Articles of Interest
PC Touch Services, Inc.
To File or Not to File! That is the Tax Question...
A. The Nonfiling Taxpayer Flaw Confidence: An interview
B. The Nonfiling Taxpayer Flaw Confidence: Big Companies pay too
Author: Wilson Louis-Elias, Accountant
Company: PC Touch Services, Inc.
Contact: P.O. Box 14202
Hauppauge NY 11788
Tel: 631-676-2282
Title: To File or Not to File! That is the Tax
Question...
Type: Article
Date: April 17, 2008
A.
The Nonfiling Taxpayer’s Flaw Confidence: An
Interview
As a former government tax auditor, I perceive
not filing a tax return for any given year in a different way than
many other taxpayers would perceive this risk. I was on the other
side before and that experience provides me with significant
advantage over many other taxpayers. For that particular reason, I
will share with you one of my many conversations with taxpayers
through the following confidential interview.
Wilson:
Juan, can you show me the letter you received from the
Internal Revenue Service (IRS)? I would like to read it first before
making any comment.
Juan:
Sure! It ‘s probably somewhere under those papers on my
cluttered desk…
Wilson:
This final notice only gave you ten (10) days to respond to the IRS,
three (3) months ago. You apparently waited long to reply. Have you
contacted anyone else at all about this?
Juan:
No! It just happened to cross my mind when you mentioned that
you used to be a tax auditor. I figured out I could let you see it.
Maybe you can make miracle happen for them.
Wilson:
For them!
Juan:
Yes, I don’t know why the IRS is wasting time on me because
they cannot touch any of my assets. I have nothing under my name and
I will never file another tax return again. I was stupid to even
file a few tax returns during the early years of employment.
Wilson:
If you’re asking, Juan, here is my suggestion. You can appoint my
firm as your legal representative by signing these power of attorney
forms - one will go to the IRS and the other one to New York State
Department of Taxation and Finance. After doing so, you will not
have to talk to them directly. My office will handle everything to
resolving all of the issues for a fee. In the meantime, please,
start looking for all documents related to the 1099-Misc. to deduct
the business expenses. That is the only way to lower your tax
liabilities.
Juan:
I conducted most of my business in cash. I don’t have
anything. Is there any other way to make them go away?
Wilson:
Not at this time! You will probably end up paying tax on
almost 100% of the 1099-Misc. because the IRS knows the exact amount
on all of them. They received one copy of every 1099-Misc you
received from your former real estate broker over the years. Since
you never filed those three-year tax returns, penalties have reached
their maximum already. In fact, penalties are usually the only
liability you may have a chance to get abated. By lowering the tax,
you will lower the interest as well. You will probably pay whatever
future interest amounts computed because tax agencies very rarely
abate interest. You would have to make an Offer and Compromise to
see interest further reducing or disappearing.
Juan
contemplated the options over an additional six (6) months. He never
paid an initial fee my office requested to begin resolving the
matter on his behalf. The last I heard, Juan could not withdraw any
money from the bank account of his real estate company. The IRS
contacted the bank a placed a levy on the account. The bank account
represented only $77,000.00 out of a total liability, at the time,
of $155,000.00. It was obvious that the IRS was going to continue
seeking more assets. And
soon, they will send a revenue agent report (RAR) to New York
State to prompt it, as well, to seek its own share of the pot.
My advice is to file your tax return timely,
and if not, soon enough to minimize liabilities.
B.
The Nonfiling Taxpayer’s Flaw Confidence: Big Companies Pay Too
Within
my last year at the tax department as a Tax Auditor, I discovered
and collected over $800,000.00 for New York Department of Taxation
and Finance, just on one final case. Big Newspaper, Inc. was not
targeted until after, I discovered Big Newspaper II, LLC (Member II)
owned a commercial building in Manhattan. Rental Income was nowhere
to be found on Big Newspaper, Inc. tax returns for the years in
question. Take a look at “One Individual Member of Big Newspaper I,
LLC” (Member I) in the figure below. That was where the Big
Newspaper, Inc.’s case began.
Member I was a nonresident filing tax returns
with New York State. During the screening of his return, I saw
$27,000,000.00 reported on the federal column of Member I’s IT-203
as taxable interest. That income was not reported on the New York
column of the IT-203 and no tax was paid on it to this state.
Following my examination, I determined that the federal taxable
interest was not allocable to New York. A “No Change” was issued to
Member I. However, I followed the money through Member II to arrive
at Big Newspaper, Inc. at the top.
As a
single-member limited liability company (LLC), Member II was not
required to file a tax return on its own. Instead, its single-member
Big Newspaper, Inc. could have opted to file and report its income.
Examination of Big Newspaper, Inc. showed no trace of rental income
from Manhattan. I did not want to believe that was true, but I sent
a nonfiling letter to Member II anyway. It did not answer until my
third letter in which I indicated that 100% of the rental income
will be taxed and penalties will be assessed.
Although it
was several months later, this time a lawyer called to announce that
an accountant was going to prepare the three-year tax returns and
send them to me. Member II filed all returns with me in a manner
that it believed was accurate. Follow up examination determined that
additional documentation was needed.
By the time
we got to the bottom of every significant item, Big Newspaper, Inc.
paid $887,000.00 in tax, interest, and penalties. The company
promised that it was going to protest the penalties on the basis
that Member II did not intentionally fail to file the returns. I
have since left the New York State tax department and I had no more
access to such highly confidential information.
In conclusion, the lesson for everyone to learn from the above nonfiling experiences reflect the very essence of federal and New York State tax laws. Taxpayers who file their tax returns when they become due give limited time to tax department to review the return and determined whether it was accurately prepared. Those taxpayers who failed to file their returns give unlimited amount of time to tax departments to come after them. By the time the tax department finally reach a taxpayer, the amount of interest and penalties to be assessed will usually be more than the tax originally owed.
Wilson Louis-Elias, EA
John Thomas, CPA - right
Two former government tax auditors who, jointly, bring decades of experiences, skills and knowledge to you. Do not delay to contact them about all of your personal and business tax matters. Your tax problem cannot wait because the consequences can be too devastating...
Services Overview:
- IRS & State Representation in
Individual & Business Tax Matters
- Individual Tax Returns
- Business Tax Returns
- Information Tax Returns
- Not-for-Profit Tax Returns
- Payroll Services, including
Payroll return, Paychecks,
and Direct Deposit
- Trust and Estates Administration
- Business Creation Assistance
