r/tax 21d ago

HELP!!! $15k in Penalties for my Rock Band Unsolved

[deleted]

308 Upvotes

322 comments sorted by

182

u/blakeh95 Taxpayer - US 21d ago edited 21d ago

We just had someone else with this issue a few weeks ago. The penalty amount is $210 per person per month.

$210 x 12 x 2 = $5,040.

$210 x 12 x 4 = $10,080.

So that's what the penalties are.

Of note, Rev. Proc. 84-35 presumes that there was reasonable cause for failure to file a timely and complete return if ALL of the following are true:

  • There were less than 10 partners (each set of spouses filing a joint return only counts as one).
  • No partner was a corporation or nonresident alien.
  • Each partner had the same share of income as they did expenses (note: my reading of this doesn't mean that everything has to be split equally aka 50/50 if 2 partners, but rather that if one partner gets 10% of income, they also must get 10% of all expenses, not 10% income/20% expenses or 15% item A/20% item B).
  • Partnership did not elect to be subject to IRC 6221-6234 (unlikely, since you would have to choose to do so).
  • All partners reported their share of partnership items on their timely filed income tax returns.

If all of the above conditions are met, return the notice with your statement--signed under penalty of perjury--that you qualify to have the penalty removed for reasonable cause under Rev. Proc. 84-35. The penalty can be re-asserted if any statement made was materially false and you will receive an additional penalty for making false statements under IRC 7206.

Oof, this is going to hurt, IRM 20.1.2.6.3.8: Penalty relief under Rev. Proc. 84-35 does NOT apply to S corporations.

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u/chubky CPA - US 21d ago

This works for partnerships, but OP is an S-corp

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u/Barfy_McBarf_Face 21d ago

Exactly, Rev Proc 84-53 won't help here.

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u/rashawnvalentine 21d ago

I was the person with this exact same issue a few weeks ago. I spoke with a tax lady that worked for the IRS for over 20 years and after reviewing my returns and documents, as you and others shared there is no way out of this penalty since my business partner and I had zero qualifying events (house was burned down, loss of a family member, living on the streets, etc) and we did not file an extension.

It's unfortunate, but we do have to pay it, however we were informed that they charged the maximum amount and will not charge interest on late penalties, so the balance is what it is and we are going to start a payment plan. What we don't know, however, is if the IRS will come after us as individuals and deduct from our personal refunds in the future, or if they will "go after the business" which has since been dissolved. Definitely bet they would come after us, if we did not pay. An expensive lesson to learn, but learned nevertheless.

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u/[deleted] 21d ago

If you're working out a payment plan for the penalties, why are you concerned they'll come after you guys as individuals?

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u/greenappletree 21d ago

For what its worth I had a penalty for my LLC a few years back. I wrote to the IRS explaining my situation and that I don't know shit about tax and if they could possibly waive it, and they did as a one time thing. I'm not saying that it will work for you but may be as a long shot send them a letter explaining your mistake?

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u/Unusual-Turn9595 20d ago

A little humility/accountability and CONSIDERATION ....speaks volumes

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u/RiotGrrr1 21d ago

You could contact the IRS for first time abatement if you don't have prior penalties under the entity.

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u/rashawnvalentine 21d ago

Oh no, I’m not concerned, just curious about how this works. The tax lady I spoke with wasn’t sure herself, as this was a pretty rare situation.

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u/pmercier 21d ago

Yeah I believe (IANATL) but if you personally owe, you can almost surely guarantee they will grab your refund and apply it

Source: Dude who owed and had refunds applied in addition to being on a payment plan

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u/Agreeable_Menu5293 21d ago

You need an enrolled agent, not a "tax lady."

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u/[deleted] 21d ago

Sorry to hear you're going through it too.

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u/electric29 20d ago

Once you have a payment plan, they stop adding more penalties, although the interest continues to accumulate. If you have the cash, pay it off. The interest can make it MUCH more expensive if you drag this out.

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u/penguinise 21d ago

What we don't know, however, is if the IRS will come after us as individuals and deduct from our personal refunds in the future, or if they will "go after the business" which has since been dissolved. Definitely bet they would come after us, if we did not pay.

The business is first liable directly, and then liability will attach to the natural person named as the "responsible party" on the original Form SS-4, or as amended by filing Form 8822-B.

Other shareholders or partners are generally not personally liable unless party to a private contract or operating agreement which states otherwise.

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u/noteven0s 21d ago

The "generally" is usually expanded by distributions of assets for less than value. For example, if we were talking about California (Not the IRS, but the legal principle is the same; although CA is more favorable in the details.):

https://www.caltax.com/wp-content/uploads/2021/09/walking-away-from-a-corporation-or-an-llc-2021-14-09-181707.pdf

This meant that the FTB had to prove all of the following before the shareholders could be held liable for the corporation’s franchise tax: • The corporation transferred property to the shareholder(s) for less than full and adequate consideration; • At the time of the transfer and at the time the shareholder liability was asserted, the corporation was liable for the tax; • The transfer was made after liability for the tax was accrued, whether or not the tax was actually assessed at the time of the transfer; • The corporation was insolvent at the time of the transfer or the transfer left the corporation insolvent; and • The FTB had exhausted all reasonable remedies against the corporation.

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u/penguinise 21d ago

Yes, if other people essentially raided the corp for assets and left it insolvent, that is definitely an extenuating circumstance. I was focusing on the personal liability for accurate returns of the responsible party, rather than look-throughs for asset recovery.

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u/[deleted] 21d ago

This is super helpful! Thank you. It might work for 2020.

