I will soon be ripped by the IRS and I need serious tax advice.

Self | 04/18/2014 | Self

[Attention Surplus Disorder]

"Just not sure where to start."

Start by constructing a NARRATIVE.

Which might go something like:

"In 2010 we thought it would be a good idea to go into widget business.

In June 2010 we paid $80K for Western Black Hole Enterprises. We decided to spend an additional $4500 for a new desk, potted plants, and a copy machine. Either you did, or did not, start a separate biz account under the fictitious business name, or dba. I can see that's where the first check was written. Every month thereafter we paid $450 a month rent to rent the quarters from which we ran the biz. In August 2010 we had to repair the whatsis machine, here is the check #2104 we wrote. Keep going until today, construct a narrative to the best of your memory. Find your checkbooks and/or whatever credit card statements you used to pay for stuff. Download a copy of Schedule "C" from irs.gov. Look at the expense portion. Those are the valid categories of expenses.

It looks like this:

Now you get a wide piece of paper, you can get accounting ledgers at the Dollar Store because people seldom use them, or, you can buy one for $20 at Staples or wherever.

Top of page: "2010 expenses" Columns across the page: "advertising...car/tuck...commissions and fees..... Just like the categories on the Schedule C.

Down the page, write any check which was a biz ck and place the amount in the appropriate column.

Continue to the next page if needed.

Do the same for 2011, 2012, 2013, 2014.

If there are expenses for other things, start a log of the check you wrote to pay for it and what it was for.

Get your post-it notes and make notations to where you left off, you are not going to do this all at once. But resolve to start it and continue it.

If it's a pain in the ass, then think about how many $45 hours you will not be spending having someone interview you as to such thing and where you put the receipts.

The one thing I can tell you is that if you paid wages to W-2 employees and did not withhold and did not remit those withholdings, you could be in far more serious trouble. If you had no employees and paid no wages, you have no IRS (and state) jackboots to worry about. But you will have to go through this, and any CPA will make you go through this, and you either do it yourself or pay out the nose to get it done. You might consider hiring a $15 an hour bookkeeper guy/gal to help you organize these things, but make sure you interview them as to their ability to forensically go through and reconstruct prior years stuff. Make sure you tell them they are being hired to get on your ass and make you find the source documents and transfer the data to where it can be collected and summarized to file prior years tax returns. And make sure you tell them they are NOT being hired as bookkeeps for an ongoing business, but for this forensic exercise, and they will need to come over not just for two hours every other Thursday but for some number of consecutive days for several hours each day. And you emphasize they are being hired to MAKE YOU get your stuff in order. Find a middle-aged, schoolteacher-stern type woman, not a trainee from the local junior college. You need some amount of mean.

THAT is how you start.

[Chode]

Sometimes a mess gets so big you just don't know where to start.

that is the first indication you needed a tax accountant

now your only choice is to hire the best one you can find...

[UnwashedPeasant]

"I haven't filed, either business or personal, in 3 years now. Are they going to let that go on forever?"

It might go on forever. Financially, you would probably be better off never filing until they contact you years from now. At that time you can tell them you were afraid to file, which is true. And then you can do an Offer in Compromise based on the income, assets and expenses you have at that time. You are not a fraudster; you are a bad book-keeper afraid of the IRS -- just like probably millions of other people in similar situations.

But if this situation is troubling you a lot, or if you have a lot of assets in your name, you can get your IRS account active and in good standing with the help of an Accountant and an IRS Offer in Compromise.

The best time to do an Offer in Compromise is when you have a lot of expenses, few assets and little income. It also helps to have a good story -- medical issues, theft, disasters, etc., that contributed to the situation.

[Alberta's Child]

It’s good that you’re getting on this, but don’t feel overwhelmed by it. Your situation isn’t all that unusual, and I suspect one reason you haven’t heard from the IRS is that they deal with this sort of thing all the time. You’re probably in much better shape than you realize, when all is said and done.

[Attention Surplus Disorder]

If I have to repeat it 5 more times I will.

DO NOT HIRE ANY PROFESSIONAL (past a mean $10-$15/hour bookkeeper/disciplinarian) until you have expended your maximum effort to get your papers in order, year by year, category by category.

It is the dumbest thing you can do to walk into a random accountants or attorneys office with shoeboxes of scattered papers. That will cost you thousands of dollars.

Construct your narrative. Gather your bank stmts/checkbooks/credit card stmts.

Resolve that you will sit your ass in a chair and get 4 or 6 months of biz ops into whatever your logbook format is at a sitting.

[dragnet2]

The good people in IRS have left (people who think and know) and it is run by computers now.

All the IRS good people left?

All run by computers now?

If that's correct, then why does the IRS have tens of thousands of tax paid people on it's payroll?

[RegulatorCountry]

You’re going to need to hire an accountant to straighten it all out, limited power of attorney to deal with the IRS on your behalf. Do not attempt to deal with them on your own. You need to file soon, there is a monthly charge that has been imposed over the past several years that adds up and then there’s interest. You’re not too far gone yet, if you haven’t been receiving letters of intent to levy you’re not going to suddenly have any accounts or assets seized.

Get over the fear and paralysis and get the dark cloud out from over your head. Yes you’re going to be hit with penalties but it will likely be limited to the monthly late filing charge. I dealt with that with my own S-corp, around $180.00 per month, it took about $6,000 to get it straightened out. Deal with it now, it’s not going to get any better, seriously. Denial is not an option.

