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Copied from Forbes: Robert W. WoodThe IRS statute of limitations is usually 3 years to audit or make an assessment. There are many exceptions from this rule that give the IRS 6 years or longer. And once an assessment is made, the IRS collection statute is normally 10 years. Incredibly, in some cases the IRS can go back 30. In Beeler v. Commissioner, the Tax Court held Mr. Beeler responsible for 30 year-old payroll tax penalties. That may sound crazy, but sometimes, the IRS has a memory like an elephant. And it can come down like an elephant on top of you, too. Don’t pay your income taxes and the IRS will come after you. But fail to pay payroll taxes and the IRS can push even harder. Payroll taxes involve withholding tax money from employee wages. Employers must hand it over to the IRS. “Responsible persons” have personal liability even if they are employees themselves and don’t own any part of the business. Section 6672 of the tax code puts a 100% penalty on responsible persons who fail to withhold, or who withhold but fail to hand it over to the IRS. What’s more, this penalty can be assessed against more than one responsible person. IRS can collect only once, but it can come after them all and see who coughs up the money first. Joel Beeler, Stuart Ross, and Robert Liebmann were all officers of Equidyne Management, a company that failed to pay employment taxes way back in 1982. The company fell on hard times, and so did some of the officers. In fact, Ross filed for bankruptcy in 1983. The IRS assessed the 100% penalty against all responsible officers in 1985. Ten years later, in 1995, there was a settlement between the IRS and creditors. The IRS collected $80,860 on Ross’s behalf in that settlement. The IRS also got judgments against Beeler ($154,032), Ross ($117,484), and Liebmann ($153,985). Liens normally last 10 years, giving the IRS time to collect. But in 2001, the IRS made a mistake and released its tax lien. It was years later when the IRS discovered its mistake. At that point, the IRS went after Beeler. The Tax Court agreed the IRS could collect from Beeler. However, on appeal, the Second Circuit ordered the Tax Court to determine whether Ross or Liebmann might have paid it. After all, with 3 officers, and 100% assessed against all 3, if one paid the other 2 would be off the hook. Given the IRS errors, the Tax Court said the only fair thing was to put the burden of proving that neither Liebmann nor Ross paid the amount on the IRS. The IRS satisfied the Tax Court, so Beeler was still on the 30 year-old hook, stuck paying taxes from 1982! Beeler’s only consolation? The $80,860 the IRS collected from Ross, which the Tax Court offset against Beeler’s penalty. The moral of this mess? Pay your payroll taxes. If you can’t handle it in-house, hire a payroll service so you won’t have any discretion about it. If you aren’t an owner, try to avoid check signing authority. If you can’t avoid it, get a written indemnity, and make sure payroll taxes are always paid

Joan: Yes, claiming the Sec 121 exclusion would be the ideal outcome. I didn't go there because Catherine called it a small gain, coupled with the fact that the whole situation might be shaky anyhow. I think even the "beneficial owner" matter might be in jeopardy if the kids didn't pay all or part of the down payment, even if they made all the loan payments & upkeep of the residence. So depending upon how that played out, it might be worth foregoing the Sec 121 exclusion in order to hopefully avoid IRS deciding to take a closer look and potentially invalidating 3 years' worth of interest & property tax deductions on the kids' returns. Of course, the decision depends on how much the "small" gain really is and thus how much tax is at stake in total. Catherine clarified things when she said mom is OK paying the tax. In this case I think I'd just treat it as a second residence, report the gain on Schedule D/8949, and call it a day.

Inventory and assets are not start up expenses. Supplies are an expense, so they would be a start up cost if this is a real business with a plan to make money, etc. Until then, it's just an expensive hobby.

I got some clarification from an "Employee Benefits" forum I stumbled upon a couple of days back. I'm still digesting the info, but it seems there is a subtle difference between "one employee" and "one participant". I haven't sketched out all the code sections and such because at the moment I'm just trying to get a definitive answer for a specific situation. But I've come to the conclusion that I'm adding apples & oranges on this whole issue. There are requirements related to benefits, and then there are requirements related to ACA - some of them intersect and some of them come close to contradicting one another. One thing has become clear (I think). A Health Care Sharing ministry is not an insurance plan. So even though a participant in a qualifying HCSM can escape the ACA penalties on their personal return, the ministry they work for cannot exclude the HCSM payments from gross income on their W2, even if it's a "single participant" employer. Doing so can expose the employer to the $100 per day penalty. It would be wise for any church or non-profit to heed this warning. I've also read that there has been at least one bill introduced in Congress to provide some relief to this mess. Nothing has been voted on and who knows what the final outcome will be once the sausage is made. But in any event this may not be over.

Inventory and unfinished inventory?

