Your client Bob Smith has been in staffing placement business since 2004. He has
ID: 2452806 • Letter: Y
Question
Your client Bob Smith has been in staffing placement business since 2004. He has operated as C Corporation since 2004 and converted to S corporation 2014. The corporation owes payroll taxes including penalties in the amount of $86,000. These payroll taxes belong to years 2066 to 2010. The company was shut down from 2011 to 2012 due to lack of business. 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 payroll tax returns for 2011 and 2012 and corporate tax return for 2013.The CPA just completed 2013 tax return and corporation owes $95,000 taxes.
What is the best solution to let the client know how to resolve the case?
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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