Posted on 02/17/2010 5:52:42 PM PST by Bean Counter
My wife and I have had a small accounting business since we met, and even though we formally closed the company 2 years ago, we have a couple of private clients that we continue to do monthly bookkeeping and tax preparation work for. 2 of our clients on 2 different coasts have come under almost identical scrutiny from the IRS of late and it is troubling to say the least. Allow me to explain.
Client 1 is in Portland, OR and had been incorporated and operating at the same location for over 30 years. He is a one man artisan craftsman with a small shop in a local business mall.
Client 2 is a Christian Minister and Family Counselor in Charlotte, NC. He is also a one man operation and has been incorporated and operating in the same location for decades.
We have been preparing payroll tax reports for these 2 businesses for decades. We maintain their books in Quickbooks, and use the program software to prepare IRS spec Forms 940 and 941, and all other associated payroll tax reports. In order to do that, we have maintained an active and up to date payroll subscription on Quickbooks, because you cannot use the payroll feature at all if you do not. All of their payroll tax reports are disgustingly simple, as they are for one person only. Client number one used to have an employee part time, but when the landlord jacked his rent, he laid her off, so now it is just him.
Both of these gentlemen have been visited recently by a "collection agent" for the local IRS office. My wife has personally spoken to both of them and verified their identities, so that is NOT an issue.
These two agents, in two different offices are requesting multiple copies of payroll tax reports that they "do not have a copy of". They want multiple copies of 940's in multiple quarters in multiple years, along with the 941 for that year, and a copy of every corporate tax return (Form 1120) for the last five years, all with original signatures, of course.
My wife was explaining the latest incident to me this evening (client number 2) and I blew a gasket. There is no formal notice whatsoever to either client. They are current with all of their tax filings and tax payments. We were required to enroll them in EFTPS quite some time ago, so all of their payments are made on time and remitted immediately to the IRS and the State. They have extensive electronic records covering all of the EFTPS transactions and the associated reports, and original paper records with original ink signatures for everything that pre-dates EFTPS.
We have had no notice whatsoever that questions any of the work we have done for either client, so we don't think this is some investigation of us, either. In any case, we have done nothing that warrants investigation.
It is tempting to tell these people to go pound sand, but if we piss them off, they will take it out on a client. The minister in North Carolina is not the guy to go do battle with the IRS; that is what he hires us for, but dammit! I HATE that we have to charge him for the time and material it is going to take to assemble all of this data, send it to him for original signatures, and then just give it all to some collection agent for the IRS for no good reason.
ALL of these forms were filed on time, with the respective agencies that needed them.
ALL tax payments have been made and accounted for.
ALL tax returns have been accepted and NONE are under audit that any of us are aware of.
And, if we don't send ALL of them to this babe at the IRS she will hound this poor minister to his grave for no reason whatsoever.
It does seem odd for both your clients (in different regions) to be going through this at the exact same time. I’m not much of a believer in coincidences. If just a coincidence, I’d say they’re looking for employees categorized as something else/under the table. Otherwise, I’d guess they are investigating you.
>> Yes, they do.
Yeah, I see I spoke too soon.
Man, I’m sorry to hear about the crap you’re going through. The IRS is cold, evil, AND incompetent — and that’s a lousy combination to have to deal with.
FRegards, and best wishes to someday getting them off your back.
Looks like IRS has been taking JBT training from BATFE chief counsels office.
>> by using the advocate
Can you please briefly enlighten me as to what you mean by “the advocate”? Thanks.
I’m not familiar with any IRS policies of cutting interest and penalty in half. My scam meter would be in red zone on this one.
We’d like appeals, but first you have to go through a judgment, and that was cut short - literally the day before it was to start - because the IRS (knowing they were in the wrong) declared me as uncollectable and dropped the judgment process.
The advocate just tries to wash their hands... “You’re no longer being collected against, we’re not taking action, just let it slide”. I guess my inconvenience and money doesn’t matter because they’ve decided to no longer punish me.
I always thought we were innocent until proven guilty; however, with the IRS it’s patently clear that does NOT hold. You will be subject to liens and levies and those wonderful calls to your pastor, family, employees, and suppliers asking about your tax status without proof - just on their belief. Not answering questions is construed as trying to hide something.
It wouldn’t surprise me if they try that! A friend of mine got stung here in WA State by the State Department of Revenue. The reclassified his B&O classification, increasing his tax liability over the last 5 years by $40,000.
Note that originally the DOR told him to classify as a manufacturer (0.454% tax rate), and did so in writing. No, 5 years later (the statute of limitations - how convenient!) they audit and determined he should have been an engineering services provider (he designed, built, and sold his own product) since “that is where the value was added” and coincidentally his tax rate was now 1.5% and he was liable for the back taxes.
