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Filed for a LLC EIN and 1099'd workers in the first year. the IRS did an audit and found that we did not 1099 ...

Los Angeles, CA |

enough people that were paid over $600 that we missed in our 1099's, so they charged fees and penalties about 10,000. I said BS im not paying this and walked away, that was many years ago. Now a bill came up as a levy on an old bank account of mine personally, lovely scumbag collection tactics, thats what we get for attempting to be compliant and snitch on our workers. Anyway, they said if we can prove that the 1099'ers in question filed returns then the amount would be alleviated. How do I make this go away with little or no payment? Need help, not preachers, will pay for legal service.

The LLC was originally set up as a single member when applying for the EIN, but the tax return was filed as corporation and three members, this was just a mistake in filing for the EIN but the tax return was filed as Corp with three members. the argument from IRS was that 1099's were filed properly, not an issue of reclassifying 1099's to W-2's in other words. Their argument was that we simply forgot to 1099 10 or so people that should have received 1099's.

Attorney Answers 3


  1. Best answer

    In addition to Mr. Smith's good advice, I also bring up these possibilites...

    If the corp or LLC is the employer (not a sole proprietorship), it could possibly bankrupt out of the problem. Even the threat might be enough to withdraw this $10k.

    Bank levy is also harmful in that it may apply toward later years rather than earlier years.

    You didn't say if this was limited to one year.

    You didn't say how much was taken from the bank.

    Once the bankruptcy option is examined (above) then you might look to Offer in Compromise, depending on "how badly" your business is doing. If you are destitute enough, and Offer in Compromise might work -- see my article on the analysis below.

    Barring this, you may have to use the notice of Levy (if you received it) to ask for a due process hearing to start the machinery for tax court & appeals. (See IRS link below)

    Please remember to designate your question's BEST ANSWER.

    Please remember to designate your question's BEST ANSWER.

    Curt Harrington
    (562) 594-9784
    Curt: http://patentax.com/curt/index.html
    Visit the Library: http://patentax.com/library/

    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.


  2. There are two strategies that come up for me. Ist seek a penalty abatement based upon reasonable cause, and ask for a suspension of collection action until the abate request is granted or denied. Second, contact the former workers and determine who many have filed returns, and are willing to disclose that they have file.

    You need to understand the policy of the IRS in order to understand why they enforce the penalty. The IRS doesn't want individuals failing to pay their fair share of taxes on "underground income," and they don't want employers assisting them. I have been successful in assisting to resolve these cases when the employer puts aside his resentment of the IRS, and seeks to resolve the matter.

    Good luck!
    Phillip M. Smith Jr.
    Los Angeles Tax & Business Attorney
    www.culvercitytaxandbusinesslaw.com
    www.corporateattorney.com
    Call: 323-292-4116 or 562-505-1004

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is philsmithjr@worldclasslawyers.com.


  3. You don't say whether your LLC is a single member or a multi-member. You do say that the LLC is a disregarded entity.That means either it is a single-member LLC being taxed as a sole proprietorship. If that's the case, you are personally liable for this mess. If the LLC is a multi-member, then it filed a partnership information return and gave K-1s to the partners to claim on their individual return. Your personal liability may depend upon whether you did certain business activities, like signing checks.

    You sat you want help, not preachers. The IRS would offer you a guaranteed installment plan, if you contacted it. I usually don't accept clients with this small amount of IRS debt, because my fees would defeat the purpose of hiring an attorney, when you can do it yourself.

    On the other hand, if you're willing to pay an attorney $25,000 or so to avoid paying IRS $10,000, more power to you (and the attorney who earns the fee).

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. Do NOT rely on anything I have written here -- You should contact a lawyer in your area immediately after reading my posting. The following disclosure is required pursuant to IRS Circular 230: unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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