Missing Sales Tax Returns Come back to Bite Small Business Taxpayers
NJ Department of Taxation – Sales Tax Cases
Many small businesses face the problem of meeting their various tax reporting obligations. This includes the Federal 941 payroll returns and equivalent state and local forms. Then there is corporate income tax reporting whether it is in an 1120 or 1120S. Finally, those selling goods and service to the public can be subject to sales taxes. Those involved in selling of home repairs or lawn and garden are subject to New Jersey Sales Tax Reporting. Often times this becomes one of the last filing requirements addressed by the business.
This past tax season, our office had several New Jersey Dept of Taxation cases involving non-filing of sales tax returns. Each were unique businesses but had neglected their responsibility to file sales tax returns – for several years during the pandemic. Now NJ Dept of Tax was calling for these returns and payment.
TAX DEPARTMENT OVERSTATES BALANCES WHEN NO RETURN FILED
The usual practice of the IRS, NYS and NJ Tax Departments is that when returns are not filed, then estimated returns will be prepared by the Tax Department based on a previous returns containing the largest tax due. Often, they will double this number and make this the official assessment. This is also known as a substitute return and is charged to the Taxpayer’s account. The only way to change this is to “protest” the filing and file an original return.
COLLECTION ON UNPAID OVERSTATED BALANCES
Unfortunately by the time it gets to this point, the Tax Department is in full collection mode. Bank accounts and accounts receivables including credit card receivables .are often levied. Then is when this office often gets the call to “fix things” or “straighten it out”
Home and Garden Case
One recent cases involved a home and garden service. The Taxpayers were behind on their returns; mostly during the Covid period. They faced an exaggerated balance due. In the home and garden case, the tax department was looking for over $40,000.00 when the case began with the office. After discussing the case with NJ Dept of Tax which missing returns were due a plan was put in place to get the returns filed and balances adjusted. The taxpayer then self-prepared the missing tax returns. It took some time to finally get the returns on file, but once they were filed New Jersey then reviewed the original returns and corrected and updated the balances due. After all returns were filed, the balance due was reduce to about $20,000.00 or nearly cutting the the balance in half. A short payment agreement was negotiated and the taxpayer ended up prepaying the balance due under the agreement. The lien was removed and case weas closed.
Home Renovation Business with Sales Tax Problems
Another small business New Jersey Sales Tax Case was opened shortly after involving a home renovation business. As often was the case with entrepreneurs. They are very good at the service they provide; however, tax reporting not so much.
This case, a very talented home renovation entrepreneur who had fallen behind on his filing requirements. Not just sales tax but corporate returns. When a taxpayer comes to the tax department attempting to resolve one type of tax, in this case (sales) they department will required the taxpayer to become current on all returns.
The taxpayer had NEVER filed sales tax returns and claimed “he didn’t know” that he was responsible for filing such returns. Ignorance of the law is not a defense.
What New Jersey did as they did in the other case, that they over-estimated the amount due on each sales tax returns that produced a balance close to $30,000.00
CASE RESOLUTION AND LOWERED BALANCES
After contacting the New Jersey Department of Taxation, time was allowed to produce the returns. The taxpayer had the returns prepared . Prior to retaining the office the taxpayer was subject to a bank levy. The levy was subsequently released. After several weeks of non-stop work by the taxpayer, this office and the accountant, the returns were produced and the bill was adjusted downwards to the $15000 level. A payment plan was negotiated for 36 months at about 425 per month.
Conclusion
Does the above scenario sound familiar to you? If you so, then don’t wait for the tax department (IRS, NYS or NJ or other State Tax Dept) to come knocking. It’s always much easier if you take the first steps to get into compliance on your own without being forced to do so by the government. If you would like to(discuss your situation with out office, please do not hesitate to call.(1888-382-7880) ( 212 387-7880 )to setup a free consultation, or email at daniel@dmsilverlaw.com.
From Wall St. to Debt City: How a $100k IRS debt was settled for $30k and a NYS debt for $”400k” was settled for $85k
Our client, Mr. Morris, worked on Wall St. for many years. He was the father of 7 children and through an unpleasant divorce from his wife, he was left owing a rather large balance in child support. While trying to remain current with the child support payments, he fell behind on his taxes which left him with large debts being owed to the IRS andNew York State. Mr. Morris came to see us, and we worked with him for many years trying to resolve these issues before finally opting for an Offer in Compromise. One issue that worked in his favor was the 10-year statute of limitations. The IRS has 10 years to collect your taxes. After 10 years these taxes are considered closed or non-collectable.
Through negotiations, his $100k debt was compromised and settled with the IRS for $30k. Although he was elated to achieve this financial goal, Mr. Morris had a bigger issue, with a larger debt being owed to the New Yorks State Department of Taxation and Finance.
He had previously filed an offer that had been accepted but was unable to complete. After a second Offer was filed, and after much back and forth on the $400k balance, the case was resolved for a payment of $85k which represented the base tax.
400k Tax Debt Settled for 35K
A recent Offer in Compromise case involved our clientG Rivera.
Mr. Rivera has been a client of the office for several years. Mr. Rivera recently retired and was looking forward to his golden years. However, a Federal Tax debt of over 400k and a tax lien in the same amount was hanging over his head, casting a dark shadow over those years.
Many of the years that were owed were old. For instance, tax year“2011”was almost 10 years old at the time of filing of the offer and subject to the 10 Year Status of Limitations. In other words, the taxes for that year should have been released already.
Mr. Rivera had a tax liability beginning at approximately $400,000 and that was reduced to $35,000 through an Offer in Compromise. Based on that reduction with the IRS and other legal actions taken on his behalf, Mr. Rivera is now tax free.
The process took almost 2 years to complete and with many bumps along the way, including when the IRS was going to reject the Offer due to a glitch where they had believed that certain follow-up documents were not filed. Theyhad been, and upon proof of the filing, the case was again allowed to continue. Ultimately, there was a decision resulting in the final review of the Offer in Compromise and an acceptance.
Significant Tax Case Victories and Tax Controversy Case Results
Case Result: Defended a small business owner in the New York City Glass Business who was accused of claiming over $100,000 of personal expenses on his corporate return. The client had borrowed corporate funds to help rebuild a home destroyed in the former Yugoslavia territory of Bosnia. The IRS claimed this was not a true loan and wanted it declared as a constructive dividend. After this office provided proof of the loan documents and relevant research, the IRS agreed to drop the issue. What could have been over $100,000 in IRS debt ended up costing the taxpayer approximately $7000.00