Question from Pod 41- Non-Filers and SFRs

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    Hey Eric,

    One more for you, this one from Pod 41. One thing you did not discuss in that one is what happens when you have a chronic non-filer with an SFR beyond the six-year recommended look-back period. So here is the scenario.

    Mr. X has not filed a 1040 for tax years 2006-2016;

    Mr. X is self-employed, and ran his business through a C-Corp (up to 2009) then wised up and made an S-election in 2010. No Corp filings in 2006-2009, filed in 2010 and 2011, no filings for 2012-2016.

    Crazily enough, he has been totally compliant with the payroll requirement of his corporate obligation, the whole time so there have been no payroll tax issues.

    In this particular case, the IRS filed SFRs for the 1040 based on the Wage and Income Transcript for tax years 2007-2009 in 2012.

    The transcript clearly shows they notified him via certified mail during 2012 and he put his head in the sand and did not dispute it, so it becomes a 6020(b) SFR.

    He finally wakes up when, about a month ago, the IRS slapped a NFTL on his ass for the SFR. That’s when he comes to see me.

    I did a preliminary mockup of the 2007-2009 using his W&I transcripts and his actual tax liability is way less than the SFR amount, to the tune of about 50k. The problem is that when I pull the transcripts on the corporation that did not file is when I realize it was a C-Corp until 2010.

    This guy told me in the initial meeting that he had always been an S-Corp. Go figure.

    Anyway, the Corp W&I is showing 1099 activity, which because it is a C-Corp would be double taxed on the income and the dividend (not to mention the FTF and FTP penalties) – but at the end of the day it’s all about 10k less than the SFR even if you factored in the extra fees for doing the returns.

    BUT: If I am going to have to offer him anyway, is this even worth doing? Yeah the extra fees are potentially nice, but seems like a headache to stir the hornet’s nest of the old C-Corp, to be honest. Just thinking out loud.

    But in general, what is a default strategy if a chronic non-filer comes in with an SFR that has been liened on that goes beyond the six year look back and then you wanted to offer on it? Would “compliance” in that case still be the six years or would it be every year since the last SFR (assuming that last SFR was beyond six years)…

    and for the SFR itself in that scenario, in the event that the actual liability was way lower, I assume you can do an OIC-DATL and file an amended return, but my question is, if the transcript shows the taxpayer foreclosed the right to argue the SFR by ignoring the letter and therefore got kicked over to 6020(b) is the IRS in any way obligated to accept the amended return in that case?

    Thanks again and I hope these kinds of breakdowns are useful to the rest of the members of the forum.


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