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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4176
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Is there any way I can substantiate that an activity that was

Resolved Question:

Is there any way I can substantiate that an activity that was filing form 1120 as a corporate entity actually voided their corporate status by consistently paying a majority of their bills out their corporate account and not fulfilling any requirements such as conducting board meetings or having minutes or bylaws of any sort?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi Chris

NPVAdvisor :

What exactly, in the objective here?

Customer:

hi!

Customer:

I am trying to reduce the amount of tax liability assessed by the IRS for two years. Its a mess. IRS converted personal payments from the corporate bank account to payroll. There are no employees. All work is performed by husband, wife is sole owner of corporation.

Customer:

I did a mock up for one year and it might save them quite a bit if we can go that route. However, I think they could be really lucky in that the IRS is not looking into other years.

NPVAdvisor :

Ouch ... The kinds of things you're talking about are exactly what a creditor would use to p[ierce that corporate veil for liability purposes

NPVAdvisor :

Let me see if I have the article, I think there is actually a stp process for doing it intentionally, just a sec

Customer:

to access the personal assets of the shareholder, right?

NPVAdvisor :

right

Customer:

thanks

Customer:

Or if I can even abate their total penalty of $ 5789.10, that would be something. Maybe part of it for the first time abatement and perhaps some of the accuracy related penalty. Right now their assessed owing close to $ 30K.

NPVAdvisor :

OK , sory to be the messenger but (1) Vote to terminate the S corporation election. Call a meeting of all of the owners, known as members, of the LLC. Subchapter S of the Internal Revenue Code requires the consent of over 50 percent of the company's owners to terminate an election. ... (2) Prepare a statement of consent to terminate the election. Have the majority of owners who voted for the termination sign the consent form. The format of the consent form can mirror the consent statements that were included with the original S corporation election on IRS Form 2553, ... (3) Prepare a letter to the IRS, terminating the election. There is no official form - letter should be titled' "Revocation of S Corporation Status" and include a statement that the company is terminating the election pursuant to IRC Section 1362(a). It should also include the company's Employer Identification Number and the effective date of the termination. . .... and (4) Send the termination letter and the statement of consent to the IRS. Send the documents to the same IRS service center that processed the original election. Refer to the letter the company received from the IRS, authorizing the election, when you filed Form 2553

Customer:

They are not Sub S

NPVAdvisor :

Yes, thatTHAT might be a possibility ... especially if they can show (1) reasonable cause and (2) have never asked for abatement before

NPVAdvisor :

Let me pull that one up

NPVAdvisor :

Sorry

NPVAdvisor :

I saw 1120-S

NPVAdvisor :

I thought

NPVAdvisor :

Doesn't get any better, as THAT would be a taxable event

Customer:

what would be a taxable event? I lost you

NPVAdvisor :

THe rationale would be the same on your otiginal questions, though ... If there WERE a creditor that sued them and tried to pierce the veil you MIGT have a shop[, but the IRS will probably come in with substance over form

NPVAdvisor :

dissolving or thoerwise liquidation a c-crop

NPVAdvisor :

Regardless, abatement is a real possibility

NPVAdvisor :

Hang on just a moment

Customer:

Yes, I think this one is a bit of a sticky wicket. The corporation has no assets.

NPVAdvisor :

:),yes quite sticky

Customer:

:-)

NPVAdvisor :

ON the abatement ... It's typically called "first time abatement"

Customer:

Yes, I just researched that baby. And I believe you have to take to the earliest year. Anyway, maybe the best approach is to just request some penalty relief instead of stirring the pot for no guaranteed outcome.

NPVAdvisor :

I agree ....... From: http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2012/CPA/Nov/PenaltyAbatement.jsp ...


Penalty relief is usually classified according to one of the following categories:


Reasonable cause. This is a facts-and-circumstances test in which the taxpayer demonstrates that he or she exercised ordinary business care and prudence in determining the tax obligation, but nevertheless failed to comply

Customer:

no they have no hope on that one. OK, I think I'm good. Thanks for your help. They pretty much are out of luck in some ways but lucky in others in this one.

