Challenges
- S Corporation Classification: Overcoming the lack of official S Corporation status by submitting a backdated S election application.
- Back Taxes and Missing Returns: Proving previously filed tax returns and negotiating over $100,000 in payroll back taxes.
- Personal Assets vs. IRS Demands: Negotiating with the IRS to avoid selling owners’ personal assets to cover tax debts.
- Installment Agreement: Achieving an installment agreement for tax payment without incurring a trust fund penalty or selling assets.
- Penalty Abatement: Successfully petitioned for a $20,000 penalty abatement due to previous CPA’s misguidance.
Benefits one
Corrected Tax Status: Successfully backdated the S Corporation election, avoiding the need to amend previous payroll returns and ensuring compliance with IRS regulations.
Benefits two
Installment Agreement: Secured a manageable payment plan for back taxes, preventing asset liquidation.
Benefits three
Penalty Abatement: Secured a $20,000 penalty reduction, leveraging misguidance by the previous CPA as a mitigating factor.
Problem:
The company owed over $100,000 in payroll back taxes. To further complicate matters, the owners were being paid through regular payroll, despite their S Corporation election never having been approved by the IRS. Also, the IRS claimed the business was missing 4 years of tax returns, despite them having been filed by the previous CPA. Finally, the owners also had some personal income-producing assets the IRS wanted them to sell to pay off their taxes.
Solution:
Since the business had been paying the owners on the payroll for 2.5 years, keeping the original filing status of the business would have required 2.5 years of payroll returns to be amended. Therefore, we applied for S election late relief dating back to the original supposed S election date. As soon as that was granted, we filed the two outstanding S Corporation tax returns. Then, in order to get an installment agreement approved for the taxes owed, we requested an IRS revenue officer be assigned to the case. We contacted the revenue officer as soon as we learned who had been assigned and worked quickly to submit all the documents being requested. At the same time, we informed the revenue officer that the missing partnership returns had been filed on a Schedule C with the owners’ personal tax return, so the revenue officer agreed to strike that requirement from the record. Then, we worked with the revenue officer to obtain an installment agreement in which the business would pay off the tax debt at under $1,750 per month. Finally, we requested penalty abatement because the business owners had been misguided by their previous CPA and were granted $20,000 in penalty abatements.
