Discussion:IRS Trouble
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| 11 January 2008 | |
| Hello, I have been asked to help out a client's parents who has not filed in many years. It seems that they completely ignored filing from 1995 to 2001, then actually had returns prepared for 2001-2003 (but did not file because they owed $ 6k each year), then were audited for 2004 (which they never filed). They spoke to the IRS and were told to file 2001 thru 2006 by January 20th, and to pay the audit finding of $ 25k by next week. I am a CPA but I only prep taxes part time and have not really worked on offers in compromise. I told them that they would be better served going with a full time CPA or Tax Attorney, but they want me to help them.
Here are my questions: If they own the house with no mortgage, and it's worth abotu $ 500k, an I correct that the IRS probably would not consider an offer in compromise for the $ 50k or so they will end up owing? Also, any advice on how I should handle this situation, other than running from the client (because I'm close with their children) | |
| 11 January 2008 | |
| I am no expert in this area, but I would doubt an OIC is in the cards.
Send them to a tax attorney or a CPA who has a bit more experience in these matters. Run, don't walk, to the nearest exit. Tom | |
| 11 January 2008 | |
| One of the first questions in an offer is: Can you borrow the money to pay. If so, do it. If the equity in the home is more that the tax bill, they will probably have to borrow the money and pay the taxes. | |
| 11 January 2008 | |
| Why don't they just borrow the money against their house and simply pay the IRS? | |
| 11 January 2008 | |
| There is no need to pay the 2004 audit amount if they will only owe about $6,000. You can get the time to file the actual returns. An offer is certainly not likely - read, not a chance. | |
| 11 January 2008 | |
| They probably weren't actually audited if they haven't filed 2004; what most likely happened was that the IRS did a SFR from the wage and income reported to them. The SFR is prepared with all income but no expenses. If they file a 2004, it is likely the amount due will go down, but they have to file or the IRS will levy. Even if they qualified income and asset wise for an OIC, they couldn't get one until ALL outstanding returns are filed, and estimated payments are made for the upcoming years. | |
| January 11, 2008 | |
| IRS will undoubtedly want 1995 thru 2000 too at some point. I agree they will most likely not be a candidate for an OIC. Step one will be to prepare all delinquent returns (including 2004). I don't see any reason to run from client as long as they pay you a retainer up front....unless you don't feel qualified to prepare their 1040s. On the other hand, you've got to wonder why they didn't file and how they have a $.5MM house that's paid for. | |
| 11 January 2008 | |
| An SFR is technically an audit and while this taxpayer clearly is not eligible for an OIC an original return to replace an SFR does NOT have to be filed to make one eligible for an OIC. For Offer purposes an SFR equals a filed return (for bankruptcy purposes an SFR is NOT considered to be a filed return). | |
| 11 January 2008 | |
| Wouldn't they have to sign the SRF to have it qualify for offer purposes? | |
| 11 January 2008 | |
| MSM, you seem to have forgotten that Enrolled Agents specialize in taxes and may be much more cost effective than an attorney. | |
| 11 January 2008 | |
| T/p cannot sign an SFR, but can file a 1040 per normal in response. Or agree to the audit report, which is laid on top the "zero" SFR as either an agreed assessment or defaulted stat notice. The SFR itself is blank, except for name/address/TIN. | |
| 11 January 2008 | |
| Anyway, I agree with most of the above: file the returns that the IRS is requesting and then make payment arrangements on the balances due. Probably has too much equity for an OIC based on doubt as to collectibility. There are other OICs though, but this taxpayer may not qualify for those either. | |
| 11 January 2008 | |
| Caution the clients about the deluge of solicitations they're likely to receive from firms who will offer to intercede with the IRS to make those problems go away. I was contacted by one potential client with major payroll and tax liabilities (more than $200K worth) who is struggling with these issues with the IRS. She said she was receiving as many as 6 letters a day from legal and accounting firms which had found out about the tax liabilities from some source (I assume a lien search). I didn't know there was such a big feeding frenzy over stuff like this, but I guess so. She took the bait. At this point, she's paid the attorney $11,000 with absolutely nothing to show for it except more penalties and interest. My point is that your clients should be extremely wary of lawyers bearing OICs. People in that situation are vulnerable, desperate, and will grasp at straws. Advise that they research thoroughly any company that they pay a fee to intercede with the IRS. There are several websites they can use to check how others have fared with such-and-such legal or accounting firm. ripoffreport.com is a good starting place. | |
| 11 January 2008 | |
| Msm, this thread is full of outstanding advice and I would pay extra attention to what Happy Tax said. | |
| 11 January 2008 | |
| Dingo: that is one time where I think I'd have her complain to a fee arbitration board if you have one there in CA. It's a shame these outfits are setting up, there are some with attorneys in Georgia, it boarders on fraud as far as I'm concerned (most of these guys were running Ch. 7 BR mills before they decided they could turn this into a racket). The worst part of it is that they are going to ruin the OIC program for the legit. offers, and it's already started to happen, look at the recent changes. | |
| 11 January 2008 | |
| It is unlikely the IRS will want 1995 thru 2000. If assessments have not already been made, there was nothing there to do an SFR with. They generally only want the last six years. | |
| 12 January 2008 | |
| The IRS collection manual states that employees will solicit filing of six years worth of delinquent returns unless there is fraud. Negligence is not fraud. An SFR assessment can be corrected by filing a correct return. Have the clients do so immediately. For an offer in compromise to be acceptable, the taxpayer has to offer an amount that represents the reasonable collection potential of the account (that's IRS jargon.) In this case, the reasonable collection of the account is 100 cents on the dollar. Unless the taxpayers were abducted by space aliens (I had one of those once; Odd case.) they will have a hard time getting out of penalties. | |
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