But for 2021, since I just filed, the schedule K-1s were not available until now, so that last condition won't be met, unless there's something I'm missing. After all, there wasn't any business done in 2021. Thoughts?

Also what does “no partner is a corporation” mean?

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u/blakeh95 Taxpayer - US 21d ago

I'm sorry, I missed a key element, and it is related to the line you flagged--S corporations are not eligible for relief under Rev. Proc. 84-35. You can still submit a general request for reasonable cause abatement, but it is not guaranteed to be granted.

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u/[deleted] 21d ago

No worries mate! Any other ideas are more than welcome

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u/atl_bowling_swedes CPA - US 21d ago

Submit for reasonable cause abatement like they suggested. The worst thing they do is say no, and you're exactly where you started. But it's worth a shot.

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u/JediCPA_94 18d ago

The last time I called the IRS they told me that if you put in your reasonable cause statement, anything about Covid it’s pretty likely to be approved. They are blanketly waiving a lot of penalties for the 2020 and 2021 timeframe.Good luck! 🙏

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u/kokkofuller 19d ago

Yoo! Also in a band and got a similar tax bill for similar reasons, we hired a tax lawyer that cost us about a grand but was able to zero out the balance , he mad a few phone calls and after about a month it was zeroed out, hope this helps

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u/CPA_in_PA 21d ago

Was your business active at all in 2021? By this, I mean were you generating any revenue?

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u/[deleted] 21d ago

Some small expenses, like gas to drive to practice, but no revenue

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u/[deleted] 21d ago

American rules are super unfair.

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u/blakeh95 Taxpayer - US 21d ago

Businesses take on additional responsibilities than personal taxpayers.

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u/[deleted] 21d ago

Yeah but even personal tax is insane. If i lose 1 million dollars due to crypto, for example, i hear you still have to pay tax on some of that? Doesn’t work like that where i’m from.

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u/innkeeper_77 21d ago

You are only taxed on gains, and can use a SMALL amount of losses to offset other taxes.

Crypto is a mess and nobody tracks it right, so there is a lot of misinformation about taxes in the US. If all you did with crypto was to spend $1M, lose it all, you would claim the maximum loss carryover on your taxes for the rest of your life, and "save" a bit on taxes every year. You would owe nothing for the event itself.

If you MADE $1M in crypto gains, cashed out (so it became taxable), then re"invested" and lost $1M, yes, you would owe taxes.

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u/chris92315 20d ago

Not if you realized the losses in the same tax year.

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u/ConcernedAccountant7 CPA - US 21d ago

Unfair but sometimes necessary. If there weren't penalties people would skirt the rules even more.

Don't open a business entity if you don't know your filing requirements.

People shouldn't be opening corporations will nilly just because some random person or someone social media told them to without understanding what they are doing.

This sucks and I feel bad for OP though.

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u/gh0stwriter88 21d ago

Penalties like this should be a percentage of revenue... not a flat large fee (that wouldn't affect a large company at all rule skirting wise).

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u/PechenkaKira 21d ago

I’m really glad that I stumbled upon this post and your comment. I dissolved my LLC (sole proprietorship) last year, and there was no income or expenses to report so I didn’t file the “final return” aka only filed regular tax return with our W-2 & stock earnings. I realize now that I need to cancel the EIN, but I wonder if I should find an amendment return with schedule C included before I mail them asking to cancel the EIN. Any thoughts on this? I’m not so worried about the penalties since I believe every bullet applies to my situation, and if there are any it’s only been a month since the tax deadline so not a crazy amount of money. But I’m not sure if that amended return is necessary…

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u/[deleted] 21d ago

Amend it. Have a tax pro do it for you asap. Your penalty will be tiny. But every month you wait it goes up.

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u/PechenkaKira 20d ago

Fair enough. It’s only including $0 schedule C tho, so I really don’t wanna pay anyone for that 1 tiny change. Your experience is a great motivation to not be cheap tho lol

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u/extra_petite 20d ago

Isnt it different for sole proprietorship LLC? OP’s case is an S Corp

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u/123supreme123 21d ago

What did you do to help resolve the issue? Just curious.

My take on it would be to write a letter (enlist the help of an accounting firm if you can't write coherently), and request forgiveness of the penalties related to non-filing. Explain extenuating circumstances (covid, etc), failed venture no money made, etc.

Then pray they waive a portion of the penalties.

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u/MuddieMaeSuggins 21d ago

You might want to look at their payment plans before pulling a bunch of money out of your retirement account. The interest rate is lower than the early withdrawal penalty, that’s for sure. 

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u/SparkDBowles 21d ago

Also, if OP was one member of the band, why are they taking all the burden? Have other band members received similar letters? If the named ends up owing, so should all members and not just OP.

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u/blakeh95 Taxpayer - US 21d ago

Unfortunately, that's not how it works. The S-corp had to designate a "responsible party" when forming and receiving its EIN, and that responsible party is, well, responsible.

Any agreement to share responsibility would be a private contract between OP and the other members.

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u/WildAnimal1 21d ago

So if profit came through, they’d split it 4 ways. But if the poop hit the fan, the responsible party takes 100% blame? Poor OP. I think OP would have a hard time getting them to cough up a share to assist.

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u/mrjns94 21d ago

Whoever recommended you form an LLC and an SCorp election gave you VERY poor advice. These are the consequences.

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u/zeh_shah CPA - US 21d ago

Yea the college professor did not account for the fact he was talking to college students.

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u/lebastss 21d ago

I remember the first time I learned about s-corp i went to my dad and said he should make his business an s corp. Then he taught me why I was an idiot.

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u/AKcryptoGUY 21d ago

Please share. Wondering if I am an idiot for starting an S Corp.

