1. a. With filed and approved 4029s for Exemption from Social Security taxes, Medicare taxes, and Self-Employment taxes, these men are entitled to a full EXEMPTION from these taxes, including Self-Employment tax. Correct?
A: Correct -- but see my answer to #2 and #4(b), below.
b. Then, I may assume that the 50% assessment for SE tax some years was simply a mistake?
A: Correct -- but see my answer to #2, and #4(b) below.
2. Even with the 4029 exemption and only with SCH C or SCH F earned income as business profit, these men are still entitled to the EIC and Additional Child tax credit if they have the qualifying children, right?
A: This is an interesting question, that I cannot answer definitively without conducting a lot of research. The reason for this is that if the credit is issued under provisions of the Social Security Act, rather than under the IRS code, then the credit could be viewed as an implied revocation of the Form 4029 waiver, because the taxpayer may have received a Social Security benefit, rather than a credit from the Treasury. These tax credits can exceed the amount of tax paid, which means that the government is paying from a source other than the taxpayer's withholdings
. Given that the additional credit may not be coming from the taxpayer, it could be coming from a Social Security source, which means that the 4029 exemption is either invalid or a misrepresentation.
3. I can invoke the Cohan Ruling of 1930 and use estimated figures or use cash receipts or a ledger for overlooked items on the Schedule C for contract labor and other salient and deductible expenses, correct?
A: The Cohan Rule can be used to substantiate deductions
, except for those found in IRC 274(d)
4. a. I believe this cultural problem the AMISH have with taxes needs explanation. Would it be better, in your opinion, for me to write a letter explaining this and attach it with their 1040X amended returns or should they do this in their own handwriting (with a tad of coaching)?
A: I don't think it matters, and I don't think any explanation is required. All that's required is the 1040X and the corrected numbers. Then let the IRS send out an audit letter and then you can start explaining, if necessary. Remember, you're dealing with a first level auditor, who probably can't chew gum and walk at the same time. Give that person too much info (and especially a philosophical argument), and you will seem like a tax protester.
b. Since these errors and inconsistencies were of NO FAULT of their own, is it possible to go back farther than three years and do 1040Xs for these men? YES OR NO?
A: No. Only one form 4029 is required, because the exemption continues until revoked. If the tax preparer was filing a form each year, this could potentially have triggered an inconsistency, for example, if the forms stated different starting dates for the exemption.
I know the ruling says this is possible to correct errors but not to secure refunds past three years. Would this qualify for as a special circumstance?
A: I don't think you can make a claim for a refund on the expenses, beyond the three year statute of limitations in IRC 6511(a). There are a couple of self-employment tax exceptions in 6511, but they don't have any application to your described circumstances.
Hope this helps.
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