Challenges
- Tackling 11 years of unfilled tax returns and IRS’s SFR process.
- Dealing with a $180,000+ debt from penalties and interest on SFRs.
- Disputing IRS assessments without prior tax returns.
- Responding past the IRS notice’s expired deadline.
- Collecting records to file overdue returns and negotiate debt.
Benefits one
Simplified tax resolution process through accurate return preparation, reducing taxes owed by $55,000.
Benefits two
Eligibility for an installment agreement, avoiding the need for early 401(K) withdrawals and associated penalties.
Benefits three
Potential for penalty relief due to reasonable cause considering health issues and family care responsibilities.
Problem:
The taxpayer had not filed tax returns for 11 years. Recently, the IRS filed a Substitute-For-Return (SFR) for 2 consecutive tax years, then used those returns as a basis for determining a balance for both years of over $180,000, including penalties and interest. The taxpayer received a letter stating the results of the examination and advising to send in tax returns if there is a disagreement regarding the amounts owed; however, the deadline for a response was the day before our conversation.
Solution:
Upon securing power of attorney for the taxpayer, we contacted the designated IRS hotline and successfully negotiated a 30-day extension for submitting a rebuttal to the audit findings. Considering the IRS’s requirement for taxpayers to maintain compliance within a six-year frame, we recommended the taxpayer limit their submissions to no more than six years’ worth of returns. Consequently, we meticulously prepared accurate tax returns for the years under review, effectively reducing the owed taxes by $55,000. Subsequently, we compiled the remaining necessary returns. The taxpayer was eligible for an installment plan, eliminating the need to withdraw from a 401(K) retirement account, which would have incurred a 10% early withdrawal fee. Given the taxpayer’s severe health challenges during some of the years in question and responsibilities caring for a sick family member during others, we suggested pursuing penalty relief based on these reasonable grounds.