NPVAdvisor :

Sorry not the best of news, but m,aybe the process steps give you a way to explain what that WOULD have required, tec (similar for ALL corps)

NPVAdvisor :

SHows ya researched it for them, etc

NPVAdvisor :

Thanks ... let me know if you need more here

NPVAdvisor :

Lane

NPVAdvisor :

Just so you'll have it here .......

NPVAdvisor :

Types of penalty relief


Penalty relief is usually classified according to one of the following categories:


Reasonable cause. This is a facts-and-circumstances test in which the taxpayer demonstrates that he or she exercised ordinary business care and prudence in determining the tax obligation, but nevertheless failed to comply. Depending on the penalty, the taxpayer must also prove that he or she acted in good faith or that his or her failure to comply with the law was not due to willful neglect. The IRS determines reasonable cause abatement on a case-by-case basis, treating each tax form and year separately. The IRS often abates penalties based on reasonable cause because of circumstances beyond the taxpayer’s control, such as illness, natural disasters, or destruction of taxpayer records.


Statutory exceptions. The IRS waives or abates penalties because of specific exceptions. For example, Sec. 6654(e) provides exceptions to the estimated tax penalty when the tax is less than $1,000, when there is no tax liability in the preceding year, or when the taxpayer is newly retired or disabled. Another example is Sec. 7508, which prohibits penalty assessments on taxpayers in combat zones.


Correction of an IRS error. The IRS waives penalties when it makes an error. For example, if the IRS incorrectly posted an extension to file, resulting in a failure-to-file penalty, the IRS would waive the penalty. This category can also include erroneous written or oral advice from the IRS that the taxpayer relied on using ordinary business care and prudence.


Appeals nonassertion or relief due to hazards of litigation.The IRS Office of Appeals can waive penalties to settle a case based on “hazards of litigation,” which is the probability that the IRS determination will not be upheld in court. For example, an IRS Appeals officer may waive penalties in an appeals hearing to reach an agreement with the taxpayer. This is used primarily for accuracy-related penalties in Appeals proceedings involving audits.


Administrative waiver.The IRS may formally interpret or clarify a provision to provide administrative relief from a penalty it would otherwise assess. The IRS may address an administrative waiver in either a policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions. For example, in 2012, the IRS provided relief for the failure-to-pay penalty for taxpayers with financial hardship (see IR-2012-31).


The most widely available administrative waiver is often overlooked and misunderstood: first-time penalty abatement (FTA) for taxpayers with a clean compliance history. This type of penalty relief allows abatement of certain penalties for a single tax period (one tax year for individual and business income taxes, and one quarter for payroll taxes).


FTA overlooked


The IRS instituted the first-time penalty abatement waiver in 2001 to bolster voluntary compliance and help fairly administer the application of penalties.


According to a 2012 Treasury Inspector General for Tax Administration report, in 2010 about 1.65 million individual taxpayers qualified for FTA. However, according to the same TIGTA report, only 8.8% of the taxpayers in the sample it tested actually received the abatement. The report indicates that the primary reason for this disparity is that most taxpayers and tax professionals do not know FTA exists. This is largely because the IRS does not indicate FTA as a relief option on its penalty-related notices. This is likely a strategic move. If the IRS publicized FTA, the IRS would be inundated with requests.

Customer:

I saw that report. Interesting.

Customer:

Well, I think you've covered my options.

Customer:

I think you covered the options here.

Customer:

oops

NPVAdvisor :

I think your intuition is good here ... asking nicely for relief, while being complian ... maybe an installment agreement?

NPVAdvisor :

:0)

Customer:

Oh they'll have to. They already have three jobs, two kids under 12. It's pretty

Customer:

Take care & thanks again for your help!!

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4176
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 5 other Tax Specialists are ready to help you

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