Posted on 04/18/2014 6:39:07 PM PDT by elahtap
Best advice in the thread....
“I have been where you are at - paralyzed by fear that my return wouldn’t be perfect.”
“The thing I have learned is that tax returns aren’t as perfect as e would like them to be. Just organize your records the best you can, and start working on the return for the earliest year. Write down notes of what you do and decisions you make. Make a decision and move on...there is no way your return will be perfect....just do the best you can and file.”
Excellent psychological advice..... Most conservatives are really good people who care and want to follow the rules. They really beat themselves up when they think they may have broken the rules.... The fear is turned internally and used as a self torture tool. Know that all will be ok and that prayer does help.
I’ve worked with hundreds of situations similar to yours and worse. There is always a solution and when you address it proactively rather than adversarially, it usually goes better.
Although now retired, I worked as a liaison for all the CPA’s in our state as a member of the CPA Association Federal Tax Committee working with the IRS to resolve problems. At one of our meetings with the IRS, a senior regional IRS manager said to us, “We need your help as occasionally some of our agents wonder off the farm and we need your help to reel them back in.”
These agents are human beings and usually will work with people who are trying to solve a problem. They will bend over backwards to help you find the best solution within the law. My experience is that they are so used to being in an adversarial relationship that you should only show your cards to a CPA or enrolled agent as your advocate.
Don’t let shame shackle you.
“So we have not even filed for 2011, 2012, and now, 2013”
The big problem is not the income tax returns as you most likely have business losses to generate refunds. There usually will be no penalties on these returns. The biggest problem is your payroll tax returns. Quantify your problem by gathering the information together. It may not be as bad as you perceive.
If you have been notified, get a tax attorney ASAP.
One last comment. If you do not have the money to pay your payroll taxes, your CPA can get the IRS to take the money directly from your retirement account. If the IRS takes it out rather than you, it should be exempt from the 10% early withdrawal penalty. All situations are different and you need your CPA to evaluate the facts and circumstances of your situation in order to get the best advice. I can only speak in generalities and can not give professional advice specific to your situation in a forum such as this.
First, figure out what you did wrong. Too many people skip this part because it “hurts” but it rears its ugly head again and again.
You gave a business to a bi-polar person and expected it to be run as if they weren’t bi-polar.
You didn’t file taxes because you didn’t want to file taxes. Filing taxes involved doing work, paying money, going to your “feel bad” place and you didn’t want to do that. No other excuse.
If you took IRA withdrawals, you may owe taxes and penalties if you haven’t already paid them.
You know what you need to do so the request is simply a continuation of the stalling.
My wife works for a CPA and I have an accounting degree. Your scenario is VERY common. My wife hears this same story about once a month. The solution is to simply start filling in the data and getting it to a CPA. This is going to cost money. The best thing to do is to put you and your wife into a second job and start piling up money. That may mean delivering pizzas or waiting tables or using a cash register at Target but you are going to need the money. The IRS is very understanding as long as you admit what happened (see above). They just want their money. If you can feed them money early, they are less likely to garnish. They usually only garnish if they think they won’t get paid.
Unless you are retired, don’t take out any more IRA money.
What you want to avoid is the old “I don’t know what happened” excuse . That’s a red flag to the IRS. You don’t want to make excuses, just have a simple explanation. You want to show them they you want this cleaned up as quickly as possible.
Forgot to mention.... If the business was in her name alone, usually only she is liable for the payroll taxes, not you. In many states, jointly held real estate is also protected from seizure. This is important as they cannot take your retirement, or any bank accounts that are NOT held jointly. Quantify the liability as it is usually manageable, but fear of not knowing makes mole hills into mountains.
If it is her liability alone and she has the illness, it usually helps in negotiating away the liability. If the business is incorporated and you are an owner or officer, your fiduciary responsibility for the payroll taxes may prevent your exclusion from the liability.
Free advice in a matter like this is worth exactly what you paid for it. See a tax attorney asap. Get council. They will understand what laws apply. There may be legal protection under the law that will spare you a great deal of misery. Do not delay another minute, your very freedom is at stake. Better to reach out and establish a functional rapport than wait for a knock at the door. Good luck...
“See a tax attorney asap.”
Isn’t that free advice? (and not necessarily good advice as my experience in working with many many tax attorneys over 35 years of handling IRS audits and fed tax court cases is that the attorneys are good at the big picture but do not have the time and would be wasting your money to handle the details. It would be like using a deer rifle to shoot a rabbit... most likely is overkill unless it is a very big rabbit or that is the only gun available. People waste a lot of money out of emotional fear that the problem might be bigger than it actually is. Quantify the problem first!)
