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I have a friend who inherited a small service business when

her husband died 3 years...
I have a friend who inherited a small service business when her husband died 3 years ago. I suspect that his Federal returns had questionable items. The records are a mess and she hasn't filed since his death -- mostly of out fear and confusion about what she should do. What's the best way about of this mess. Her ability to hire professional help is limited. Thanks for any advise you have to offer.
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Answered in 2 hours by:
1/1/2011
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

A few questions:

Has the business continued to operate?

Does it have any employees? If so, have payroll tax returns been filed?

Was it incorporated, a sole proprietorship or what.

Were professional or other licenses involved?

What is the nature of the business? ie. what service does it provide?

Who has been running it, if anyone?

What has happened to the receipts (income).

Who has been paying the bills?

what kind of records exist?
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Customer reply replied 6 years ago
The business has continued to operate. It has a couple of part-time employees -- payroll tax returns have been filed. I believe it is a Chapter S Corp. No licenses involved. Business is a wedding chapel. The widow has been running the company. Almost exclusively a cash business -- I think the only records are the checking account, probably some invoices for rent, and payroll records from the payroll company. I suspect that a reasonable P & L might be re-constructed. I'm wondering how she should approach the IRS after all this time. Thanks

Well, her problems, if any, with the IRS will be directly proportional to the amount, if any she owes to them. If she doesn't owe anything or a nominal amount, there won't be any problems at all.

The only thing is that with an S-Corp (which would have been the smart way to handle things if incorporated) is that her personal income tax returns have either not been filed or if they have they probably need to be amended to reflect the S-Corp income or loss.

Also, there may be some annual report fees or state income tax reporting to file and minimum tax to pay depending upon which state the business was incorporated in and in which state it does business.

Depending upon the state, certain states will dissolve the corporation for non-payment of the corporate minimum excise tax (sometimes after only 3 years) so she'll want to get this fixed ASAP, or things could get a lot worse.

If she's on the payroll, chances are most of the income has been taken out and she may even be entitled to individual refunds on her personal returns (if so, the oldest one may be gone do to the statute of limitations on refund claims) so I'm not sure what role you have in this, but the fact that you're familiar with a P&L qualifies you in the 99th percentile, so get busy & get her into compliance. :]

S-Corps can get tricky or the reporting can be simplified, so it might pay in the long run to get some professional help, despite her limited resources; this would be a good time to do it, ie. January, before everyone gets real busy.

Hope this helps..........

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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
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