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Category: Finance
Satisfied Customers: 4674
Experience:  Tax professional and business consultant for 35 years.
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The following taxes are owed: Person1 Federal $67,000 (small

Customer Question

The following taxes are owed:
Federal $67,000 (small amount already paid)
NYS $16,000 (installment agreement not allowed, $5,000 already paid from original $21,000 tax bill)
Federal $9,000 (small amount already paid)
NYS $2,000 (installment agreement in place)
Person1 and Person2 have a business (LLP) together. LLP owes $10,000 in NYC UBT and it looks like a penalty of $500 is being assessed. This amount is due TODAY (May 31).
What is the best way of triaging to minimize penalties and interest, assuming inability to pay? That is, what is the best order in which to pay down the taxes owed? And, what amount should be paid TODAY to NYC?
Submitted: 1 year ago.
Category: Finance
Expert:  PDtax replied 1 year ago.
Hi from just answer. I'm PDtax. I'll assist.
Customer: replied 1 year ago.
Hi. I've already gotten an answer from a local professional who returned my call faster than the response time "guaranteed" by JustAnswer. This is my first time using this service, and I didn't see you provide an answer or ask for clarification, so I'm not sure what the next step(s), if any, should be.
Expert:  PDtax replied 1 year ago.
We do this kind of work in NY. I would consider reforming the business with a new EIN, maybe as a c corp and wages for both owners. That way NY is limited to collecting 10% of the wage.Properly done, you get to dictate the amounts available and paid. This must be done correctly to avoid an alter ego assessment, but when done correctly limits the collection ability of all three agencies.If you just want to pay something to minimize penalties, you didn't give me enough info to advise.Thanks for asking at just answer. Positive feedback when you accept my response is appreciated. I'm PDtax.
Customer: replied 1 year ago.
LLP is a law firm with zero employees. Person1 and Person2 are the only partners of the firm. LLP and Persons are not worried about collections -- simply minimizing penalties and interest that are accruing due to poor planning (not paying taxes). Thank you for your time.
Expert:  PDtax replied 1 year ago.
The best way to minimize the penalties is of course to pay ASAP. And, of you have a basis to do so, requesting abatements for reasonable cause is available for all three agencies. Pay, then make a request for abatement due to reasonable cause.Please rate when we are finished.PDtax
Customer: replied 1 year ago.
Right - the purpose of this question was to figure out the order in which to pay. NYC, NYS, IRS? Local counsel has provided an opinion - can you provide your opinion as well, based on respective interest rates, penalty calculations, agency leniency or lack thereof, etc. What other info do you need to provide that?After the answer as to the order, and the basis for it, I will consider this concluded and will rate.
Expert:  PDtax replied 1 year ago.
You are asking for an opinion without providing a current assessment of the taxes or your negotiations with those agencies. To provide specific advice without more information is inappropriate.I will offer general advice about debts due to the three agencies. Since you are not interested in active business protection, and dismissed my reasonable cause suggestion, let's assume your LLC owes 941, NY and NYC withholdings. Post IRS first, then NY, then NYC. That is based on penalty and interest cost from highest to lowest.Agency leniency is important only if you can't pay, and your responses indicate you can. A current status of the level of agitation of each agency would help.Without that, I like to pay IRS first. Highest cost, and most powerful collection. NYS is limited in their collection to available assets and are often subordinate to IRS. NYC is beholden to NYS for much of their information, and would be the least of your problems.PDtax
Customer: replied 1 year ago.
Would you be so kind as to link to the interest rates and penalty pages of the respective agencies or otherwise link to the basis of your answer? Several accountants have said exactly the opposite, that to minimize penalties/interest, the liabilities should be paid as follows: NYC, then NY, then IRS. A brief Google search also shows me the following:IRS
For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.NY
The penalty you will have to pay will equal the federal short-term interest rate plus five and one half percentage points (adjusted quarterly), but not less than 7.5%.NYC
April 1, 2016 through June 30, 2016 8%
October 1, 2011 through March 31, 2016 7½%
Customer: replied 1 year ago.
No agitation. Only the first initial notice from NYC and NYS. IRS has not yet sent any notices.
Expert:  PDtax replied 1 year ago.
Since the taxes are already late, the standard responses you cited are not applicable. It's what to do now.You asked about unpaid taxes, and what to do now. Revise your math to penalties and interest charged now, and I stand behind my hierarchy, not only for the penalties that continue to be charged (IRS) but for the threat you alluded to about collection. Because the state and city debts are smaller, they are often paid first, but IRS has and likely will be the more imposing threat. Which is how I took your question.PDtax