Tax Penalties

[Zephyr]

What is the name of your state? WI

for the record I did search for my answer but could not find an answer. LOL

questions are in bold for your convenience

for tax year 2004

Hubby owes the IRS over 10k for taxes for that year. The company he worked for tried to make all the employees sign a document stating they didn't want withholding done, hubby refused, several times. They continued to advise him that it was so much easier to just pay what you owe to the government than try to get your overpayment back- hubby still refused, he got the w2 (or is it 4) and indicated the withholding he wanted. This job was overseas for about 7 months, he never saw an actual check stub as the funds were DD and he had a stateside mailing address.

Anyway- he owes the tax- no question about that, but we just got the surprise of a lifetime...we had set up a payment plan with the IRS- did not take the injured spouse option so as to be able to pay this debt off more quickly- we were to pay $200 per month (have never missed a payment), and we would not get a tax return until the debt was satisfied...we figured, 3 years tops...

we recieved a statement- or our monthly bill from the IRS (can't remember now cause I am shell shocked!) and our amount owing is now over 11k, this after 1 + years of the monthly payments and one years worth of tax return....we thought the balance was surely down to the 7500-8000 range...obviously the interest and penalties are accruing faster than we are paying.

what are our options regarding this? besides pay more (we are scrutinizing the budget to see where we can pay more on this debt)...is there any way we can get the huge interest and penalties frozen since we are definitely making a good faith effort here? Our income is not below or 120% of poverty so I don't think we would qualify for anything relating to hardship.

Is there any way for the employer to be held responsible for the interest and penalties portion?

hubby had previously contacted an advocate, but I have yet to see anything positive come out of that effort...but I am not sure what one would expect to see anyway

any avenues we as lay people would not be aware of?

 

[TinkerBelleLuvr]

Generally the tax advocate is your best bet in cases like this. I would ask for any abatements on penalties; interest is not waivable. Find out what you owe and get the interest rate. Plug that into a loan amorization program to find out how long it would take to pay off. Depending on what the interest rate they give you, you might be better off just getting a loan and make the payments and use a tax refund to help pay it down quicker.

http://www.bankrate.com/brm/popcalc2.asp
http://www.ppar.com/amortization.htm

A 10K loan, for 3 years, at 8% interest needs a payment of $313.36/ month.

 

[Zephyr]

Generally the tax advocate is your best bet in cases like this. I would ask for any abatements on penalties; interest is not waivable. Find out what you owe and get the interest rate. Plug that into a loan amorization program to find out how long it would take to pay off. Depending on what the interest rate they give you, you might be better off just getting a loan and make the payments and use a tax refund to help pay it down quicker.

http://www.bankrate.com/brm/popcalc2.asp
http://www.ppar.com/amortization.htm

A 10K loan, for 3 years, at 8% interest needs a payment of $313.36/ month.

I will definitely do that, will ask for the abatement....AND we did just pay off the car early- I was having the same thought- refinance the tax amount onto the car 6% is better than 8 I guess LOL- and that loan would help the credit rating rather than- well I have no idea what this tax thing is doing

Thank you so much

 

[Zephyr]

additional question from hubby- can we sue the company to recoup the interest and penalties?

 

[irsos]

A few things are unclear. First, you said he owed over $10,000. Is that $10,500 or $20,000 or what. Even if it were $10,000 even, it would still take about five years to pay it off at $200 a month.

Next, you did not really come out and say what the employer actually did. Did he issue a W-2 that showed no withhholding? Did he get a 1099-misc?

The Taxpayer Advocate is useless in this case. They cannot abate tax, interest or penalties, even if you had reasonable cause. Abatement requests must go to the Service Center. So far, I have not heard anything that sounds like reasonable cause.

Interest can be abated, but it is rare, very rare.

 

[Zephyr]

A few things are unclear. First, you said he owed over $10,000. Is that $10,500 or $20,000 or what. Even if it were $10,000 even, it would still take about five years to pay it off at $200 a month.

Oooops- 10k and some change- can't remember exactly

Next, you did not really come out and say what the employer actually did. Did he issue a W-2 that showed no withhholding? Did he get a 1099-misc?

hubyy did not get a 1099- we weren't married at the time- I don't know what his W2 said- I'll ask though

The Taxpayer Advocate is useless in this case. They cannot abate tax, interest or penalties, even if you had reasonable cause. Abatement requests must go to the Service Center. So far, I have not heard anything that sounds like reasonable cause.

Interest can be abated, but it is rare, very rare.

what is a reasonable cause- we are doing exactly what we were told to do...I guess I am not sure I understand the penalties, I don't like the interest, but I understand it....the penalties- I don't understand- because we are paying totally as agreed....just very frustrating

 

[irsos]

what is a reasonable cause- we are doing exactly what we were told to do...I guess I am not sure I understand the penalties, I don't like the interest, but I understand it....the penalties- I don't understand- because we are paying totally as agreed....just very frustrating

Penalties are for paying late unlesss you filed late, in which case, there are penalties for that also. You did not answer my questions.

 

[Zephyr]

A few things are unclear. First, you said he owed over $10,000. Is that $10,500 or $20,000 or what. Even if it were $10,000 even, it would still take about five years to pay it off at $200 a month.

right, but it was $200 per month plus tax returns, I have children, and a business, so I always get a return.

Next, you did not really come out and say what the employer actually did. Did he issue a W-2 that showed no withholding? Did he get a 1099-misc?

ok I am home now- the employer never even gave him a W2- he actually had to go through the IRS to get a print out of any and all taxes withheld. Under fed tax it says zero, but ss/medicare were paid.

The Taxpayer Advocate is useless in this case. They cannot abate tax, interest or penalties, even if you had reasonable cause. Abatement requests must go to the Service Center. So far, I have not heard anything that sounds like reasonable cause.

Interest can be abated, but it is rare, very rare.

ok I think I answered them all, I hope.....

 

[Zephyr]

Penalties are for paying late unlesss you filed late, in which case, there are penalties for that also. You did not answer my questions.

the payment is ALWAYS paid early, as in mailed 2 weeks prior to the due date if not 3, but when hubby just checked the online banking he just told me that regardless of when he mails the check it doesn't show as clearing our bank until after the due date ALWAYS....so I guess I need to look into that some more because I don't understand why they wouldn't process it as soon as they received it- which would have it clearing the bank within a few days

and no, never ever file late, too scared to

 

[irsos]

If he can prove he had a W-4 with the appropriate number of exemptions, he may have a chance at abatement of some of the penalty. The problem is, it would have been easy to tell that only SS/Medicare was being taken out and that he "should have known" that federal taxes were not being withheld. I rate his chances of penalty abatement at less than 50%. To make his employer responsible for the penalty he would have to sue.

If $10,000 was all that was owed and you were paying $200 per month, that would pay it off in about five years. If the amount actually grew, there are other things at work here - including you not having all the facts.