Discussion:How would you apply payments?

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Advanced Tax Questions --> How would you apply payments?


Discussion Forum Index --> Tax Questions --> How would you apply payments?

Davidlat (talk|edits) said:

10 April 2014
I have a client that owes appr 180k on his 2012 return. We have to file an extension for 2013 . For 2013 he expects to owe 300k.

He has about 250k he can send now. I am thinking it's best to payoff the balance on the 2012 return and send the balance with his 2013 extensions. What do you guys think? Thanks

Doug M (talk|edits) said:

10 April 2014
I would pay the old off first. If you pay off the current, you will most likely have two returns with open balances. IRS is much easier to deal with when there is only one return with a outstanding balance.

The downside to this advice is that the FTP on the 2013 balance is most likely higher than the FTP on the 2012. This assumes you have an approved payment plan in place on 2012. (I think!)

Ckenefick (talk|edits) said:

10 April 2014
Man, this situation could spiral out of control. Down $180k, now down $230k...what the hell is this guy doing with all the money he's making?

Wiles (talk|edits) said:

10 April 2014
Doug points out to an assumption that there is a payment plan in place for 2012, thus no FTP for 2012. If he has already hit the max FTP on the 2012, then why let this also run on the 2013? Pay the 2013.

Kudos that he actually has $250K lying around. He should first buy a Tesla then deal with the IRS.

Doug M (talk|edits) said:

10 April 2014
I don't see how a person could not have maxed out the penalties in 12 months.

The FTP is .25%/month if approved payment plan is in place via the 9465.

The FTP on 2013 during the extension period is .50%/month

Ckenefick (talk|edits) said:

10 April 2014
I think that is somewhat of Wiles' point...If we've maxed out on the penalty for '12, why not pay '13 to try to avoid the '13 FTP to the greatest extent possible?

Wiles (talk|edits) said:

10 April 2014
Yes, that was my point. My written words are coming together worse than my spoken words on April 9th. Most likely the guy is not on a plan, otherwise no point in paying 2012. If not on a plan, then he has already hit the max FTP for 2012. Let's avoid as much of the 2013 FTP as possible.

Ckenefick (talk|edits) said:

10 April 2014
I wonder what the guy owes the state?

Davidlat (talk|edits) said:

10 April 2014
Thanks for all of the replies.

He owes the state 33k. On a payment plan for that.

He has not set up a payment plan with the IRS for 2012. I was thinking that if he paid off 2012 it would avoid levies and liens. I am surprised that has not happened as of yet.

I do see your points about avoiding some penalties for 2013 by sending in the money for that year.

I think he is looking at if he pays off 2012 now that keeps IRS off his back for now. Then he can deal with 2013 balance due when he files in October.

Wiles (talk|edits) said:

10 April 2014
Now that I have slept, I agree with you Davidlat. He can also request a 120-day extension to pay and push out dealing with the 2013 balance due until June of 2015.

Some people like to live on the edge. That's what keeps them going.

Southparkcpa (talk|edits) said:

10 April 2014
Could you address CKs point, its a good one. Where is the money. To owe 300K, he made say 750 to 900K.

Clients like this, in my view are problematic and you spend more time with paying the tax than the return. As a preparer, you lose money.

I would always pay the state. reason is, you now only fight ONE dragon. I would also tell my client if this happens and you cant pay the tax, perhaps you should consider your behavior etc and we bill standard rates for assisting in payment workouts etc. In fact I wont do a payment plan for a client. I tell them, file ON TIME and pay something, then pay balance in under 9 months. If they cant I silently consider dropping them. Sometimes I do.

Davidlat (talk|edits) said:

10 April 2014
I'm not really sure why it matters where the money went. He purchased some investment properties with the money.

He is unable to finance the properties and get cash out at this time.

I agree he should have saved the money for taxes but he didn't.

So now I'm left with figuring out the best way to allocate the monies he does have available to send in right now.

Ckenefick (talk|edits) said:

10 April 2014
So now I'm left with figuring out the best way to allocate the monies he does have available to send in right now.

Well, that's what you're left with right now. Wonder what you'll be left with next year, and the year after, etc...is Southpark's point. Usually, when you have these types of problems, they're not isolated incidences, but rather, a recurring pattern of behavior. I say "usually," because we don't know much about your client. So, the reason it matters is that you might be involved in a situation now, that will compound and get worse, and then you might say to yourself after the fact, "I knew I should have dropped this client in April of 2014, this client is a total pain in my ass" and/or "This client owes me money." Again, I'm not saying that is definitely the case here, but it's certainly something to think about.

Wiles (talk|edits) said:

10 April 2014
Or not...

I have a client exactly like this. He pays a good fee for his tax return. He pays me on time. And he values much of my advice. He thinks of the IRS as just another creditor that is charging him 9% interest on a loan that matures in 2 years.

Davidlat (talk|edits) said:

10 April 2014
Wiles that is the same situation I have. He is my biggest monthly client and always pays me timely and in full.

He stays current with all of his sales and payroll taxes. He just ran into a situation this year that left him short of funds for taxes.

Ckenefick (talk|edits) said:

10 April 2014
It's certainly not universal. I've had plenty where I wish I had gotten out earlier. If spending (i.e. extravagant lifestyle; living beyond one's means, maybe living a fast life, etc.) is the root of the IRS problem, which it often is, rest assured, a divorce will come, then a foreclosure, then a bankruptcy, maybe rehab, etc. This is because spending problems are just a symptom of a bigger emotional problem. And those that fail to address the root turn into shit magnets, where it is just one thing after another, self-created, of course, due to one bad decision after another.

If it's a one-off problem, though, maybe the ship will right itself and all will be fine. Sounds like, though, Davidlat's client is going on his 3rd year, which makes you wonder. But if the guy pays, and you don't mind dealing with it, there's nothing wrong with that.

Southparkcpa (talk|edits) said:

10 April 2014
OK... so it is isolated and he is current on his other taxes. That's what we were asking about.

Not a practice management thread but I will go out on a ledge here. MANY MANY good accountants from my expereince cant seem to make over say 100K to 125K annually because they take on all types of work etc, dont have a system in place etc ... I was simply, in all due respect, inquiring what type of client this is.

I always ask myself when working with a client. Would I be proud if THIS client told others I was his CPA? Does he make my practice better or worse? We are no better than the mix of our clients.

I meant no disrespect..just went off on a practice management tangent.

Ckenefick (talk|edits) said:

10 April 2014
We know where you were going with it, I was with you. No disrespect to anyone. When Davidlat asked the question, it was apparent that he'd never dealt with this type of situation before (or at least to this extent), so it simply made us wonder if he knew what he was getting himself into.

Wiles (talk|edits) said:

10 April 2014
And the best thing about my client is that he has a fairly complex, time consuming tax return. He goes on extension every year (his choice) and he does not care to know what his balance due is on 4/15. So I don't have to touch anything of his during tax season. It's a win-win.

It's actually a win-win-win because the US Treasury is getting interest & penalties to boot.

...Of course, this is all until he has that 1 bad year and the ponzy scheme comes crumbling down. Hakuna matata!

To join in on this discussion, you must first log in.
Personal tools