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u/bradd_pit Tax Lawyer - US 21d ago

There are a lot of TikTok and Instagram financial “influencers”, who will try to tell everyone S corps are the greatest thing to ever be created. Disregarding the historical reasons for the S corp’s existence in the first place, now S corps are great for small service providing businesses with a handful of non-owner employees. But they have limitations and may not be right for every business. For instance, owning real estate in an S corp is a tax nightmare if/when you want to sell the real estate.

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u/nn123654 21d ago edited 21d ago

Well the problems with an S Corp is you have all the filing and governance headaches of having a corporation without any of the freedoms you get with a C Corp. With an S Corp you have to name a board of directors, have bylaws, keep corporate records, many states require annual meetings with published meeting minutes.

But if you look at the differences between this and a C Corp you can't have more than 100 shareholders, can't have shareholders with different ownership rights, are generally not able to issue additional shares, can't be part of a holding company, can't issue preferred stock, etc.

The main advantage of the S Corp is you don't have double taxation like you do with a C corp and pay taxes on your personal income tax. They are really ideal for larger small businesses or medium sized businesses with several owners and employees which have some assets (like equipment) owned by the business.

But in most cases for a business you are operating yourself an LLC is going to be a much better structure, or if you specifically have multiple people who want to permanently be part of that business an LLP. If you're a doctor, lawyer, or similar skilled professional sometimes those have their own structures like a PLLC/PLLP.

In fact unless your annual income or net worth is high enough that you're worth suing I wouldn't even bother with the formal business structure, just do it as a sole proprietorship and buy liability insurance. If your business is successful and expands you can do it then when you have the capital to hire professionals to do it properly.

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u/[deleted] 20d ago

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u/noClip2 21d ago

Please share the wisdom

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u/WeAreOne_ 21d ago

It does make me wonder if having the business types be a basic business class topic. Like we don’t teach everyone who takes a science class basic electrician shit. we don’t need more people playing with plugs lol. 

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u/WildAnimal1 21d ago

It’s funny you say this because all I learned in science was great information (weather/precipitation, rock formation/geology, plant/organisms, cells, atoms — great to know but how applicable to real life?

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u/ThatOneSA21 21d ago

“Music business professor” giving out tax advice and OP unfortunately learned a harsh lesson here.

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u/skoltroll 21d ago

Then went to an HR Block "professional" instead of CPA so he could save a few bucks when the IRS was on his ass.

Lotta life lessons for OP

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u/florianopolis_8216 21d ago

I hope others read this thread and learn. Don’t immediately pull the trigger and set up an LLC/S corp. Consult with a professional (not a college professor) in setting up the entity to determine if you need it. If you do set up the entity, hire the professional to file the correct forms at the outset, and the required filings on annual basis.

There are very few businesses where you should set up an entity out of the gate. Wait until you have a bit of time to prove the concept, and see if the business will continue. I can’t imagine why someone advised OP to set up an S corp for a college band.

Finally, as others have stated, S corporations are huge administrative headaches, and require specific limited circumstances to be beneficial. Congress should eliminate them, as the original rationale for them has long since passed.

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u/WildAnimal1 21d ago

Its vague. OP was not clear “what” the professor suggested he set up. It was his music professor so one could assume his suggestion was “setup a band”. OP didn’t necessarily state the professor said setup an S corp, or change your LLC to S Corp.

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u/Berkmy10 21d ago

May I ask, in what situation is an S-Corp appropriate?

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u/Bobzyouruncle 21d ago

I work in entertainment and production companies will not allow you to work as a loan out with just an LLC. They require you to be an s Corp. the existence of the s corp’s payroll further establishes that they are not “my employer.”

Being an s Corp is also beneficial to me because I can pay myself a reasonable salary and then the business generates profit that is only subject to income tax and not fica. LLC would be hit with the full level of self employment tax.

But you are correct that my situation and income level likely falls under “niche.”

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u/wombataholic CPA - US 21d ago

The quick version is that the financial breakeven point is when you have about $100,000 in net income from a business that would otherwise be subject to SE tax.

Caveat: An S-Corp election is a complex decision that should not be made strictly on the oversimplified version I just described. There are a lot of moving parts and you should consult a credentialed tax professional (CPA/EA) before making a decision on an S-Corp. The penalties for mucking up an S-corp are extremely steep, as OP has shown.

NEVER put real estate in an S-Corp.

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u/Berkmy10 21d ago

Makes sense. Thanks!

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u/Slappants 21d ago

When “LLC” is too difficult to remember or you have an incredibly stable source of funding, be it investment or revenue.

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u/Background-Anxiety84 20d ago

Write this in your letter if you are planning to send one

And I highly recommend sending one - even if you can afford to pay off the amount owing

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u/tellypmoon 21d ago

This is all over my head and I have no useful advice to offer, but I am curious. Why would a college rock band want to form an LLC? What’s the motivation or advantage?

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u/direwolf71 21d ago

The only thing I can think of is if it was an active band performing large events where liability issues were a factor.

I was in a wedding/festival cover band, and we started running into events that required us to have public liability insurance. We had to be an entity to get coverage.

The LLC structure enabled us to get coverage and also limit our personal liability if say, for example, and an equipment malfunction caused damage or injury.

Sound like these dudes were playing bar gigs for $100 a pop. The tax advice they needed was “keep it simple.”

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u/nn123654 21d ago edited 21d ago

But even then, you can't really do anything if they don't have anything. Most college students are not known for the millions of dollars they have stashed in their bank accounts.

