2004 Return

[Unregistered]

I have been asked to prepare a 2004 return for a taxpayer who in incarcerated.
His self-employed income for 2004 is approximately $ 165,000.00 and has no
expense records. He has received a 8 year sentence, but may be released
earlier. The taxes due would be in excess of $ 50,000.00 plus interest and
penalties. My question is should the return be filed now, or wait until his release,
since he has no funds to pay the taxes. What would be the position of the
IRS in this situation.

[RLymanC]

RLymanC

You should file the taxes as soon as possible.
The penalty is 25% for failure to file, and the interest is running.

File the return and if your client will have no income and has no assets I would file an Offer in Compromise at a later date. You could possibly get the entire tax liabilty reduced to zero.

Until the IRS receives the offer in compromise and settles with some sort of agreement the individual will have the tax liabilty along with interest until he is deceased.

[Unregistered]

I pay my taxes on time and in full. He should also. I have no sympathy for people who try to weasel out of their liabilities, and the people who assist them in this charade are no better.

[Bees Knees]

If he is in the slammer and has no money to pay his taxes, how is he going to pay you to do his return?

[Unregistered]

2004 Return

Preparation fees are being taken care of by taxpayer's parents.

[Bees Knees]

There is no reason to wait until he is released. It would just make a bad situation even worse. Interest and penalties would only be worse.

What would the IRS position be? Like any other person who doesn't pay their taxes. They have 10 years to harass the guy. I'm sure the IRS is the least of his worries right now.

[John of PA]

File now

My thoughts are to file now, putting the ball into the IRS's court; then deal with the upcoming collection process. Perhaps the parents can engage into an Offer in Compromise for their son, so IRS does not have to have this file open for 8 or so years.

[ED SMITH]

There is no advantage to waiting, as has been pointed out. If an OIC is to be filed, all returns must be filed first.

Once you file the return the IRS will have 10 years after they assess penalties and interest to collect. Sometimes assessment takes up to 2 years, so he can look forward to IRS collection activity until at least 2016 and possibly 2018.

Having said that, an OIC is not a given, especially if he is young and has marketable skills. The IRS could just as well put him on code 53, temp. uncollectable status, until he gets back on his feet and start making payments.