IRS letter on 2001 income

[oceanlovin'ea]

I had a new client come to me this year, compliments of his brother. He had not filed since 2000. He had income in 2001, which came from a w-2 for about 4400 and from a 1099-misc for 31,003. When IRS assessed the taxes, penalties and interest, he owes $19,000 for that year.
He had no income in 2002,2003 and 2005. He had some physical problems. He had income in 2004 from cancellation of debt on an auto and from a 1099 misc for other income (not non-employee compensation). So he owes some money for 2004. In 2006 he had a w-2 for around $6500. He has a refund for that year.
I prepared 2007, 2008 and 2009 for him a few weeks ago and he had refunds coming for all 3 years.

That is the background. Now the question is concerning the 1099 he received for 2001. He was a truck driver. He drove a company truck and did not pay any of the expenses for the truck...not gas, repairs, tolls...not anything. His only expense would be meals if that would be allowed. He said the company just gave them checks with no stubs. The company told them not to worry about the taxes, that they were taking care of them with quarterly payments. It sounds to me like he really was an employee. IRS told me to file a return with reasonable expenses to lower what he owes. I was wondering if I can file it as if he were an employee, pay his share of social security and medicare taxes and send the SS-8 along with the return to IRS.. It would help lower the tax due somewhat.
What about the HUGE amount of penalties and interest that they are assessing? Can we do something about them?
When an IRS agent called this client, he said the owner of the company was in big trouble and was apparently being audited. Maybe someone else also squealed on this guy. Client said he was a shady character.

Thanks for any help or suggestions you can give me. I don't want to mess this one up and this guy have to pay through the nose if I can help him.

Linda

[Gretel]

Some thoughts.

If you have reasonable cause to believe that client was expecting to be treated as employee, I surely would file the tax return that way. All IRS can do is to deny this and ask for Sch. C.

I don't think at this late point in time there would be any reasonable cause why he hasn't filed earlier. Medical reasons might have applied until some years ago. Maybe there is more to the story and medical reason still applies, or something else?

If he was an interstate truck driver he would be eligible for the meals per diem if he can figure out how many days he was away from his tax home.

[Koss]

Employee vs. Independent Contractor

Asking the IRS to reclassify him as an employee is certainly worth a try.

But as you know, employees are generally more limited in what they can deduct in the way of expenses. Are you sure it will benefit him?

If you do go this route, in addition to Form SS-8, you should probably use the new Form 8919, designed for this particular situation. Form 8919 did not exist prior to 2009. Prior to 2009, the IRS recommended the use of Form 4137 to calculate and pay the person's correct FICA tax, without using Schedule C or Schedule SE.

Form 8919 is only available for 2009, i.e., it says "2009" in the upper right hand corner. But I would use it anyway. Just cross of 2009, write in 2001, and attach it to the return.

BMK

[Peachie]

Linda, is there

a reason you didn't complete his 2006 return? That one expires this year for refund purposes. Just a thought.

Peache

[Black Bart]

About the '01 case,

since you say he had some physical problems around '02-'03, check with him and see if you can get any medical history/bills back close to '01. It's an excellent excuse for late filing. I had a case something like yours about three years ago, called the Taxpayer Advocate's office and they were very helpful. We sent many doctor bills and a tear-stained letter -- the rep got several thousand in penalties knocked off (but no interest, of course).

I agree with Burton about the possible use of a C instead of treating him as an employee. Since nobody really knows for sure what the company did on payroll taxes, I'd check both ways and take the lowest tax route. I don't really expect you would have any objection from IRS because all the old returns I've ever filed in a bunch like that were accepted with no questions (it seems like IRS is just grateful to get ANY kind of return filed on them).

[Black Bart]

Second the motion.

a reason you didn't complete his 2006 return? That one expires this year for refund purposes. Just a thought.

Peache

'06 was due April '07 plus three years = April 15, 2010.

[S T]

Penalties

I second Bart's thread,

I just relieved a taxpayer of about $3,000 in penalties of late filing, and readjusted interest for 2007 due to Medical and it was super easy.

If it is over $ 1,000 they won't do it on the phone, you have to submit in writing, but we did not have to submit any documents - We did make sure that the 2008 tax filings were already filed and accepted and that the taxpayer was current.

Of course, this will only work, I think, if it is only the 1 delinquent tax return. And also this I believe, is a 1 time foregivness of penalties.

Sandy

[oceanlovin'ea]

Wow! Thanks for the responses.

I did prepare the 2006. This morning I will call ACS division and fax the 2004 and 2006 returns to them, along with a note stating that he had no income for 2002,2003 and 2005. She also asked that I fax the 2007 and 2008 that he mailed in so she could make notation of the amount of refunds due those years.

So he will be current except for the 2001. She mentioned to me to take note of the statute of limitations which for this return expires in 2015. That is still a long time and many tax returns to go since he is working now.

He drove from Athens, Ga to Orlando, FL. He would leave in the morning, drive to Orlando which is around 7 or 8 hours hard driving, unload the truck and drive back to Athens. He would sleep a few hours, get up in the morning and do it all over again. I wasn't sure if he would qualify for the per diem for meals since he was back home at night again. But if he does the Schedule C might be better since he says he was on the road at least 6 days a week.

If we could get the penalties abated, that would be wonderful. He lost the use of his legs for 2 years in 2002 and 2003. He also didn't get any kind of 1099 from the business so he didn't file. Not having use of your legs would kind of side line your activity to get things like filing tax returns done. I'll see if he can get any medical bills or statements.

Thanks for all the suggestions.

Linda

[Peachie]

I think we are

'06 was due April '07 plus three years = April 15, 2010.

saying the same thing. At least in my mind I was thinking it was due by April 15 of this year. Am I missing something? I was thinking she needed to get it in this year in order to get a refund for 2006 if one was due. Please clarify for me BB. I can't stand it when my mind is having a cloudy day and going through a fog (giggle). Thanks.

Peachie

[Black Bart]

Sorry for any misunderstanding.

saying the same thing. At least in my mind I was thinking it was due by April 15 of this year. Am I missing something? I was thinking she needed to get it in this year in order to get a refund for 2006 if one was due. Please clarify for me BB. I can't stand it when my mind is having a cloudy day and going through a fog (giggle). Thanks.

Peachie

When I said "second the motion" I meant that I agree with what you said.

[Peachie]

When I said "second the motion" I meant that I agree with what you said.

Ok, I see. Thank you,

Peachie