This is why the IRS has brought so many actions, including criminal actions against the folks advertising to handle your tax debt if it is over $10,000. They were just ripping off people who were down and out. You may notice that the old tax help advertisers are no longer in business.
Just keeping people on their guard, considering what’s out there for us - especially when it comes to the IRS.
Just to chime in at the end of a long thread.
Which state do you live?
Was the business incorporated or is it in your wife’s name?
It is after April 15, which is the final date that TY 2010 returns can be filed and expect a return.
Did you have employees that were not family members? That changes lots of potential issues.
I am a tax professional, but you better listen to BAW and tired&retired ASAP.
Those are the guys that I call when I have a tax question.
The good news - it probably is not as bad as you think.
Start FReepmailing BAW and tired&retired so your blood pressure drops.
Thx....I wondered
There is one employee who is not a family member, but payroll taxes are current and are not an issue.
As I look back over this thread, I am moved to express my sincere thanks to everyone here who has taken the time to respond with so many sage suggestions. After reading the many posts that had piled up overnight, I already feel like my head is on straighter.
Simply stated, you guys and gals are the best.
Oh, and the business is 50-50 owned by both. The state is Alabama.
http://www.irs.gov/uac/Failure-to-File-or-Pay-Penalties:-Eight-Facts
The IRS and the state will eventually figure out that you haven’t filed personal and or business returns and they will send you a notice. If you don’t respond they will keep notifying you by mail and eventually via certified mail. Once you do file, you will need to set up a payment plan as soon as possible in order to avoid a levy against your wages and or bank account and tangible assets like your home. You need to do everything you can to avoid that. You may not want your employer to know your wages are being levied and levies against your home and other tangible assets are I believe are a matter of public record.
You don’t say what type of business this is, the structure of the business, if it is an LLC, Sole Proprietorship, S Corporation, Incorporated, etc. or whether you had sales subject to sales tax, or if you had any employees (it doesn’t sound like you did, I hope not as that is another problem, but if you did and didn’t file 941’s and W-2’s the IRS would have caught up with you before now) but if you did, you will need to clean those up as well. The legal structure of the business will determine if the profits and losses are filed on your personal tax returns or on a separate business tax return.
I know it is overwhelming especially since it sounds like your wife didn’t keep good records, but you need to get what you have and get it organized. Start with the business checkbook. If you didn’t use any accounting software, something like QuickBooks, put all the receipts (business income) and expenses into a simple spreadsheet by year. You may be able to find Excel spreadsheet templates on line for free.
Also go through your personal checkbook and credit card statements and identify any legitimate business expenses paid via those. Start by just putting whatever receipts and records you have in piles by year, then organizing them by categories of expenses as best you can. Also make sure you include your IRA early withdrawals, you should have received a statement from them and will be able to determine if they withheld taxes and an early withdrawal penalty from the net payment. Some expense will be deductible, some will not or some only partially but you need to identify them all and take whatever deductions you are legitimately entitled to take. If the business had legitimate losses, then that may mean you won’t have tax liabilities but you will still be subject to failure to file penalties. But also keep in mind that the IRS expects the business to be an actual business and not a “hobby” business. You may need to prove that there was an attempt to operate the business as a business and not an enterprise to fund a personal hobby, not operated in order to incur a loss on purpose in order to create deductions. In this case, your wife’s bi-polar condition may be a mitigating circumstance that might help in negotiating a payment plan.
Once you have done that, having organized everything to the best of your ability, unless you are comfortable completing and filing those returns, find a CPA to complete and file your returns. Yes it will cost you money but it will cost you more if you just take a shopping bag full of papers and let him or her sort it all out for you. If you belong to a professional org, a civic org, a church, or a local small business org. etc. consider looking there for a CPA who might be willing to give you a break on their fees. IMO, you don’t need a tax attorney at this point; that is overkill and IMO not necessary unless you’ve been charged with criminal tax evasion, you just need help getting those taxes filed. That is the first step. Get those returns completed properly and completely and get them filed as soon as possible even if you can’t pay any taxes and penalties owed at this time.
