There's the version of tax resolution the late-night commercials sell you. Then there's how it actually works. I'm Darrin Mish, a Tampa tax attorney. I've spent 32 years on the inside of these cases. Here's the real version.
DARRIN T. MISH: Good morning and welcome to the IRS problem actually the IRS Solution Attorney show.
KATRINA MADEWELL: The IRS Solution Attorney show I will get it right for you this morning.
DARRIN T. MISH: That’s right we don’t focus on the negative so we focus on the positives. It’s the IRS Solution Attorney show I am THE IRS Solution Attorney Darrin T. Mish.
KATRINA MADEWELL: I am your co-host Katrina Madewell and we are live just in case you couldn’t catch that because we definitely would have edited that out if we weren’t.
DARRIN T. MISH: I would say so we would probably cut that mumble mouth out.
KATRINA MADEWELL: If you have questions you can call us at 888-404-1010, 888-404-1010 we will take them at various places throughout the show.
Click here to listen to other IRS Back Tax Help episodes.
DARRIN T. MISH: I have to say I am fired up to be here today. It’s kind of a nice time of the year.
KATRINA MADEWELL: Yay
DARRIN T. MISH: You know it’s post, post craziness, post crazy filing deadline. The funny thing is I think we are actually busier at the office now than we were before the 18th of April.
KATRINA MADEWELL: That’s because it’s past the 15th you know.
DARRIN T. MISH: Yeah it might be people are I don’t know, still a great time of the year. The weather is still really nice and it’s always fun to talk about IRS solutions.
KATRINA MADEWELL: That’s what you do that’s your forte, certainly not mine, but I’m always having fun on the show with you. But our topic for today’s show is Things you should know about Filing Late and Paying Penalties. That’s pretty right no time.
DARRIN T. MISH: Yeah new flash if you didn’t file an extension and we are live today, it’s April 28th.
KATRINA MADEWELL: It must be we said it at the same time without looking.
DARRIN T. MISH: Yeah, I think it’s the 28th.
KATRINA MADEWELL: Yeah, it is.
DARRIN T. MISH: And if you have not filed or filed an extension then you have a significant well maybe not a significant problem but you have a problem of sorts because you are going to pay some kind of penalty. And today we are going to talk about the different kinds of penalties and how to avoid them and you know what you should do if you find yourself in that situation.
KATRINA MADEWELL: Do they get penalty even if there’s a refund for not filing on time?
DARRIN T. MISH: See it’s just not fair having a co-host who’s the co-host of the show this long you know the answer to that don’t you?
KATRINA MADEWELL: Yeah but the person listening might not.
DARRIN T. MISH: Ok so you are right. There is in fact no penalty if you have a refund coming. There is kind of a penalty and the penalty…..
KATRINA MADEWELL: What? I’ve never heard this spin on it.
DARRIN T. MISH: There is kind of a penalty and the sort of penalty is so if you file let’s say you file a return that has a refund coming, you know you are going to get 1000 bucks back you just kind of have that figured out, it happens every single year this year is no different than any other year. If you file that return late without filing an extension the IRS will not impose a penalty or interest upon you because penalties and interest are calculated based on amount of tax due, right, but the penalty is that there is only 3 years to file that refund return, if you actually file it more than 3 years late then you do not get your refund, you do not get credit for the refund, you don’t get an offset as to other money you may owe, you just don’t pass go and you don’t collect 200 dollars.
KATRINA MADEWELL: They don’t actually ding you? I don’t remember what is the penalty if you file late is it a dollar amount or a percentage of what you owe? It’s percentage isn’t it?
DARRIN T. MISH: Let’s talk about that right now.
KATRINA MADEWELL: Ok let’s do it.
DARRIN T. MISH: The penalty for filing late if you, if you file more than 60 days after the due date or the extension due date if you filed one on time, the minimum payment is $205 or if you owe less than $205 it’s a 100% of the unpaid tax.
KATRINA MADEWELL: Some surprise they never like if you get a refund they don’t tack on that $205. Really surprised they haven’t done that yet.
DARRIN T. MISH: It’s kind of surprising to me too after doing this kind of work for almost 20 years it’s always kind of made me scratch my head because…..
KATRINA MADEWELL: So instead of getting a $1000 refund you get like 800 bucks or 7….
DARRIN T. MISH: Yeah, I’m not really sure what the, I guess the rationale behind not putting a penalty there is probably there’s a lot of people they don’t want to file those refund returns right?
