Additional Tax Assessed but Penalty Abated

I had a gentlemen come to me recently with a letter called a CP2000. These letters indicate a taxpayer owes a tax because of a difference in the calculation on the return versus what the IRS has on record for the tax year. Most of the time the additional tax is in direct relation to cancellation of debt, a 1099 that was never received, interest paid by a bank, early withdrawal tax and penalty on a retirement distribution not originally included on the return but reported to the IRS. I think you get my point.

We read through the letter, compared it to his tax return and the increase in tax was correct. He was going to owe an additional $10,000 for the tax year. A year in which he owed nothing. The additional penalty was $2,000. I asked the gentlemen if he owed taxes previously, he indicated he has never owed in his life.

I gave him instructions to pay the tax in full, which he could do, so he cut a check for $10,000 (rounded up for simplicity) and we sent it in to the IRS prior to the expiration on the letter for assessment of the additional tax (very important to pay by the deadline date on the letter in order to save additional interest accruals). We also asked the IRS to abate the penalty under the first time abatement criteria whereby a taxpayer qualifies if they have never owed previously. After a few follow up phone calls, the IRS agreed to abate the penalty in full and he simply had to pay the remaining interest (we asked for the interest to be abated, doesn't hurt to try, but it was the interest calculated since the original tax return would have been due, along with the original payment date of April 15th, 2009. Interest in relation to the tax cannot be abated).

Our client was very happy with the outcome and it all was resolved in approximately 90 days or so.

So check twice when you receive a CP2000 or additional tax assessment letter, it may be to your benefit to do a little homework!

Unemployed? Currently Non - Collectible May Be Right For You!

Are you currently unemployed. Did your business shut down because of the taxing authorities or other creditors? Are you left with nothing but a large trust fund tax bill? If so, think currently non-collectible.

Our client was shut down by the utility company for unpaid electric bills and he could not afford to continue to keep his business in operations. However, he was left with a tax bill of $37,000. He is a relatively young guy and wanted some time to think, get back on his feet, and get a job prior to seeking a resolution of his tax debt. The best strategy for him at this time is currently non-collectible. We sent in the financial statement form to the IRS (Form 433-F) and included copies of bills, unpaid bills, late bills and shut off notices. Clearly the client was barely making it. Therefore we asked the IRS to put the case into non-collectible.

The IRS granted our request and the client will not be responsible for paying on his tax bill for a period of at least 1 year. Sometimes our client's simply need time to figure out what will work best for them. In this case, CNC was the perfect strategy and when our client begins working again, we will investigate other strategies for him to pursue.

Saved From Siezure!

The client contacted us and hired us the same day of a deadline for a $15,000 down payment due to the State of North Carolina. They also needed to sign an agreement for $6000.00 per month to commit to a 3 month payment agreement. For obvious reasons this was not doable.

First and foremost the client did not have the $15,000 that day. Secondly, if they did pay the money down, and stuck with the payment agreement they would have continued to fall behind with their current tax deposits and possibly gone out of business. It was time to get to work!

We contacted the State Revenue Officer immediately upon filing of the Power of Attorney form. This was done at 1:30 - 2:00 our time, thus filed by 3:30 to 4:00 Eastern Time. Talk about the 11th hour! After speaking with the Revenue Office who worked the case, he indicated there was no room for negotiation and they would be shutting the business down by way of seizure of the assets and inventory. This process involves the State going to the business location, posting notice that they are going to be taking over the place, and in the ensuing months taking the assets and inventory to auction for sale. In other words, if we did not act quickly, we were not going to have a client for very long.

I asked for the manager's fax number, phone number, and called him and left a message. I also sent a fax with our intentions. We would have the client file and pay the last two months deposits for sales and use tax (totaling $13,000) in the next 5 business days, which after contacting the client, they could do. Secondly, we would structure an agreement whereby the client would remain current and compliant along with pay $2,500 per month for 4 months, with an increase to $4,000 per month until the liability was paid in full. We also cleared this proposal with the client prior to sending it out the door.

After a few phone calls with the Group Manager we were able to negotiate a favorable resolution for our client, keep the client in business, keep multiple people employed, and assist the State of North Carolina with the repayment of the tax liability. All in all this process took 21 days (6/1/10 - 6/21/10) from start to finish!

IRS Error Corrected Results in $9,000 abatement

Today I found an IRS error that helped save a client $9,000. The taxpayer filed his 2008 941 for the 4th Quarter and according to our records he had a zero balance due. Our records retrieved from the Internal Revenue Service also showed the taxpayer had a balance due in the amount of $9,000 for a different quarter, the 1st Quarter of 2009. When we confronted the client with this issue he claimed he didn't have any employees during the 1st Quarter of 2009. We needed to dig deeper.

I asked his CPA for her records. She didn't have any record of filing the 941 for the 1st Quarter of 2009. So I then asked for a copy of the 4th Quarter return for 2008. She gave me not only the return but a 941C which is a corrected version of the same return. They had found some errors and needed to make adjustments. Oddly enough the 4th Quarter tax due was the same amount reported on the 1st Quarter of 2009 IRS transcript record. In the tax world, this rarely ever happens. Therefore, we needed to contact the IRS immediately to see if they posted the return incorrectly.

When I called the IRS today, I was on hold with the representative for over an hour (at $175.00 per hour that is quite the job). After working with him, he picked up on the same error. Apparently, the IRS had incorrectly posted the 4th Quarter return to the 1st Quarter of 2009, without crediting the payments (Federal Tax Deposits) and therefore showed a balance due of $9,000. We asked what the next steps were and he said, "nothing, we will send a notice in 4 weeks informing you of the adjustment, you will not need to do anything further on your end". When we informed our client he was very happy. His debt went from $23,000 down to $14,000!