Once you file the back returns, if you are not able to pay the taxes and penalties and interest owed in full when you file, the IRS and the state will notify you for failure to pay. It is at this point that you will need to negotiate a payment plan or an offer in compromise. If you are not comfortable doing that yourself and want the CPA to do it for you, you will need to sign a limited power of attorney, else the IRS and state taxing agencies will not speak with him or her on your behalf. But word to the wise, you don’t want to hire just any CPA, you don’t want to hire an inexperienced or part time guy who prepares tax returns as a hobby. Even if you hire a CPA, you will still have to sign the returns you are still responsible for the accuracy of the return so make sure you understand what the CPA is doing and filing on your behalf. And stay away from those firms that advertize on radio and TV that promise to help you with your back taxes. What they are in effect are loan companies, they will pay your taxes but then will charge you exorbitant interest fees, much more than what the IRS will charge. Also be aware that paying your taxes via a credit card, assuming that you have enough of a credit line may also end up costing you more in interest.
I got into a bad situation a few years back. In the last quarter of 2008 and ending the first quarter of 2009 I had taken a position with a company where my former boss was working but I was hired as a 1099 consultant. At the time I was making very good money and had put aside money for the taxes, planned on filing and paying estimated quarterly taxes. But then the contract was suddenly terminated and I had zero income coming in, and being a 1099 contractor, was not eligible for unemployment. Over the course of the next year while looking for a job but not finding anyone to hire me, I used all that I had saved up to make my mortgage and utility payments, car payment and insurance and basic groceries (mostly mac and cheese and ramen noodles). But I made the mistake of not filing my 2008 and 2009 tax returns until late in 2010 because I knew I didn’t have the money to pay the self employment taxes and when I did finally file, I didn’t have the money to pay the taxes in full. I was also going through a deep depression exasperated by being hounded daily by creditors and jeopardy of having my house foreclosed on.
Once I did file in late 2010, I got a notice from the IRS threatening to levy my wages as I was by that time back to work. I took my tax return and proof of my current income at the time, which wasn’t near as much as I had been making, my current expenses like rent, proof of my bankruptcy which I had just recently filed, and I went to the local IRS office in person. I was BTW able to pay the state the taxes and penalties due when I filed so I avoided that hassle.
Much to my surprise the IRS agent who worked with me was very nice and very understanding. She worked with me to come up with a payment plan that I could afford; $130 per month. And I continue making those payments faithfully and on time every month and often now pay more than the minimum due. Even with interest still accumulating I am at the point where I have reduced the original balance of $6k to less than $1k and plan to have that paid off in full by the Fall. I am looking into negotiating paying off the principal balance early and asking the IRS to wave the remaining penalties since I’ve had such a good repayment record.
Good luck with it and keep us updated with your progress.
“you WILL be hit with failure to file penalties”
My experience is that the IRS does not asses the failure to file penalty that is on the books for individuals as long as there is a refund due the taxpayer. While the is a $100 penalty on the books if the return is over 60 days past the due date including extensions even when a refund is due, I have only seen them assess a penalty when there is a balance due.
In your situation, I strongly recommend that you total all the bank deposits and disbursements on your bank statements and reconcile these totals for the year to your income and expenses. This is what the IRS will do in an audit so you can head them off by protecting yourself with accuracy prior to filing the return. They will total all bank deposits and say that they are taxable income unless you can prove otherwise. (It’s called a cash proof and if you do a Google search there are templates to help you.)
When there is a balance due there are late filing and late paying penalties and if the amount due is a big one, they hit you with another 20% penalty. My experience is that even in IRS audits, if you had a good reason they will abate the penalties. If they don’t, don’t get mad or argue, just petition it to tax court where they really want to settle the case they are so over loaded.
The IRS is now so short staffed and overwhelmed with the amount of work they are doing as a result of all the legislative burden placed upon them with Obamacare that they are in chaos. The acting director stated at the AICPA Tax Conference in DC this past fall that “The IRS is in crisis mode.”
“the business is 50-50 owned by both”
Business should generally not be owned by both parties for liability protection. Same is true of autos. Real estate should be owned by both parties to protect it in case of bankruptcy or other liability. (Except in the case of divorce planning where it is often better to have it in a separate corp business name for ease in transferring deeds.)
LLC’s are easy to set up and do not create a separate tax entity if they are one owner. They don’t even get a separate tax ID # unless you are a partnership or have employees. They still give the liability protections. They are legal entities for liability protection but not for tax purposes. They are great. The only additional work depends upon your state’s corporation tax laws as sometimes they have capital stock and other returns that are required. See a tax professional in your state.
“The IRS is now so short staffed and overwhelmed with the amount of work “
My wife told me that same thing. They see the IRS about 3 times a month over delinquent accounts and they are stretched.
One thing they will need to check is how much “co-mingling” went on with the business and personal. That is really messy and pretty common.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.