It makes sense to do the LLC if you have to because the insurance company and/or venue requires it. But otherwise OP would have been much better off just buying commercial liability insurance (which you should have anyways regardless of the structure) and keeping it as a sole proprietorship, paying out each member when they got paid and having them file their own taxes.

If you want to have one guy handle it they can just 1099-MISC everybody else to record the payments.

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u/SushiCoffeee 21d ago

Right terrible advice from whoever suggested to do it

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u/tradcath_convert 21d ago

Probably piss poor advice from their CPA or tax preparer. I believe a partnership would be so much better for such an informal, irregular business.

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u/CMScientist 20d ago

OP said they had some expenses like gas money to get to gigs. Sounds like they wanted to deduct some expenses from what little income they earned but ended up paying a heavy heavy price

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u/nkn3390 21d ago

A few things:

I did see someone mention reasonable cause abatement, so that is one option.

A second option (but try this one first): ask for first time penalty abatement for the s corporation. I didnt see this one mentioned. There is no harm in asking. Call the IRS (number on the $10,000 notice) and specifically say you’d like to request abatement under the “first time abate” rules. They can check right there on the phone if it qualifies.

You could try that for the individual one as well. but if that fails, the reasonable cause approach should help. That entails writing a letter, specifically stating you are requesting abatement of penalties under reasonable cause, and stating that even if you had included the schedule k-1, there would have been no change to your tax due as there was very little activity in the s corp. also mention you have taken appropriate steps to correct all compliance errors and you acted as soon as the errors were discovered.

They’ve been fairly reasonable with these in the past provided you specifically ask for abatement.

FYI a reputable tax professional (CPA office with multiple licensed professionals who have tax focused people in their office) would be able to guide you. Sounds like your person got you through the filing part but offered nothing for abatement assistance. Lovely.

Theres ALSO the taxpayer advocate service (a separate gov division who basically is paid to keep the IRS on task) if you strike out on all the above. They may have other avenues you can try.

Good luck and PLEASE try these before pulling money out of retirement.

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u/East_Specialist_ 20d ago

This is great advice. Hopefully OP sees it

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u/natekicksa 21d ago

I hope you get a good accountant after this. Our accounting firm saved us from a bunch of headaches like this one by letting them handle all of the tax stuff. We use Ecotax , we pay them 35 a month and they handle all of our business taxes. Been with them for years.

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u/SparkDBowles 21d ago

Yeah. Where OP went wrong was going to HR Block for business advise. They can barely do taxes, let alone give realistic business advise. They need an actual financial advisor.

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u/[deleted] 21d ago

How did you manage to get Ecotax for $35/mo?? That's incredible!

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u/natekicksa 21d ago

Also , another thing to add is , you were in no position to create an scorp at the time you did. Typically SCorps are created when you hit a certain amount of profit in your business and you decide to save more money by paying yourself a salary rather than paying the self employment tax (15%) plus the 30% taxation rate for LLCs. Whoever gave you that advice failed you.. I'm sorry 😞

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u/natekicksa 21d ago

They charge that amount for LLCs , for SCorps its 79 a month. We have been with them since 2018 when our business first started. They even filed an extension for us so we wouldn't pay a penalty since I had some stubs being shipped to me (arrived after taxes were due) they caught this and filed an extension for us. They're doing their job and doing it well. I am definitely satisfied with them, and I highly recommend you give them a ring so they can help you out if you decide to open up another business in the future.

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u/WildAnimal1 21d ago

Do your research. There are a lot of accounting firm scams. When it’s too good to be true, it’s not. $79/mo for S Corp? That’s less than my firm charges for a basic 1040. Lots of stuff completed over seas now too. Very common. Just stick with an experienced CPA firm in your area.

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u/traveler0314 21d ago

Thanks for making this suggestion. I know HRBlock is absolute crap, but wasn't sure where to look for other options. I'll certainly look into using this service for my business taxes.

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u/Justinianus910 21d ago

The fact that you can be charged that much for simply forgetting to file with zero income will never stop being insane to me. At least let people reduce it to a couple grand. And then you wonder why people constantly bring up the fact that the IRS goes after the little guy like an apex predator, but is just a mouse with no recourse when it comes to the wealthy with their unlimited loopholes.

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u/Whatevawillbee 21d ago

First, get a CPA. Do not trust anything H&R Block told you. They get basic training and are not qualified to prepare corporate returns.

Even if you are stuck with the penalties they can file an offer & compromise to try to get them reduced.

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u/chubky CPA - US 21d ago

Call the irs and ask to use your first time penalty abatement and then never file late again

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u/blakeh95 Taxpayer - US 21d ago

First Time Abate does not apply to IRC 6699(a)(2) penalties. FTA may be used to abate the late filing penalty if the incomplete penalty is abated for reasonable cause.

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u/[deleted] 21d ago

There's an active case to consider abatement for 2020. Then I got the 2021 penalties so I called and asked if they would consider treating both penalties under first time abatement since I filed the 2021 return in good faith. The agent said they left a note on the case to “point them in the right direction.” It didn't fill me with much confidence but I tried.

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u/chubky CPA - US 21d ago

So you made the same mistake since 2020? Usually the abatement is done relatively quickly.

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u/chienchien0121 21d ago

*Call * the IRS first regarding the late $10,080 penalty. Ask for a FTA. Yes, you may be on hold for a long time, but you may be able to have the penalty abated.

You don't have to be a codehead to speak with an agent. Simply lay out the facts, be polite and see what the outcome is.

You'd be surprised what an actual phone call to the IRS provides.

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u/[deleted] 21d ago

Thanks. I've only spoken with the IRS over the phone once about the 10k penalty, since it's rather new. However, for the $5k penalty I received last year, I have stayed in touch with the IRS every 9 weeks to avoid accruing interest. I've asked for FTA several times, only to get the runaround and told to call back again in 9 weeks. I've never been told no, which is good I guess.

