Tax Guru – Ker$tetter Letter

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Archive for November 21st, 2007

Countering IRS ASSumptions…

Posted by taxguru on November 21, 2007


Subject: Question re OinC


Mr Guru – have a situation with IRS to run by you.  One of my tax clients is working on an Offer in Compromise (OinC) on back payroll taxes he owed thru his prior business.  The IRS just sent him a letter saying, based on his 2007 pay stubs, he should have approx $5,305 in FIT w/h.  They demanded that he make an immediate est tax payment of $3,979 and another one of $1,326 in January “in order to proceed with an evaluation of your OinC”.  In looking back at his 2006 1040, he had a tax liability of $1,784 with gross income of $48,000, but a rather large alimony AGI deduction of $25,000 and Sch A deductions of $6,077.  The client expects the same for 2007.


When I did his 2006 1040, I advised him to stop FIT w/h, for it looked like he had enough w/h at that point to cover his 2007 taxes.  Therefore, can IRS make this kind of demand that he make est tax payments?


Let me know,


I’m sorry about the delay.  The main computer I use for email has been crashing a lot.

As you know, part of the OIC process is convincing the IRS that, in exchange for compromising on past tax debts, the TaxPayer promises to be a good boy in the future and never have similar delinquency problems.  This means staying current on all new taxes.

Also, as you well know, IRS has no burden of proving the accuracy of their claims.  We have to provide suitable documentation to rebut any claim, no matter how idiotic, an IRS employee makes.

That appears to be the case here.  The IRS employee is estimating your client’s taxes for the year based on nothing more than pay stubs; ignoring any of the other deductions and losses that will be reducing the actual taxable income well below the gross pay figure.

To refute that erroneous ASSumption, I would prepare a pro-forma 2007 1040, using your 2006 software if you haven’t yet received your 2007 programs, and submit that in addition to a letter from you explaining that your client’s current level of withholding is more than enough to cover his 2007 tax obligations.  That should be more than adequate documentation to get the IRS employee to back down from the request for your client to send in more money for 2007.

If appropriate for your OIC claim, I would also make the point in my cover letter that intentionally paying in too much in taxes for the current year will deplete his cash reserves that would otherwise be available to pay off the past year taxes being negotiated as part of this OIC.

Good luck.  I hope this helps.



Mr Guru – my client sent in the responses & told IRS that he didn’t have to pay the amounts so dictated, referring them to his 2006 1040.  So, we’ll see what IRS does next.  Should they come back & demand he pay in as they said, we’ll do the proforma as you suggested.


Thanks for getting back on this. 



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Revoking S election…

Posted by taxguru on November 21, 2007


Subject: S to C conversion

Dear Kerry,


on your web site you mention that a conversion from S to C Corp. status requires a formal request with the IRS.  Is there a form for that?  Or how else is it done?


Thank you for your advice.


Best regards



There is no official IRS form to revoke the S corporation election of the same kind that is used to elect it in the first place.

The corporation and shareholders holding more than 50% need to submit a properly prepared Statement of Revocation.

This isn’t a do it yourself task and should only be handled by an experienced professional tax advisor, who should also be part of the decision process as to whether revoking the S election is the most appropriate strategy for your particular situation. 

As I’ve mentioned on several occasions, after revoking an S election, there is a five year minimum waiting period before that corp can file for a new S corp election.  I have also frequently mentioned that, depending on your reasons for wanting to terminate the corp’s S status, it is often a more efficient approach to just set up a brand new C corp that isn’t going to be locked into having to use a 12/31 fiscal year end, as a form S corp will be.

Good luck.

Kerry Kerstetter


 TaxCoach Software: Are you giving your clients what they really want?


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Has IRS expanded definition of reponsible parties for payroll taxes?

Posted by taxguru on November 21, 2007


Subject: Tax question


Mr Guru – I’ve heard from 2 other CPA’s plus my Paychex Representative that, after Jan 1, IRS is going to hold payroll preparers, be they CPAs or whoever, responsible for unpaid 941 taxes.  Have you heard anything along these lines?  How can IRS do that in the first place?  Let me know what you know.  




I haven’t heard about that payroll tax change and can’t find any mention of it on the IRS website.  You should ask those other folks for some documentation of this change.




Posted in Uncategorized | Comments Off on Has IRS expanded definition of reponsible parties for payroll taxes?

Posted by taxguru on November 21, 2007

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