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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3011
Experience:  I've prepared all types of taxes since 1987.
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I was contacted today by an IRS agent regarding a business

Resolved Question:

I was contacted today by an IRS agent regarding a business that I closed back in 2010.

I know for a fact that we had no outstanding payroll taxes, but I am pretty sure that we did not check the "Final Return" box on our final 940 and it is possible that an 1120 was never filed for the final tax year.

The company was a Member managed Limited Liability Company and was being taxed as an S corporation.

Can you give me some general input on what the process will be for going back and fixing this problem?

We did not have any profit, so there will be no taxes due and there were no assets at the time of liquidation.
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.
Greetings,

Although you did not indicate the content of the contact, presumably this is an examination of the corporation (and not a collection issue).
The general process for that type of case will be for you to respond the agent's request for information (either informally or in reply to an Information Document Request or IDR).

If there is an open year for which a return was not filed that return will need to be prepared and given to the agent. Whether or not the corporation had a net profit or loss that corporate return is required.

Since there may not have been any final return filed you may also be asked for evidence that the corporation ceased doing business, and when.

At this point, it may be advisable to find out just what the agent wants; but you can, and likely want to, begin the process of gathering (and as needed, reconstructing) the bank and financial records for the final year tax return of the corporation.
The bank records should include up to the last month in which there was any account still open and the final statement that shows zero balances.

In summary, you will need to prepare any returns that were not filed while the corporation was still in existence and document, to the best of your ability, the end of the corporate existence including the disposition of the corporate assets.

Please remember that at any point in the process you can tell the agent that you would like to obtain a representative and that will stop the examination until you do. That is, if you are ever uncomfortable with the requests that is an option.
Although you should have had it in the material given to you upon initial contact, you can find Publication 1 outlining your rights at http://www.irs.gov/pub/irs-pdf/p1.pdf

See also http://www.irs.gov/uac/Taxpayer-Rights

Please ask if you need clarification or this is not an examination.
Thank you.






Customer: replied 1 year ago.

Thank you. I have not actually spoken with the agent yet. She left a card on my door while I was at work and apparently I must contact her during her specified time slot on Thursday.


 


I will certainly gather the information on the closing of the business.


 


Do you know if there will be penalties associated with the unfiled returns and would I be personally liable for those?

Expert:  jgordosea replied 1 year ago.
Hello again,

There may or may not be proposed penalties for late filing.
There is some discretion on the part of the agent in that regard, so if you are not going to be able to deal with her unemotionally and patiently it may be best to get representation.

You also may wish to get assistance so that you do not inadvertently give information, other than that which is requested, that does not present the failure to file in the best possible light under the circumstances.

Also, be aware that even if proposed, penalties can be requested to be waived if there is "reasonable cause" and not willful neglect for the failure.

Frankly though, it is much too early in the process to be concerned or even to mention penalties. No point in worrying about that which may or may not ever happen. Only once proposed, if ever, that is the point at which to deal with what actually is proposed.

The real concern at this point is to come into compliance or assist in the examination.

Hope this clarifies for you.
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3011
Experience: I've prepared all types of taxes since 1987.
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