We will keep you posted as the progress of this file moves forward. We are getting ready to execute a shutdown strategy that could save the taxpayer another $12,000!

$300,000 owed, $5,000 paid!

Mr. Brewer came to me in 2006 with more problems than you can imagine. His business was falling apart, his younger sister had embezzled money, and his business owed the IRS well over $1,000,000 in employment tax debt.

We had a lot of work to do before we could simply file and Offer to settle the debt for less than what was owed. We had to file multiple returns that were delinquent, shut down the business, make sure all debts that could be assessed against Mr. Brewer were in fact already assessed, and make sure the IRS stayed off of his back.

Further, we tried a few different paths prior to settling the debt under Doubt as to Liability. At first, we simply structured an installment agreement. Our client paid on this installment agreement for a little over a year. We then filed for abatement of the penalty, the debt was all Civil Penalty assessed to him personally. The penalty abatement was rejected and we lost in appeals as well. The IRS did not have any real concrete data other than the fact Mr. Brewer was an officer of the corporation and was responsible for the debts that faced him.

Back to the drawing board. . .

After much debate and thought, we decided to file for Doubt as to Liability. Doubt as to Liability means exactly what it says, knowing a liability exists, having the assets to pay the liability, but factually doubting the liability should have been assessed in the first place. We filed the Offer for $5,000 and some change, which equaled one period of liability for Mr. Brewer. Our offer was first rejected, indicating the IRS did not have enough factual data disproving the fact that Mr. Brewer should not have been assessed. We appealed this decision immediately.

After dealing with appeals for awhile, we ordered a new document. A document we had not had in the past but felt it would be helpful. We submitted an FOIA request. The Freedom of Information Act Request translates to information the IRS has but the client does not, nor does the practitioner. This was our key to success, the icing on the cake and. . . well you understand what I am getting at. After much debate, the IRS saw that Mr. Brewer's sister did in fact hide all IRS findings from Mr. Brewer, including visits by IRS personnel, IRS correspondence, and deadlines set forth. The client never signed a payroll check, a payroll tax return, or any other check of substantiative value. We received the acceptance letter a little over two months ago, the client paid the offer and the tax liens were released a few weeks back.

We can say proudly that our client was found innocent in a world where one is guilty at first glance.

$41,000 Civil Penalty Reduced to Zero!

This was a different case and something that I had not come across in a long time. When the IRS notices that a business has not filed, filed timely, or filed in error all the wage statements (Form W-2 and W-3) for a particular tax year they assess a penalty. Usually the penalty is $100 per form, or it can be as high as 10% of the gross figure on the actual wage statement. In this case, the penalty was $41,000. The other downfall to the IRS systematic assessments is they do not notify a business taxpayer until 4 years later. They are very far behind with catching up with one another and trying to get two government agencies on the same page is like trying to balance a two golf balls on top of one another.

Our client has been with us for sometime and we have actually already negotiated an installment agreement on the 941 and 940 balance dues. However, the Civil Penalty assessment against the business put this agreement at risk. We immediately filed for abatement of the Civil Penalty and sent it to the appropriate office (we also filed for a collection due process appeal on the lien). It took about 3 months to hear back but when we finally did the IRS agreed to abate all of the penalty!! It will take approximately 30 - 60 days for a release of tax lien, but their debt size has been cut by 25%! The reasons for filing for abatement is the fact they had arson take place (2 fires at the business location) that caused them to lose a lot of paperwork to fire damage. Our claim was in direct relation to the damage created and the fact the business had to recreate these same documents in order to file them with the Social Security Administration. P.S. The IRS administers the penalty for late filing and the Social Security Administration keeps the forms on file.

We still have another abatement request in for this particular (in relation to the 940 and 941 tax debts) taxpayer and hope to see similar results!

Offer Settled for 5% Of The Liability!

The client came to us last fall with a balance due of $20,000 in personal taxes owed to the IRS. The client had experienced job loss and had to cash out his 401k in order to pay bills and survive on a day to day basis. As you may not be aware, if one cashes in a 401k prior to the necessary retirement age, one can expect to owe a tax and a 10% early withdrawal penalty. This was the case with our client and therefore he came to us here at Larson Financial, Inc. to seek assistance with his outstanding tax debts.

At first glance it appeared the client had a decent job and might be able to afford a $333.00 payment to the IRS on a monthly basis. ($333.00 would be the payment based on a streamlined agreement for the debt to be paid in under 60 months). After further financial review, we concluded with the taxpayer that he could not afford such a payment. We decided to look at his financial portrait again and see if he might qualify for an Offer In Compromise.

After reviewing his financial statement (Form 433-A), all the taxpayer had available to him was a small brokerage account in his name. It had approximately $1,100 in the account. When calculating an Offer In Compromise one must offer the net equity in assets and available income. He spent well below under the national standards for food, clothing, and miscellaneous as well as housing and utilities, transportation, and health care expenses. His income was not that high either. Therefore, we felt he qualified based on his personal financial data. We decided to file for an Offer In Compromise. After waiting for 3 or 4 months, and providing an additional update as to the value of the brokerage account, the Internal Revenue Service accepted our Offer in the amount of $1,100! The taxpayer was more than appreciative and agreed to be a reference for us at Larson Financial, Inc!!

We are pleased to assist with the resolution of another satisfied customer.