One of my clients has just run into the issue of having a tax lien placed on him. Unfortunately, there is no way around this–the balance due is above the amount of which the IRS liens and there is no way that he can pay the whole amount in 60 days. With those two issues, there really is no way around it. Even if there is a payment plan in place, there is no way that it can be avoided with balances over $25,000 which can’t be paid within those 60 days.
One the bright side, the lien will go away once the balance is paid off or when the statute of limitations (10 years from the date of filing or 10 years from the date of assessment) runs out. If you think you underpaid 10 years ago, but never heard from the IRS, chances are you’re safe–with the exception of tax evasion which has no collection limitation. One the other hand, if you overpaid 10 years ago, you’re out of luck for a refund–the limit on that is 3 years to collect (with very few exceptions).
My husband is a freelance User Interface Developer. When we set up his business, which is currently a sole proprietorship, I applied to the IRS to get him an EIN (aka Employer Identification Number). Why did I do this?
It’s pretty simple, actually. If you have a freelance contract and you earn over $600, you should receive a 1099-MISC form stating that you received X amount in non-employee compensation. The same is true if you sub-contract out some work and pay more than $600. In order to win in an audit and claim that expense, you need to issue a 1099-MISC to the person whom you paid. For the IRS to track all these payments, the 1099-MISC has 2 identifying tax numbers on it–the social security number or EIN of the issuer and that of the recipient. If you don’t have an EIN, you MUST give out your Social Security number. And who wants to do that with all the identity fraud going around?
Luckily, it’s really simple to get an EIN and it can be obtained online. You get the number instantly when you’re done with the form and can begin using it for any requests that you get for a business-related Social Security number. Another option, if you don’t want to use the online form, is to fill out form SS-4 and fax or mail it into the IRS. If you really crave human contact, you can even call the IRS Business and Tax Specialty Line at (800) 829-4933.
It is common for a tax preparer to have you sign an IRS form 2848 when you need to have the preparer contact the IRS about an issue. If the preparer completed and signed the return for the year in question, they can represent you before the IRS and when speaking with the IRS. If your preparer did not prepare the return (and is not directly related to you), they must be either a CPA, Enrolled Agent, or Tax Attorney. (Sorry, Enrolled Actuaries–but I’m not actually sure you exist.)
The Power of Attorney form has it’s limitations–the IRS can only speak with the representative about the years and forms that are designated on the POA. If you’re thinking that you want to have your rep talk to the IRS about 2003, 2003 and 2004, and possibly for 2005, it’s a little easier to have all 4 years on the authorization.
Be aware that if you are signing the form and anticipate that the IRS may have questions about the following year (ie: you need the rep to talk with the IRS about 2006 and think that they might have to talk about 2007, too) then it’s possible to designate that the rep can talk with the IRS about the future year. The POA will be on file perminantly until it is changed or revoked.
One thing that a lot of folks don’t know is that the fishermen on “The Deadliest Catch” are usually paid as sub-contractors. While it’s a great way to get all your money up front, eventually you have to pay taxes on the money–something which can happen in between seasons, depending on the type of fisherman. Luckily, there are a couple of options to ease the pain of tax day for the commercial fisherman who is finding himself (a vast majority are men) with a tax bill the size of the Bering Sea. The next few items I post will detail a couple of tips to make this easier.
When you call the Internal Revenue Service, the person who answers the phone will rattle off their name and ID #. It’s a good thing to write down both. You may need it later if they promise a hold on the account or if something is said that you want to refer to at a later date. Having this information is also good if you receive a call from the IRS. Since they know who you are–you should know who they are, too!
While I’ve never been a fan of Jackson Hewitt (being a former H&R Block employee) I think that this article shows exactly why people should review their returns and ask their preparer what is being deducted on their tax return. Of course, seeing that the franchise was getting kickbacks for the inflated deductions makes me think that these taxpayers knew exactly (or at least were aware of) what Hewitt was doing.
I love the part about the barber having to drive over 1300 miles a day, 7 days a week just to claim the offroad fuel. While the article only focuses on the franchise getting in trouble, I’m pretty sure that the taxpayers didn’t get off too easily, either. Remember–if you sign the tax return, you’re the one taking responsibility that the numbers are correct. As a side note, the penalty for fraud on your tax return is 75% of the tax due because of the fraud.