KATRINA MADEWELL: That makes sense.
DARRIN T. MISH: Because if they didn’t you know lots of people don’t file refund returns I know cause I have talked to lots of them. I’ve talked to people who have had a refund coming for 20 years and they tell me I’m a non-filer, I say why?
KATRINA MADEWELL: Yeah I don’t get that.
DARRIN T. MISH: And they say something like well I don’t want to be in the system you know in the system and you are like but you are a…..
KATRINA MADEWELL: You are a W-2 employee, you are gonna get money back.
DARRIN T. MISH: You get a W-2 let me explain, you are in the system so I don’t really get that but…
KATRINA MADEWELL: Let me explain to you they already know who you are.
DARRIN T. MISH: You have a number like everybody else. Speaking of numbers you know I have a couple of kids and I was in the delivery room when they were born you know years ago…
KATRINA MADEWELL: Oh God I hope so poor Heather.
DARRIN T. MISH: And well you know in the generation before me the guy just kind of sat out in the waiting room and like had cigars, like pink or blue cigars right…
KATRINA MADEWELL: That’s right.
DARRIN T. MISH: But in my generation we are expected to be in there and it was a beautiful lovely thing but the oddest thing was they won’t let you out of the hospital without having a number assigned to your kid.
KATRINA MADEWELL: Yes.
DARRIN T. MISH: Bizarre and I think that’s only been in about maybe the past 15 years or so.
KATRINA MADEWELL: It’s kind of good though when you think about the baby switching thing.
DARRIN T. MISH: Ok, we are not to the point where they chip you or tattoo that number on you right?
KATRINA MADEWELL: I’m just saying. No, but they do check you like every single time they come into the room.
DARRIN T. MISH: Yeah that’s true. So but I met a couple one time it’s been a long time it’s been about 10 years ago that now but they had a religious objection to Social Security numbers and so consequently and they had a number of kids they were one of these religious sects that has lots of kids, almost like an Amish or Mennonite kind of situation..
KATRINA MADEWELL: And no Social Security numbers for any of them?
DARRIN T. MISH: And they had no Social Security numbers for any of the kids and I could not actually, this was back when I wasn’t quite as experienced as I am now, I actually couldn’t figure out how to solve the problem…
KATRINA MADEWELL: That’s hard.
DARRIN T. MISH: You know we had this religious objection and it just didn’t fit in like the box on how to solve the case.
KATRINA MADEWELL: I don’t, to be honest with you, hopeful if there is somebody out there that can solve that problem please call us 888-404-1010 because someone that we know we think he was like stolen from a hospital and he’s never had a Social Security number.
DARRIN T. MISH: Really.
KATRINA MADEWELL: Always working under the table.
DARRIN T. MISH: Like we mutually know or…
KATRINA MADEWELL: No it’s somebody my husband knows.
DARRIN T. MISH: Ok, Ok that is interesting. Yeah I have also had another gentleman who had a Social Security number he was a little bit older than I am so he was a Vietnam Vet and when he was drafted the I think it was the Navy actually assigned him an incorrect Social Security number like they said no that’s your number and he is like but that is not my Social Security number and they just kind of dictated well you are drafted that’s your number…
KATRINA MADEWELL: There should be like an attorney like you that specializes in helping IRS issues there should be an attorney that does nothing but help fix Social Security issues.
DARRIN T. MISH: I actually solved his problem and I can’t remember how but we did get it worked out I think it did default to the non-DOD Social Security number that was correct.
KATRINA MADEWELL: Yeah but was that pre or after 9/11?
DARRIN T. MISH: Oh it was pre 9/11 actually.
KATRINA MADEWELL: Cause see that’s changed a lot.
DARRIN T. MISH: Yeah the whole security apparatus in the United States, the Patriot Act all that has really changed.
KATRINA MADEWELL: Because it’s not like you can just, Oh I never got one let’s file it’s not that easy.
DARRIN T. MISH: Yeah it’s funny you know I was of the generation that I went down to the Social Security Office probably on my bicycle and applied for a card when I was like 14 years old and I got the number and for years and years and years I carried the little card around in my wallet which is really bad practice don’t do that people.
KATRINA MADEWELL: Yeah don’t do that.
DARRIN T. MISH: Because but back then that was pre-identity theft.
KATRINA MADEWELL: But for your kids didn’t you get them like right away like?
