Your client Bob Smith has been in staffing placement business since 2009. He has
ID: 2422558 • Letter: Y
Question
Your client Bob Smith has been in staffing placement business since 2009. He has operated as C Corporation 2009. The corporation owes payroll taxes including penalties in the amount of $86,000. These payroll taxes belong to years 2010 to 2012. The. The collection division of IRS filed a lien on his bank account and also sent letters to his customer’s stating that all future payments are made to IRS. The IRS refused to take off levy from bank account and the corporation has payroll due this week ending March 6, 2015. IRS is also demanding tax return turn for 2013 and 2014.The CPA just completed 2013 and 2014 tax returns and corporation owes $125,000 taxes.
Answer the three questions below:
1. Fill up the Form 911 that will be submitted to Taxpayer Advocate Office. Answer the lien and levy problem and the form 911. (https://www.irs.gov/pub/irs-pdf/f911.pdf)
2. Fill up Form 2848 (Power of Attorney and Declaration of Representative). What are the requirements needed to file for bankruptcy? What taxes can you ebated on filing bankruptcy? (Bankruptcy Chapter 7 and Chapter 11) (https://www.irs.gov/pub/irs-pdf/f2848.pdf)
3. How will you handle the payroll tax?
Explanation / Answer
Eventhough Bob has converted C corporation into S corporation in 2014, he has to resolve the tax related issues of C corporation to come out of this case.
As he owes $86000 towards payroll taxes including penalties relation to the period till 2010, he should first source the funds to pay off this liability. This is important to avoid further penalties due to time delay.
As he has closed down his company for intermittant 2 years, he has to complete the tax returns for those years. In this process, he can avail the payroll taxes he is liable to pay as a permissible expense for arriving at the business profit /loss. This carry forward loss of $86000 to the extent of tax portion would help him to reduce the 2013 tax liabillity of $95000. He should then file the revised tax return for 2013 and pay the reduced tax liability. As there is no transaction in 2011-2012 , he can file nil payroll tax returns to the department.
On completing the above actions, he can make a submission to IRS to lift the lien on his bank account.
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Journal Entry for Payroll:
2. To record Company's Expenses:
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Gross income is the income earned by Bob i.e., income from interest ,business and dividends =$20,000+$6,000+300000= $326000
Gross income of Bob =$326,000
Date Account Title Debit Credit xxx Factory O/H- Indirect Labor 22,440 Factory O/H - Superintendent's Salaries 6,200 Other Salaries A/c - Office and Sales 50,850.25 FICA Tax Payable (7.5%) 5,961.77 Income Tax Payable 11,923.54 Net Payroll Payable 61,604.94Related Questions
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