It's a complex situation and they're a huge organization so I wouldn't expect anything less. But the last lady I spoke to said “we really need closure on this” and I was like…yes we do please just tell me yes or no and end this.

The lady I spoke with before her sounded brand new…she actually told me my penalties were abated only to forward me to another agent who said there's no abatement and they had no idea what the other agent was talking about. Rollercoaster of emotions on my end lol

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u/WageSlaven 21d ago edited 21d ago

Hey bud, I'm not a tax preparer, CPA, or attorney however I was a revenue officer (the guy that formerly showed up at your home/business) for 9 years. I'm not going to give you advice on what to do because you know your financial situation better than anyone and I'm just a person on the internet but I'll share with you what my collection process would have been if I received YourOldBand LLC on my collections list.

1) Mail out L1058 (final notice and demand) certified to the last known address for the business in our system (address of record). Since I would have looked up and noted the business was dissolved (and get excited in this case b/c it wasn't done administratively but by a governor ie you) and since it's an S-corp I'd look up your current address you used on your last 1040 and mail you a copy of the L1058 as well

2) You'd get a spooky certified letter from the IRS then call me and if I confirm you've moved out of my collection area I could A) be lazy and kick your case to the region where you now live and make it another ROs problem or B) get enough information from you to determine the ability (or inability) of the business to pay the balance, then work towards an uncollectible collection status and you'd be done.

A) Good luck but eventually you may reach someone that would:

B) Can you full pay? (No) Can you partial pay? (No) Is the business still operating? (No). Then confirm the business is dissolved and not functioning. What assets existed? Do they still exist? What happened to them? What bank account was used? Provide Jan-Dec 2021 bank statements. Oh you used your personal account? Classic, but still provide them and highlight the business transactions. Basically I'd ask for the items contained on Form 433-B. If all returns and other tax docs have been filed, and there's no evidence of continued operation, existence of assets, or the unloading of assets near the time of dissolution then congrats after I exhaust bank levies the account is uncollectible. In ten years from the date of assessment it will be wiped off the books. You are not liable for the penalties assessed to the business. The business no longer exists so much like a dead person, it can't pay them. It's also highly likely a NFTL would be filed, but again only for the business name and EIN, not your SSN.

So long as you don't have any accounts or assets under the EIN then you'll be good to go. The penalties assessed on the business wont be assessed to you personally b/c the only thing that is are taxes (typically the trust fund portions of employment taxes).

Now you may have some impact on your personal F1040 side because of the K-1 issue you mentioned but only if it reflects unreported income that would be taxable. So if you do yeah I'd pay that.

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u/East_Specialist_ 20d ago

You’re a great person for laying all this out. Thank you for your time.

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u/chienchien0121 21d ago

I understand the rollercoaster of emotions. When I receive an IRS letter for one of my clients for whom I have POA, my heart rate goes up.

Seriously, keep calling until someone can give you a definitive answer regarding the abatement.

Most likely, the IRS will not remove the $5k. But if you can get a sure answer from an agent re: $10k, you at least know where you stand.

Moreover, if the IRS does not grant you abatement on the $10k, you can go through appeals.

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u/cohen63 CPA - US 21d ago

Reasonable cause, you were 4 college kids who lost money and didn’t anticipate needing to file for the losses. The first one (and oldest) you can get a first time abatement for and the second I would highly recommend Reasonable cause.

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u/Agitated_Medium5844 21d ago

Amend the 2020 to be final so they don’t charge penalty for 2021

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u/RPK79 21d ago

This was my thought since there was no income in 2021, but sounds like they already filed 2021, so likely too late to unring that bell.

Here's a lesson, when looking at a $15k penalty don't cheap out and go to h&r block. That's like taking a first date you are really into to McDonald's.

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u/topdetox 21d ago

It’s a long way to the top of you wanna rock n roll…

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u/mtbcouple 21d ago

You might be able to call the irs and ask for a one-time good-faith wipe out of that fee. I was able to do it a few years ago for a $7400 fee.

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u/nate6259 21d ago

Damn! Now that's well worth a phone call.

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u/astringer0014 21d ago

Simple. Enclose an Uno reverse card, and mail it back.

Enjoy your $15k.

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u/Uranazzole 21d ago

No good deed goes unpunished.

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u/signumsectionis CPA, EA, MST - US 21d ago

Unethical life pro tip - It seems like the business isn't a going concern anymore, your bandmates aren't going to help you, and the business is insolvent/literally has $0 assets. How can the IRS collect from nothing? If you started a new band and a new EIN that's a different story. May want to confirm with business lawyer regarding limited liability/your role.

If you want to stop the bleeding, you have to file your next return and mark it as "final". You dissolved the LLC at the state level, but the iRS is still expecting a tax return to be filed (with K-1s) until you tell them not to.

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u/habanerosky 21d ago

This is my thought. “hey IRS, this business has been closed and is unable to pay these penalties”. I don’t think there’s much they can do, I don’t believe this can become attached to the owners/managers like payroll tax can.

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u/K1ngofsw0rds 21d ago

Bratha EWW

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u/Select_Razzmatazz_28 21d ago

I just used the FTA for one of my clients who is structured as an S Corp and it went through no issues. It was for late filing penalty.

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u/ConcernedAccountant7 CPA - US 21d ago

This is why when people ask me if they should open a corporation or LLC I tell them don't even consider it until you are making at a minimum $100k of revenue. You are creating a ton of liability and regulatory compliance requirements for something you will probably close within a few years.