I agree. If he has a desk, he needs a chair. I don't think the massage feature will qualify or disqualify it as a business deduction. Surely an auditor wouldn't compare what he paid for it against an Office Depot $59 special. Last time I visited a lawyer, I'll bet the chair he was sitting in cost more than all the furniture and desks in my office. I doubt he was worried about losing the deduction in an audit.

If he has a desk, he needs a chair. How much more than a normal office chair is this going to cost? It looks to me like he might be able to at least depreciate the part of the cost that relates to having an office chair for his desk. If the massage part of it increases the cost/fmv appreciably, then that part would have to go on schedule A as a medical if prescribed by a doctor. Of course, everything depends on how you look at it but I believe that I could defend that position on audit.

When the DOL weighed in on top of/along side of the IRS and ERISA and people trying to interpret what Congress meant in the ACA, things got really muddy. More than one employee is probably a big problem, and is not synonymous with one participant. I vaguely remember the IRS promising clarification this summer/July for 2015. S-corps are particularly problematic.

​I have seen that advice as well, and it's in the Forbes article in my post up there. Hard to spot, but it's there, near the end. I really wish I knew. The church I keep books for has five employees besides the Preach, all part time. Maybe there's an exception for that, too. But, y'all know - we all took classes about ACA that contradicted each other. It's frustrating.

Sounds more like a hobby than a business.

Personal loss on personal residence. It was no longer a business asset when sold.

jm, what you are experiencing is the IRS's anti-fraud filters in action! I was at a seminar last week where the IRS liaison told us the IRS had 10 filters in place just a few years ago; now they have 140. Hmmm....here's a taxpayer who hasn't filed in years and suddenly surfaces with a K-1 (that won't be in the system for months) and wants a big refund. Or it could be that someone who knows she doesn't normally have to file has been filing using her identity. That someone got hung up in the filters this year, and now the agency wants to identify the real taxpayer. Or maybe she does file but her income is so aberrant this year that the return was hung up by a filter. We've had lots of clients get letters this year asking to see their information documents (the same standard letter your client got). Some were understandable--they changed addresses, banks, names. Others seemed to have no reason except that just maybe a bogus return had been filed using their identity and the filters put it in limbo, waiting for the real taxpayer to come forth.

I R S.....=......Isn't _ Really _ Sensible.

​I like to say, "your tax dollars at play" because most of the time it sure doesn't seem like they are *working*!

We have had about a dozen clients get these - and in some cases client's have received multiples, like Catherine's scenario. I determined that we must have been making changes on returns without recognizing it and the IRS's system picked it up as an address change. For example, we may have put 123 Main St., 123 Main St, 123 Main Street, or123 Main Str for various filings we have done for the client and each of those would have triggered a change of address. Notice - the only difference between the first and second is the "." after St - we actually received a change of address for that. Your tax dollars - hard at work.

JM, that is scary. At first I thought these posts were only showing the incompetence at the USPS. I have an elderly relative who moved recently and we filed the standard change of address with the post office. The notice they sent (usually to old and new addresses) was only delivered to the old address because someone must have gotten tired of typing and the new address field was blank. So he changed his address from the old home to.....no where! It took three trips to the post office to find the right person on duty to fix, but now he gets his mail with the little yellow stickers showing the new address. It is my understanding that when a taxpayer files a return with a new address (particularly one with a refund), the IRS checks with the USPS change of address data base. Good luck with that, if my experience with the local post office is any indication. But to realize that jerks are requesting changes willy nilly smacks of some form of terrorism. This can really throw billers, payers, banks, the gov't into a whirlpool of a mess, not to mention the unsuspecting victims.

The form you need is "Combined Registration Application." (CRA) Form COM/RAD-093. Fill out the applicable sections. Go to http://www.comp.state.md.us/ Under "Maryland Taxes" - left column Right column under "Maryland Taxes," is "Business Taxpayers." Last item under "Business Taxpayers" is "New Businesses." Click on it. Under "Starting a New Business in Maryland" is (in bold) "Combined Registration Application" What SHOULD appear on the screen is the CRA form - 4 pages of the form and 4 pages if instruction. Fill out on screen or print out and then fill out. http://forms.marylandtaxes.com/14_forms/CRA.pdf Section A, Question 8 h, check the box for "Tobacco Tax." You do not yet have a number, so leave it blank. Page 1 of Instructions has advisement that THEY WILL CALL YOU for more information.

I try to get everyone to invest with Edward Jones because I like their year end statements and it makes my job a lot easier to prepare their tax returns. Tom Newark, CA

I think I am going to try and get tickets to Jersey Boys. I have not been to a good musical since we saw "Cats" in London on our honeymoon. That was a long time ago. Tom Newark, CA