Wendy Posted December 30, 2010 Report Share Posted December 30, 2010 Is there any relief - similar to "innocent spouse" - in a corporation? I have a client who started an S-corp with a friend/neighbor. He had most of the contacts (construction) and the friend did the paperwork, checks, filings etc, and they were taking payroll. But when they gave me the QB file for this year I saw that one quarter of payroll tax was not paid - and filings had not been done. My client had no idea of this as he had been told it was all taken care of. He now has received letters & levy from IRS for payroll taxes. The "friend" is nowhere to be found & doesn't return calls or e-mails - lost his house, truck repossessed etc. Client wants to take care of his half, but I told him I didn't think that would fly - that he probably would have to pay it all and sue the friend. Corp can't be dissolved until outstanding liability paid. I have POA and a call in to Officer to set up meeting. Anyone else faced something like this? Any hope? Thanks - and Happy New Year! Wendy Quote Link to comment Share on other sites More sharing options...
OldJack Posted December 31, 2010 Report Share Posted December 31, 2010 Yes, your client can claim he was not a responsible officer for payroll and tax payments, but he has to prove it. Quote Link to comment Share on other sites More sharing options...
JohnH Posted December 31, 2010 Report Share Posted December 31, 2010 OldJack's approach is the best - he should try it first. But if he can't prove he wasn't a reponsible party, he has the possible option of paying the trust fund portion of the taxes (the amounts withheld from employee wages) if the corp is going belly up. This might enable him to avoid having to pay the matching FICA/Medicare, penalties, and interest, which is the corporation's responsiblity. This is tricky, and if he doesn't do the designation strictly according to the IRS rules, he could miss an opportunity to clean up this mess with a little less pain. If he does it incorrectly, the IRS will get the matching funds, penalties, and interest from whatever the corp has, and then STILL go after him for the trust fund taxes. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted January 4, 2011 Report Share Posted January 4, 2011 OldJack's approach is the best - he should try it first. But if he can't prove he wasn't a reponsible party, he has the possible option of paying the trust fund portion of the taxes (the amounts withheld from employee wages) if the corp is going belly up. This might enable him to avoid having to pay the matching FICA/Medicare, penalties, and interest, which is the corporation's responsiblity. This is tricky, and if he doesn't do the designation strictly according to the IRS rules, he could miss an opportunity to clean up this mess with a little less pain. If he does it incorrectly, the IRS will get the matching funds, penalties, and interest from whatever the corp has, and then STILL go after him for the trust fund taxes. And I'd suggest you look up and print out for the client the rules for 'responsible party' so that he clearly understands them. If he was a signatory on the bank account, for example, even if he never dealt with payroll, he's still considered by the IRS as a responsible party, because he could have paid the taxes. Only if he can prove that he NEVER wrote a single check, can he overcome that assumption. Understanding the rules should take the pressure off of YOU, as clients sometimes seem to think WE make up the rules. [Clearly we don't, or they would be a lot more reasonable, right? LOL] Quote Link to comment Share on other sites More sharing options...
Wendy Posted January 19, 2011 Author Report Share Posted January 19, 2011 You guys rock! Thanks to your advice my client was able to come to an agreement for just the trust fund portion. He's thrilled and relieved - and of course thinks I'm a magician... Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted January 19, 2011 Report Share Posted January 19, 2011 Glad we helped. And especially, glad that the client appreciates your value to him. Too many times, they want us to just 'fix everything', after the fact, when it was their errors or omissions that caused the problem in the first place, and we do not get to write the rules, just apply them. I guess it is human nature to want to shift the blame off our own shoulders, whenever we can, but it can get old when a client comes to us only AFTER he/she has done whatever they wanted to do, the way they wanted to do it, either without asking for advice or, even worse, asking and then taking only the part of our advice that they liked. Then wanting us to just make the problem go away. Sorry for the rant, just had to deal with a client who has numerous problems that, while not all his fault, mostly his soon-to-be ex-wife's fault, but not at all my fault, complained about the fee for this year, when I charged him nothing extra at all for all the time I spend dealing with IRS for him over the problems she caused last year, and only increased it this year because I know I'm going to have to deal with them again this year. And why does he not think he should have to pay for my time for this? BECAUSE I DID NOT CHARGE HIS ELDERLY PARENTS EXTRA FOR DEALING WITH A PROBLEM THAT WAS TOTALLY NOT THEIR FAULT, NOR MINE, [it was all Smith Barney's fault] BUT TOOK YEARS TO RESOLVE. So because I was generous to a very elderly couple on a limited retirement budget, I should give this A$$ a free ride too? Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 19, 2011 Report Share Posted January 19, 2011 Wow, KC is REALLY back. Nice to see a little time away from the board brought back your fire. That is the first post I can remember that you ever called someone an A$$. I am glad I am not one of your clients this year. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted January 19, 2011 Report Share Posted January 19, 2011 Now, Tom, I would never call you that. You are a super nice guy, I know. But frankly, that particular client really IS. I only took him on because of his Dad sending him to me. The more I know of him, the less I like him, actually. But he had a simple situation I thought, and a simple return. However, his wife, [they separated in Oct or 09] got a copy of his W-2. and filed a Joint return using HER address, and HIS income [she did not work at all in 09] and got the refund which included a LARGE amount of EIC. He, of course, filed HOH since the kids lived with him for 9 months, and he paid for the house all year, and paid child support once he moved out, and claimed the two kids that were his. He got no refund, and in fact, got a bill from the IRS, because of the amount SHE had already gotten. She gets child support, will not let him see the kids at all, and is PO'd at both her and the IRS. This year he filed already, MFS, claiming his two of her three kids, so hopefully he beat her too it this time. I still expect to have to fight with the IRS over this year, and am still fighting them over last year. So naturally my fee went up! Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted January 19, 2011 Report Share Posted January 19, 2011 >>his wife, [they separated in Oct or 09] got a copy of his W-2. and filed a Joint return using HER address, and HIS income [she did not work at all in 09] and got the refund which included a LARGE amount of EIC. He, of course, filed HOH since the kids lived with him for 9 months, and he paid for the house all year, and paid child support once he moved out, and claimed the two kids that were his.<< Double filers are automatically audited. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted January 19, 2011 Report Share Posted January 19, 2011 I would love to she her get what she deserves for forging his name and filing them a joint return without his knowledge, and taking all the refund, as well, but it seems to me I've seen too many cases where they get away without any real consequences. This particular women has done this before. She used to be married to another of my clients, and she did him the same way after they split, but he'd actually gotten the divorce before year end, so he came out of it pretty simply. She, however, still got no penalty except having to pay back some of her refund. Did not even lose one year of EIC, etc. This husband is still married to her because he can not save enough to pay a lawyer to file for divorce, since she gets the child support out of his check before he ever sees it. I wish I had the gall to tell him "that's what you get for procreating with someone like her [twice no less] before you are sure she is fit to be the mother of your children". But I don't. I'm sure he'd rather get mad at me than at himself. Quote Link to comment Share on other sites More sharing options...
chuck Posted January 19, 2011 Report Share Posted January 19, 2011 Learned this lesson long ago. There aint no money to be made doing those types of return. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted January 20, 2011 Report Share Posted January 20, 2011 AIN'T THAT THE TRUTH !!!! Quote Link to comment Share on other sites More sharing options...
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