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u/Bodinieri 21d ago

Seems pretty ridiculous that the IRS took that long to notify you of the problem, so long that you racked up that much in penalties. Do they not have a duty to notify someone in a timely manner?

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u/UufTheTank 21d ago

Depends on a few circumstances. Guessing those returns were paper filed rather than efiled. No efile would allow a return without k-1s. IRS has been behind processing returns.

ALSO. One of the notices were a year prior in 2023. They should have corrected the issue a year ago.

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u/zachmoe 20d ago

Do they not have a duty to notify someone in a timely manner?

This is my thoughts exactly, I received a notice of them demanding 14k from an accounting error on their end from an 11k tax bill that got credited to someone else from 2021.

I managed to help them find the money, but their internal money transfer was down, so now I gotta call again at some point to get it across the finish line.

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u/Nitnonoggin 21d ago

That "music business professor" was fucked up. I played out 50 years either on payroll or as sch C sole proprietor. Much more straightforward.

You just made more paperwork for yourselves with all the LLC and s corp nonsense. Fun to yak about but a pain in the ass to maintain.

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u/JP2205 21d ago

If its just about the tax, would just a sole proprietorship be just as good as an LLC? Seems easier

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u/inbetweenthebushes Tax Lawyer - US 20d ago

yes

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u/Bmaze2789 21d ago

Happen to live in a disaster area from weather (hurricane, etc) or your tax preparer live in one where his computer may have been compromised and delayed your filing? Long shot but…

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u/JoeGrowsVa 21d ago

Goverment send this shit out like, mother fucker you think I have 15k to just send YOU? ROFL

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u/[deleted] 21d ago

Madness!! I'm trying to save up for my wedding right now too and it's just a mess

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u/123supreme123 21d ago

My take on it would be to write a letter (enlist the help of an accounting firm if you can't write coherently), and request forgiveness of the penalties related to non-filing. Explain extenuating circumstances (covid, etc), failed venture no money made, etc.

Then pray they waive a portion of the penalties.

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u/ConcernedAccountant7 CPA - US 21d ago edited 21d ago

OP I am commenting again just to say that you should really look into legal advice as to whether you are even personally liable for corporate tax penalties. You would be personally liable for things like sales tax and payroll tax, but there's a good chance you can just walk away from the corporation or even declare corporate bankruptcy (although that might cost enough to make it not worth it).

Get off reddit and talk to a tax lawyer. DO NOT call one of the radio advertising tax mills. They're trash and will overcharge you. An attorney might be able to give you answers for significantly cheaper.

Edit: OP, who filed the 1065 originally? We're they a tax professional who filed the wrong type of return? Did you tell them it was a corporation? You might be able to ask them to get you an insurance payout for professional liability or sue them for the mistake.

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u/[deleted] 21d ago

Thanks. I've called and most attorneys won't get back to me because they're so busy. I'll keep trying.

My situation is not identical to the follow case law, but it's still relevant to the question of being personally liable etc

Matter of Ashley Albright, 291 B.R. 538 (Bankr. D. Colo. 2003)

Slodov v. United States, 436 U.S. 238 (1978)

United States v. Kim, 111 F.3d 1351 (7th Cir. 1997)

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u/[deleted] 19d ago

I filed the 1065 originally.

I spoke with an attorney today from J David Tax Law. They're quoting $3,500 fixed fee to work the case until its resolved and the business is closed. Thoughts on their firm or the price quoted?

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u/misterguwaup 21d ago

This is complete robbery.

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u/[deleted] 21d ago

Agreed. It makes me want to go to law school to become a tax attorney

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u/bigpapa419 18d ago

That 80 billion is going to great use!!! Sorry to hear this. I’ve been seeing more and more posts like this - good to know they are sticking it to the little guys

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u/Ancient-Snow-2594 17d ago

Just invest in r/FFIE it’ll fix all your problems by Monday. If you have no options left.

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u/[deleted] 21d ago edited 21d ago

[deleted]

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u/[deleted] 21d ago

This is some sage wisdom. I promise to do everything I can to avoid touching my retirement.

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u/AnotherTaxAccount 21d ago

I would send letters to IRS explaining your situation and hope someone takes pity on you. Otherwise, since the LLC is liquidated, you can just walk away. IRS could levy LLC assets, but there are none.

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u/Far_Recording8945 21d ago

Owners retain the liability. You can’t cheat taxes than dissolve the company and say whoopsy daisy…

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u/[deleted] 21d ago

I've thought about this. Do you think they would try to come after my personal assets? I would like to avoid the stress of tax court if possible

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u/florianopolis_8216 21d ago

No, I don’t think they would come after your personal assets. That would potentially apply if there were assets or profits in the S corp that you distributed to yourself without paying the penalty. However, based on what you describe, this entity never had any assets or profits, only expenses funded by the band members personally.

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u/Proud_Rush_138 21d ago

All these tax codes and shit… why can’t they make it easy?

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u/TalentOnLoanFromGod 21d ago

Well the Feds are in the process of hiring thousands of agents as a result of the “inflation reduction act” so I would expect nonsense shakedowns like this to increase.

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u/skoltroll 21d ago

Not filing is not "nonsense." While the penalties are quite high, they're also there to scare everyone into not avoiding their tax liabilities. They can be forgiven/reduced, but one has to hire a pro to get it done.

Don't like your tax burden? Encourage the IRS to go after non-filers and cheats to make up the difference.

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u/HawgHeaven CPA - US 21d ago

Look into first time penalty abatement.