DARRIN T. MISH: Yeah in the hospital and the funny thing is that you need those for the tax returns and what not but their cards are actually in a safe cause I can’t remember what their numbers are and I kind of don’t want to think of them as a number you know.
KATRINA MADEWELL: Yeah I never thought about it like that it makes sense to me.
PAT GEORGE: Back then you only had to remember like 5 numbers for your card wasn’t it?
KATRINA MADEWELL: No Pat that was your generation you are mixing it up.
DARRIN T. MISH: No Pat’s of the 2 number the 2 digit generation.
PAT GEORGE: No mines A or B. AB1, AB3.
KATRINA MADEWELL: They are random numbers.
DARRIN T. MISH: So let’s get back to the penalty thing as fascinating as my stories are you know if you didn’t file a return you know on the 18th this year than 2 penalties could actually apply and 1 is for filing late and the other one could be potentially paying late. That’s one of the reasons we were talking about the refund here if you have a refund you are not going to have a late payment penalty and you are actually not going to have a late filing penalty either but…
KATRINA MADEWELL: They wouldn’t want to pay a percentage on money they owe you because then they would actually owe you a little bit more.
DARRIN T. MISH: Yeah I think the longer we talk about this and why there is not a penalty for late filing of a refund return it’s got to be that they don’t want to incentivize those millions of people who don’t file their refund returns and therefore never get their refunds because our Government is essentially broke and they probably need those you know that’s probably hundreds of millions of dollars at a bare minimum.
KATRINA MADEWELL: It’s probably one of those things that slide under the radar and nobody talks about it except for us so you know.
DARRIN T. MISH: Yeah, tax geeks.
KATRINA MADEWELL: Well that’s not me I talk about it with you, you are the tax geek but you know. But you are good at it you are good at the Attorney IRS stuff.
DARRIN T. MISH: So…
KATRINA MADEWELL: Penalty so the penalty for late filing?
DARRIN T. MISH: The penalty for late filing I said was $205 or if it’s less than $205 at a minimum then it’s a 100% of the unpaid tax so if you filed a return and you owed $117 hypothetically then your penalty is not $205 it’s $117 which is kind of steep if you look at it in that perspective but if you only owe $117 on a tax return you should probably be doing a happy dance because that is really not bad in the overall scheme of what I see every day anyway.
KATRINA MADEWELL: So I’m looking at our outline and it says that if you owe less than $205 a hundred percent of the unpaid tax I think you should elaborate on that.
DARRIN T. MISH: That is what I just said so if you filed a tax return and you owed $117 of tax then your penalty would be $117.
KATRINA MADEWELL: No, no, no but if it was over $205 let’s say you owe a thousand…
DARRIN T. MISH: Yeah if you owe over $205 so if you owe a thousand the penalty can be as much as 5% of the unpaid taxes each month up to a maximum of 25% so that is really steep.
KATRINA MADEWELL: And is there a grace period or anything for that like a 60 day rule or anything extra we should throw in that after the break.
DARRIN T. MISH: No any portion of any month counts as another month.
KATRINA MADEWELL: Gotcha. Well, you are listening to the IRS Solution Attorney show if you have not filed those tax returns and you are late and you have a question you can call us 888-404-1010 you should already have that saved into your phone but it’s 888-404-1010 we will be back in a minute.
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KATRINA MADEWELL: Well thanks Pat George for keeping the music real and right on time for topic of the show.
DARRIN T. MISH: I just about let loose.
KATRINA MADEWELL: Started singing?
DARRIN T. MISH: Yeah absolutely. I forgot I wasn’t in the shower.
KATRINA MADEWELL: Oh no I don’t know if that would be pretty.
DARRIN T. MISH: That would be very bad actually.
KATRINA MADEWELL: You are listening to the IRS Solution Attorney show with Mr. Darrin T. Mish that’s him obviously.
DARRIN T. MISH: That’s me.
KATRINA MADEWELL: I’m your co-host Katrina Madewell and today’s topic is things you should know if you file late or you have to pay penalties.
DARRIN T. MISH: On your tax returns. So let’s recap real quick what we talked about if you actually file late or you don’t do an extension and so you don’t have any more time then there’s 2 penalties that can apply one if for filing late and one is for paying late. Common misperception is that if you get an extension until October 15th that you have until October 15th to pay your taxes, negative that is not correct. You are actually supposed to calculate and pay your taxes by the deadline which is usually April 15th but this year was April 18th and it’s always been kind of counter intuitive to me right so….