The revenue agent offered him a 50% off deal - in writing - if he agreed to the balance. Knowing it would cost more than $20,000 to fight, he agreed and paid.
Forty five days later the State hit him for the remaining $20,000 and another month of interest. Their reasoning? The revenue agent did not have the authority to make the offer in the first place, and thus the agreement was null and void.
Oh, but since he signed the agreement, he admitted his error so he lost his legal recourse to fight the change in status and now must pay it all.
He’s still in court over that one...
I don’t trust ANY revenue officers - Federal, State, local. They will all use any and all means (including illegal actions, lying, fraud, fabrication) to get your money. Because they only move up if they collect - there is no penalty for not collecting or harassing taxpayers, just a slower ascent up the hill of Government.
The uncollectable was probably the result of the advocate involvement.
You had a number of issues that were appealable without a process, and it is still possible to get there by a request.
In anycase, there is still an option to use an offer in compromise to remove the debt or have it reduced to your ability to pay which would then remove liens.
I would bet on a fishing expedition to see if they can find the tiniest discrepancy between the originally filed forms and the new copies.
Spending the extra refunds was probably foolish. They can come back any time and charge him with theft of government funds. Actually he can be so charged just because the IRS mailed him the checks, regardless of what he did or didn’t do with them.
I was thinking more along the lines of identity theft. Yes, I witness a huge difference between clients dealing with auditors by themselves or with representation and without representation they often get abused.
My most recent case was a single grandmother raising her grandson on a budget that was hundreds short each month and she owed taxes from 9 years ago. The agent threaten her and made demands for immediate information or he would garnish her pay. I took over, had them forbear for 1 month and resolved it by getting them to realize she was uncollectible. The notes the agent made regarding his threats to the taxpayer was like reading Clinton testimony.
Thanks, Ray.
That’s what I get told by the IRS, too! However here’s the issue:
THERE ISN’T ANY DEBT DUE.
They claimed that I had 8 companies, and only reported income on one company. They assumed that the other 7 had the same level of income, and thus the same taxes due.
Of course, I only ever created one company, they screwed up and continued - for 7 years - to assign new EINs to me, requiring new tax returns, etc. without ever notifying me, my CPA, or my lawyer about these EINs or formations.
So I’m exactly where I am - I can sit, uncollectable with liens forever, sue the IRS at the cost of a few hundred thousand dollars, or go ahead, admit that I owe a debt that does not exist on companies that never existed, and be out another hundred thousand.
Basically, I have to prove my innocence; my lawyer has repeatedly asked for the incorporation paperwork with my signature for these other EINs; to date, they have never supplied it because it simply does not exist. It would be the first thing we’d ask for if we went to trial, but it will cost me way too much to get to that point.
So right now, I’m stuck. I can admit my “guilt” that doesn’t exist and probably get out the cheapest way possible, but that’s just not an option.
Oh, and for others here, my Democrat Senators (Patty Murray and Maria Cantwell) and my Democrat Representative (Jay Inslee) all ignored my requests for assistance because I’m on the public record as a big supporter of the GOP. They won’t say it, but all I get back is “please contact the advocate, they’ll help you!” type letters...
I do get Patty Murray’s monthly health care issue letter, however!
its a tried and true tactic they use.
"You owe us a 1 million in back taxes and penalties but we will settle for 50% right now."
Sounds like a deal eh...
They been doing it for years!
Interesting thought about identity theft... It may have been, but every other EIN (the 7 fictitious ones) had my corporate name correct. You’d think that alone would flag a “we’ve got a records problem” issue but apparently not!
I’m also glad that - since the very first meeting with my Revenue Officer - I have had my CPA, lawyer, or both present. The two times neither could make it, I set up a video camera and recorded the meeting. The IRS RO really did NOT like that! But I’ll be damned if it’s ever going to be “he said/she said”. There WILL be a witness (CPA or lawyer) or a recording to prove what happened/what was said.
Folks, find a GOOD CPA or lawyer and make sure they are always present!
I'm not sure that the agency insisting he take the money would not be seen as entrapment if it ever came to a trial.
Based on your description of events I would either use the offer process or file a suit for refund depending on the facts, See type 2 below: (Your lawyer is trying logic to resolve and that is a lost cause and a waste of your fees. You have to have find a process that speaks in their language). The offer process would probably be the least expensive.
http://www.irs.gov/businesses/small/article/0,,id=104593,00.html
Three Types of OICs
The IRS may accept an offer in compromise based on three grounds:
1. Doubt as to Collectibility - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.
Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.
2. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.
Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.
3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.
Not at the agent level. Perhaps after its assessed. I have had an assessment reduced to a small fraction of the amount because the state needed cash but never at the audit level unless we were talking about deductions or income, never taxes or penalties or interest.
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