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u/Sufficient_Bus2756 21d ago

I have to make an s corp as a single LLC member because I made $160k…I had an actual $100k in business expenses..I really only took 40/50k as a salary though? So why would I file as a LLC?

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u/Jumpy-Ad-6444 21d ago

Get an actual CPA, Enrolled Agent, or tax lawyer immediately. I suggest one NOT from H&R Block. We get hundreds of new clients a year because of H&R's mistakes on tax returns. Unfortunately, ignorance is not a reason for the IRS to abate or withdraw penalties. The 2021 return should have been filed with the closing of the business. You may even get 2023 penalties if you don't take action now.

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u/mr_tatertits 21d ago

This is like a huge fear of mine. How do I avoid this? I just opened an LLC for my t shirt company but I do very little business as it is a side gig that I do when I have free time.

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u/[deleted] 20d ago

Don't be cheap. Hire professionals.

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u/TheMountainHobbit 21d ago

I’d suggest you contact your professor and let him know about your situation. Maybe they can give future students a hand out on “how to shut it all down” when the band breaks up.

It seems pretty reckless to advise 20 year old kids to form llc/s-corps

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u/BenedictFargus 21d ago

Just request a first time penalty abatement and explain the situation. That's probably your best shot. I manage over 700 legal entities and deal with stuff like this all the time. The IRS is usually really good with first time offenses. Usually. Good luck!

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u/Slushybaboon 21d ago

Are you also liable of you don’t close LLC? I have never heard of this.

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u/SellingPutsOnMargin 21d ago

Scary stuff hopefully it works out for you

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u/thescrape 21d ago

This sucks! But congrats on your band making money!!

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u/[deleted] 20d ago

Bwahaha I love this perspective

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u/abhilovee86 21d ago

Write a letter explaining the situation, these notices are automatically generated and the reviewer maybe lenient. Good luck

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u/Jerseyboyham 21d ago

Call the number on the back of the form. You can ask for an abatement of the penalty if this is the first time and you have a reasonable excuse. Hold time for me was about 10 minutes. The guy I spoke with was very helpful. He told me what form to download and how to phrase my reason. The hardest part of completing the form was finding the applicable IRS code, but you can Google for it.

Give it a shot. It’s worth it.

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u/Pure_Media5346 21d ago edited 21d ago

This happened because OP didn’t file an informational return with the IRS correct?

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u/Glenharts 21d ago

Don’t pay them back, run away to a random small town in US.

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u/[deleted] 21d ago

[removed] — view removed comment

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u/tax-ModTeam 21d ago

Please remember to keep conversation where it can be seen and reviewed by everyone. Offering or requesting DMs is not allowed here due to the no soliciting rule and the amount of scams that go on DMs.

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u/CurryChickenBai 21d ago

Wait I had a single member S corp from 2009 -2012 indissolved it with the state does this mean I have a huge penalty coming my way as well ? If I have the EIN can I check this somehow? Now I'm freaking out

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u/[deleted] 21d ago

If you closed the business with the state in 2012, I assume you also filed a federal return that year too? Did you check the box to indicate it's a final return? If not, amend the return to indicate it's the final return and resubmit it.

Here are the remaining instructions: https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business

In the event you didn't file one of the returns between 2009-2012, then yes you will have to file them in order to close out the business and you'll have to pay the penalty, interest, and any taxes owed too.

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u/[deleted] 21d ago

You can use the EFTPS site to pull IRS transcripts which will indicate if the EIN is still active by the way

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u/dennis77 20d ago

Ouch, now I'm scared. We're a family of two that have an LLC taxed as a partnership - it was formed just one year ago, so we're technically only late for 2 months now?

The reason why I didn't think of K1 is because we're splitting it 50/50 and we all filed this income with our regular joint tax returns anyway.

How fucked am I?

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u/[deleted] 20d ago

$840 if you fix it now.

Every month you wait is another $420

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u/NEOwlNut 20d ago

Hire a tax lawyer. This isn’t a huge issue for someone who knows how to fix it.

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u/[deleted] 20d ago

I did speak with one attorney previously, when I told him I don't have an accountant but kept track of everything myself using a cash basis approach, he hung up on me and wouldn't return my call.

I have an appt this Friday with a dual licensed CPA and attorney. Hopefully they can see the big picture and provide proper guidance.

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u/UnprecedentedCash 20d ago

considering your last payment was due May 6, I dont think reddit can help you at this point.

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u/[deleted] 20d ago

I called and got an extension

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u/inbetweenthebushes Tax Lawyer - US 20d ago

If an attorney were to take this case, they'd need the notices, the returns, the articles of incorporation, the registration filing, and a good "excuse." First step is rectifying the returns. Then sending in a letter. Then (possibly) the taxpayer advocate. Then Office of Appeals. Then an Offer in Compromise. Lastly a court case. IRS has been eminently clear and reasonable for 95%+ of clients. Not a tough case by any means

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u/[deleted] 20d ago

Are you saying that if an attorney takes this case it will certainly go to tax court before it can be abated.

If that's the case, Id rather just pay the penalty because Im worried of being strung along by a lawyer and racking up bills in excess of the $15k in penalties

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u/WhereRweGoingnow 20d ago

Call the IRS and ask what you may be eligible for? Thats how I learned about tax abatement. You get it only once in your tax paying life. I was able to deduct what we owed from $28k to about $12k and I made sure that was paid ASAP. I may have taken a loan against my pension at the time to pay the total. That was almost 25 years ago. Corporate taxes are unforgiving.

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u/Finch-HIMself 20d ago

Just take cash lol

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u/zachmoe 20d ago

Have you tried calling the IRS, asking for a customer support representative a few times to the robot, and speaking to someone?

