Essay Question 1—
Sarah and John have filed timely tax returns for the tax years 2010-2015 as married filing jointly. In November 2016, Sarah has engaged me for some tax advice. She tells me that in January 2014, she discovered that her husband was running an illegal side business and that he has intentionally not reported the extra income on any of his tax returns. She is scared because they have received a notice that the IRS will audit their 2015 return. She wants to know how far they can go back and audit, and if she can get any relief for not knowing about the illegal ops.
The IRS can audit the last 3-years of returns unless a substantial error is discovered. In this case, the IRS usually will not go back further than 6-years. If …show more content…
Furthermore, he will stop accruing interest, eliminate the risk of having a tax lien (IRC § 6321) filed against him, having his property and assets seized (IRC § 6331), or being sued and eventually filing for bankruptcy. If any of these things happen, it can demolish his credit rating for years to come and put a complete end to his business.
On the other hand, since Pedro has already filed his 2014 return, the IRS only has 10-years from the time they officially assessed the $50.5K against him to collect this assessment or to take Pedro to court. They can also get their assessment by levying Pedro’s assets. The 10-year limitation is outlined in IRC § 6502 (a) (1). There are even certain things that Pedro can do to extend this time-limit which can make his life difficult. If the IRS does decide to sue Pedro, and Pedro receives a judgment against him within the 10-year timeline, this 10-year period essentially disappears, because the IRS can now go after him until that judgment is …show more content…
Pedro has the choice between paying his taxes now, paying his taxes after the holidays and accruing more interest while putting his assets and business at risk, taking on the IRS in court, or hiding from the IRS until the 10-year collection period expires. I do not think the latter two options are worth the risk. He could have liens and levies cripple his sole proprietorship and impede his ability to borrow money again. Also, why would anyone want to hide from a government entity for 10-years, knowing they could sue you and probably win at any minute? Also, something as simple as leaving the country could extend this 10-year collection period. The IRS can almost always find a way to
Sarah and John have filed timely tax returns for the tax years 2010-2015 as married filing jointly. In November 2016, Sarah has engaged me for some tax advice. She tells me that in January 2014, she discovered that her husband was running an illegal side business and that he has intentionally not reported the extra income on any of his tax returns. She is scared because they have received a notice that the IRS will audit their 2015 return. She wants to know how far they can go back and audit, and if she can get any relief for not knowing about the illegal ops.
The IRS can audit the last 3-years of returns unless a substantial error is discovered. In this case, the IRS usually will not go back further than 6-years. If …show more content…
Furthermore, he will stop accruing interest, eliminate the risk of having a tax lien (IRC § 6321) filed against him, having his property and assets seized (IRC § 6331), or being sued and eventually filing for bankruptcy. If any of these things happen, it can demolish his credit rating for years to come and put a complete end to his business.
On the other hand, since Pedro has already filed his 2014 return, the IRS only has 10-years from the time they officially assessed the $50.5K against him to collect this assessment or to take Pedro to court. They can also get their assessment by levying Pedro’s assets. The 10-year limitation is outlined in IRC § 6502 (a) (1). There are even certain things that Pedro can do to extend this time-limit which can make his life difficult. If the IRS does decide to sue Pedro, and Pedro receives a judgment against him within the 10-year timeline, this 10-year period essentially disappears, because the IRS can now go after him until that judgment is …show more content…
Pedro has the choice between paying his taxes now, paying his taxes after the holidays and accruing more interest while putting his assets and business at risk, taking on the IRS in court, or hiding from the IRS until the 10-year collection period expires. I do not think the latter two options are worth the risk. He could have liens and levies cripple his sole proprietorship and impede his ability to borrow money again. Also, why would anyone want to hide from a government entity for 10-years, knowing they could sue you and probably win at any minute? Also, something as simple as leaving the country could extend this 10-year collection period. The IRS can almost always find a way to