Posted on 03/29/2010 3:13:47 PM PDT by Oshkalaboomboom
Do anything to avoid interest and especially penalties! IRS can turn $40K into $200K real quick - and don’t ask me how I know!
Make sure you are using a good accountant. Not just a tax preparer. They can help get the right amount figured out.
The IRS is not horrible to deal with if you deal with them. If you ignore them or dispute things that are indisputable they will kill you.
At this point there have to be expenses associated with coming home to live. But how much of a downpayment did they make to come up with a $40,000 tax liability? Seems like you are talking six figures. Can they grab some equity out of the home now?
The penalties I know of on IRA withdrawals are 10%, plus the money is taxed as income. $40,000 sounds like a lot but in any event:
I have a friend who didn’t file or pay his taxes for years. I believe he just used H&R Block to do the taxes, and they helped him work out a payment plan with the IRS.
I don’t want to say the IRS can’t be nasty, but I get the impression they will work with you if you are up front with them and make good faith efforts.
There might be some ways to offset the tax, like making a new IRA deposit this year but I’m not sure and a tax advisor can help them with that as well.
Have them talk to a local and reputable “enrolled agent” - they’re specialists in negotiating and working out payment plans with the IRS.
LQ
Forty thousand??? How much did they take out?!
It was their responsibility to make sure in writing that all the i's were dotted and t's were crossed.
They may want to investigate a payment plan or an offer-in-compromise, or put the house back on the market and use the proceeds to satisfy the tax due.
I went to a CPA who I thought would help me without questioning him on how we could reduce the tax bite. So I blew it and paid a lot of money.
Since then I found a great accountant who works for me and has kept me out of jail for 20 years.
Tell them to hustle out and interview CPA’s, talk to people in their neighborhood, and don't just walk in to the first guy. A good CPA finds every deduction and he works for you.
Good Luck.
As another poster said, make sure they are using a CPA and not an H&R type.
It is really too late for my advice. They should have made sure that the tax was withheld in the tax year of 2009. They had to know it was not, because their statements would have revealed such to them.
Tell them to cut their tax liability by making a nice donation to Barack Hussein Obama.
Sorry to hear it, but they could apply for a job as head of the Treasury Department.
Either that, or one could take a job as Secretary of the Treasury.
@($@()@! I should have hit reload to see if anyone else had that suggestion before I posted.
They should find an enrolled agent or CPA who has experience dealing with setting up payment plans with the IRS because it sounds like they are completely at sea and really don’t know how to proceed. Assuming that there are no issues with whether or not the early withdrawal penalties apply (I take no position on that), it really wouldn’t be worth their time (or, more importantly, their money) to hire a tax attorney, but a good CPA or enrolled agent with experience setting up payment plans could be a really, really good “investment” for them at this point in time. The “lucky” part (if you’ll forgive my use of the term) is that the interest rates that apply to the penalties are fairly low right now (the short-term “applicable federal rate,” or AFR is less than 1%, the mid-term AFR is between 2.5% and 3%, and the long-term AFR is approximately 4.5%).
Well - we have a tax lawyer advertise all the time on KSFO in the bay area - 1-800-Tax-Deal. His name is Steve Moskowitz. In listening to his adds over the years, getting a tax lawyer before they deal with the IRS would be a good idea.
One big difference between the lawyer approach and the CPA is that the you get lawyer-client privilege which CPAs can’t provide.
I’m shocked that nobody has ecommended Ronnie Deutch!
ALL
Find a CPA who specializes in income tax matters. Do not go to the 800 Lawyers because they are generally rip off artists.
The other alternative it to find a Tax Attorney who represents people in front of the IRS.
One place to look is at the filings of offers in compromise and see who is doing the most of them. Those records are available to the general public. The other place to look is at the Court cases in that district and who the tax attorneys are that are representing those cases.
In either case you have to beware because there are CPA’s and Attorney’s who screw thing up and you do not want to become involved with either.
As a CPA I know because I have seen enough of both.
Hire a tax attorney from a real specialist firm with a track record. I did just that in the early internet years and it saved me BIG $ from the voracious IRS a-holes.
Contact an enrolled agent.
http://www.naea.org/memberportal/Resources/ForTaxpayers/whatis_EA.htm
“What is an Enrolled Agent?
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.”
They are checking into that today. The biggest problem is that they have 2 weeks to figure out a plan, come up with the money or payment plan and deal with it. I'm going on the assumption that if they owe money they have to set up a plan before April 15th or the penalties will start to pile up. They also have to figure out if it's better to pay interest to the government or to a bank, mortgage company, credit union, maybe even their own thrift plan. The way I see it we'll have years to tell them how badly they botched this up but right now action is critical. Personally I'd rather be deling with a loanshark.
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