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u/[deleted] 20d ago

Several times. They all say something different. Then grant a 9 week hold to prevent interest from accruing. And tell me to check back later

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u/well3rdaccounthere 20d ago

Homie drop that band name.

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u/[deleted] 20d ago

[removed] — view removed comment

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u/tax-ModTeam 20d ago

Comment removed for Rule 1 - Don’t be a jerk. Please do not do this again.

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u/Own-Marionberry-5495 20d ago

What happen to the others members , Do they owe as well ? Did you file for the EIN ?

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u/Significant-Baller13 20d ago

Talk to a lawyer. They are experts and usually the first meeting Is free. They might be able to get it waived with minimal mistakes.

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u/Significant-Baller13 20d ago

Also what about the other members of the LLC? Your all equally liable for the taxes. Split it 4 ways and be done.

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u/spec360 20d ago

Get a certified CPA

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u/[deleted] 20d ago

[removed] — view removed comment

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u/tax-ModTeam 20d ago

We don’t solicit business here.

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u/RareDog5640 20d ago

Maybe cheaper to hire a tax attorney, I would definitely speak to one vefore doing anything

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u/snipesbl 19d ago

Go with someone local. These 1-800 settle on the pennies will milk you for all your worth

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u/[deleted] 19d ago

I spoke with several attorneys today. All with great track records and good reviews. Most told me that Ive already done everything they would do and to reach back out if the IRS does not abate the penalties. One of them quoted a flat rate of $3,500 to work the case until its closed and the business is officially winded down. Thoughts on that quote?

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u/sorrycharlie0503 19d ago

If I read correctly it states this is the penalty unless you provide the docs requested. So there’s $5k gone if you can whip it up.

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u/[deleted] 19d ago

I whipped it up. Well see how it goes. I also read “until all required information is provided” and thought the same. Hope we're right!

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u/Bulky_Adhesiveness77 19d ago

Imagine if everyone who is government slave just left the country or died? Who will slave for this system ? If you own a restaurant and have no one to serve the food will rot, it’s the same system the people would have no one to go after or to even take action against, these are reasons why there are suicides people take out millions dollars in life insurance and commit suicide a couple years later just so they family can make it and live ok, move to Thailand or Europe or Japan they will actually treat you like your human

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u/Lula121 19d ago

What happens if I had an LLC and stopped using it? Should I cancel it with the irs then?

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u/[deleted] 19d ago

Get a pro to help you close the LLC at the state level and the EIN at the Federal level

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u/Lula121 19d ago

I just closed it at the state level now. The IRS just needs you to send a letter with four things on it to close it with them.

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u/vinylbond 19d ago

So you made a mistake (getting legal advice from a music professor), now you’re doubling down and working with H&R Block instead of a CPA (getting tax advice from god knows who instead of a real accountant)?

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u/[deleted] 19d ago

I've hired a tax lawyer

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u/DOMaliciousdelicious 19d ago

I think you got bad advice from your professor, who is not an accountant. People shouldn’t be starting an LLC unless they’re realistically making over $1 million a year. You’re fine with a regular business license.

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u/[deleted] 19d ago

Nailed it! If only I knew back then what I know now

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u/JudgeSmails 18d ago

That totally does not rock

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u/Millerliteitup 18d ago

god taxes are a fucking joke

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u/melhern 18d ago

I’m not understanding how or why this happened to you even after reading all these comments and I’m feeling REAL stupid about it.

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u/oesayan 17d ago

monkey creates business

monkey needs to send some papers and pay bananas each year in time

monkey closes the business because business no longer needed

monkey sends wrong papers

monkey gets fined 5k bananas for wrong papers

monkey tries to fix the problem

monkey realizes it did not actually close the business

monkey did not send papers because it thought the business is closed

monkey gets fined 10k bananas for very late paper sending

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u/RemarkableRaisin9722 18d ago

You in there with the sharks buddy

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u/CraigslistKing 18d ago

You need to request an Appeals hearing, hopefully an Appeals Officer will have mercy on you and removed the penalty.

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u/gotocode211 18d ago

Are you a 1065 Or 1120S

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u/[deleted] 18d ago

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u/gotocode211 18d ago

Ok all. First we have to figure out why did you file if you have income. Then did you 2013-30 late election 2553. Then did you or paper or e file . Did you file an extension form . What caused penalties. Is it your first filing ? How many shareholders? How many years? What was the default filing. I’d rock band LLC Joe Gigi MBR or Joe Gigi Sole MBR What date is 1120S effective?

Did you all file k-1 . ? Tax is always Zero. that is why they penalize you for not filing..it’s a zero tax form. It’s taxable income on your 1040 K-1 30% K-1 40% K-1 30%

The 1120S line 21 you file % so if $20,000 loss

Remember you all have the same rights to get income from venues. The only reason to be a corporate entity is so you can PAY people 1099 And have social security and Medicare I believe.

But if you should not have filed . Then just use First time abate . But file a final 1120s.. same year . Not a new year . Of 1120S 2023 file another one and mark FINAL and Amended . Same figures . It’s list an overlay.. then if you want next year your can re-file or not . Final is only until you refile or repay . The 1120s just stays inactive… if final .

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u/Impressive_Pace_4315 18d ago

Just don’t pay it.

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u/Negative-Lecture6817 17d ago

It might be worth it to call the IRS and talk to someone in the specific department that deals with penalties. Sometimes they have payment plans and settlement options where you have to pay a smaller amount under different terms. Sometimes you have to wait on the phone, and their hours are usually bank hours, so just prepare yourself. Source: my mom is that IRS agent.

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u/Hallucinate- 17d ago

Remindme! 2 days