[Theodore R.]

Just remember that in the USA, as it has been called, “No good deed goes unpunished.” I know that’s much help.

[Pagey]

I had a bad situation, and I got it all smoothed over, not by coming to the IRS, but coming to the CPA and *HE* did my talking.

Exactly. You don't ever have to talk to them, you allow your CPA to deal w/ them, and ANY GOOD CPA FIRM has people who do this on a regular basis. They represent you, you'll be fine. I already lived through your feelings, they will soon pass, know that.

[tired&retired]

First, you may have losses that can carry back 3 years and get refunds to pay the taxes due.

Second, get an accountant to clean up the mess relating to the payroll tax returns. Your fiduciary responsibility for employee withholding is serious business and needs to be corrected.

Under the circumstances, you may be able to claim that her medical condition and treatment facilitated the delinquencies and have the late filing penalties abated. A form 843B is used for this. The form should only be files after you read the IRS internal manual guiding IRS employees what to look for when approving penalty abatement. The manual is available online.

Get on it ASAP as you action to correct before they catch you will greatly increase your chances of abatement.

Question, was the business incorporated? Is there a possible bankruptcy?... While these do not remove the fiduciary responsibility on payroll taxes, it changes things.

Note, if you paid wages to your children under the age of 18 they are exempt from Social Security & Medicare taxes and also exempt from income taxes up to their standard deduction.

I am a CPA...

Get a tax professional to handle it as they can plead ignorance while communicating with the IRS while you can’t. I handle a lot of IRS audits and tax court cases when other CPA’s prepare the returns as it is often better to have a non-preparer handle the IRS questions.

The biggest pains in the arse are usually the state unemployment people.... You do not want to piss them off as they will often be far more aggressive than the other tax bodies. Same is true with sales taxes.

[going hot]

The feds and state want tax revenue

If you operated at a net profit, they want their share, and will get it out of your assets one way or the other.

Take each year separate and document your total income, and subtract from that your documented expense.

If you made a profit, then use an accountant for that year to defray the expenses and double check them for possible additional expenses that go int your business expense column.

The accountant's worth is not in pushing a pencil, it is in looking for monies spent that were business expense, and therefore subtracted from your profit column.

Do that for each year. It sounds like you did not have much luck in the business, so there likely is enough write off to cause you to go into the red, in which case you owe no taxes, but may get a penalty for not filing, which is negotiable.

There is a problem if you hired anyone, withheld their taxes and med/ss/. The feds do not look kindly on you keeping the withholding monies earmarked for them. They take a dim view, trust me.

Once you have done tis for each year, by your self, on the kitchen table, then hire an accountant to help you file if you have a lot of deductions. Not so much for the expertise, more for the "overview" provided, and another mind looking at the same numbers.

Don't be afraid of the fed, they want your money, not your hide.

Good luck

[tired&retired]

At this point do not use a tax attorney as they usually let the issue go to court rather than work to resolve early. And they are many times more expensive than an accountant.

[Slings and Arrows]

I will add my voice to the “hire a CPA” crowd, and add one more piece of advice: If the IRS calls or visits, SHUT UP. Tell them “My CPA is XXXX, and his phone number is YYYY. Please communicate with me through him.” Do NOT talk to the friendly agent - You cannot talk yourself out of trouble, but you can make it much worse.

[tired&retired]

Most of the national tax problem people who advertise on radio & TV are rip offs. The IRS has gone after many of them and took away their licenses.

[BAW]

Elahtap,

I have prepared tax returns for 15 years. My professional license is Enrolled Agent. The following thoughts come to you free, based on those 15 years of doing taxes.

Your situation might contain some hidden good news. And that good news should be enough motivation to get you started pulling together some records.

Depending on how you handled that initial $80,000 buy into the business in 2010 you could be looking at a nice business loss that will make filing your old tax returns easier on your bottom line. You might not be in too much trouble. But you will have to go through the bookkeeping process to pull all your records together before you find out.

Your best action is to find someone who will work with you. Now that April 15th has passed, good tax people have more time available to work on cases such as yours. I suggest you look for an Enrolled Agent with experience in business returns.

You can file tax returns going back three years (2011, 2012 and 2013) to claim refunds or pay taxes.

A motivating factor . . it is possible you may be getting some money back. But if you end up owing money, you can begin paying the debt on an installment plan spread out over many years.

[tired&retired]

CPA’s and Enrolled Agents are the best as they can argue your case with a power of attorney. Regular accountants and most tax preparers cannot.

[expat2]

IMO you should start by filing every missing return, including the Sch C for your wife’s business. If the business has been as big a loser as you suggest, you should have losses that will ensure that you don’t owe the IRS anything. You may also find that you will have write-off losses that may help reduce your taxes in this or other future years.

[tired&retired]

If you filed your 2010 1040 return with an extension it can still be amended..... Otherwise the statute of limitations expired this past Tues.

[tired&retired]

If you filed your 2010 1040 return with an extension it can still be amended..... Otherwise the statute of limitations expired this past Tues.

This is very important in the 2010 year of purchase due to section 179 depreciation elections available.

[RedHeeler]

Go to jail. Have fun.