unfiled returns can be filed and the SFR corrected which may reduce your tax liability. However it is unlikely any penalties will be reduced or eliminated unless you can provide reasonable cause for failing to file such as a hardship or unusual circumstance beyond your control.

"Pennies on the Dollar"

So often I am asked by clients if their tax liability can be settled for 'pennies on the dollar'. They tell me they have been told the IRS will accept most any reasonable offer if the tax payer is ready to pay. I have told them the IRS will accept 'pennies on the dollar' if thats all you have the ability to pay and are likely to pay before the end of the statute for collections. To be more specific, if a person owes $50,ooo in taxes, interest and penalities and lives in a home with plenty of equity, has a good income and plenty of assets and has the ability to pay the full amount, that is exactly what the IRS will try to collect. The Offer in Compromise is designed for those who do not have the ability to pay the amount in full within the statute period