KATRINA MADEWELL: I don’t think people realize there is 2 penalties that’s the thing, you get one penalty for not filing on time and you get another one if you owe money.
DARRIN T. MISH: And we kind of glossed over this because we ran out of time in the last segment and that is that the payment for late filing is it can be as much as 5% of your unpaid taxes each month up to a maximum of 25% and a month is a fraction of a month so if it’s 32 days that’s not 1 month that’s 2 months.
KATRINA MADEWELL: What?
DARRIN T. MISH: Yeah so that’s 2 months so any fraction of a month counts as another month so.
KATRINA MADEWELL: Are you serious?
DARRIN T. MISH: Yes so what see typically when we have non-filers, my bread and butter, people that just don’t file tax returns for 6,7,10, 20, 50 years in some cases. We get their last 6 years of tax returns prepared and filed but what we typically see is that taxes the tax balances with penalties and interest accruing actually double every 6 1/2 or 7 years it depends on you know the interest rates at the time and the economy and things like that but pretty much that’s the general rule.
KATRINA MADEWELL: So that 1000 bucks after 6 years is 2 grand.
DARRIN T. MISH: Yeah, well and that’s not all that’s scary but when you owe 100 grand and now its 200 grand now we are talking right I mean this is a lot different situation.
KATRINA MADEWELL: Right, right which is normally who your client is.
DARRIN T. MISH: Yeah my client is not typically the person who owes a thousand…
KATRINA MADEWELL: I was easing into it because we were talking about refunds and then the $1000 penalty, I didn’t want to go right into a $100,000.
DARRIN T. MISH: Yeah and my perspective is a little bit warped right so when someone comes in and says I owe a lot of money the first question I have to say is well can you define a lot?
KATRINA MADEWELL: What’s a lot of money to you?
DARRIN T. MISH: Because it’s all perspective you know. A lot is my client who owed 23 million dollars, that’s a lot of money I think anybody can say that even Donald Trump would probably say that’s a lot of money but you know a lot of money is more money than you want to pay right?
KATRINA MADEWELL: Yeah which is probably why they haven’t filed but you know.
DARRIN T. MISH: So let’s talk about the penalty for late payment. That penalty is generally half a percent of your unpaid taxes per month and it can build up to as much as 25% as well so what’s 25 plus 25 that’s 50%…
KATRINA MADEWELL: So what does that mean?
DARRIN T. MISH: So at a certain point in time it’s relatively quick the penalty could actually be 50% of the unpaid tax so.
KATRINA MADEWELL: So keeping our simple math at a 1000 dollars due…
DARRIN T. MISH: Yeah within several months it will be 1500 bucks and then there will be interest accruing on that tax and the penalties and the interest is compounded daily.
KATRINA MADEWELL: On top of that. Ok, so that’s compounded based on the balance that they have at the time right?
DARRIN T. MISH: Exactly.
KATRINA MADEWELL: They are not talking about the initial tax of 1000 bucks.
DARRIN T. MISH: So people always want to know well what the interest rate is right now. Well it’s not really that relevant of a question but right now I do believe it’s 3% which sounds like very reasonable and fair right? Except that it’s compounded daily on penalties of up to 50%.
KATRINA MADEWELL: Yeah like even your mortgages are not calculated in compound interest anymore they are calculated in simple interest which is totally different.
DARRIN T. MISH: Right, right so these things get out of hand really, really fast so you know the best advice is if you can’t file on time pay as much as you can of the taxes that you think you may owe and file an extension and if you file an extension make sure that you can prove that the extension was sent before the deadline otherwise you are going to have penalties because they are going to say well we didn’t get it on time and that kind of thing.
KATRINA MADEWELL: I’m just waiting for you to tell the war story about someone that has this and they filed it and they took like a selfie and they posted it on Instagram with the date and their letter.
DARRIN T. MISH: I don’t think the IRS is technology hip enough to accept a selfie.
KATRINA MADEWELL: I’m just curious I could see you using it as a defense that is why I was saying that.
DARRIN T. MISH: Wouldn’t it be cool if you could take a selfie with a newspaper from that day or something like that? My story is personal experience, one year I sent in an extension right on the deadline due date but I sent it in certified mail and I got a letter about a month later saying that you know you have a late, you have a late filing penalty because of a late filing extension and I made a mistake it’s kind of a rookie bonehead mistake I don’t know why I did this but I called them and on the phone the lady was saying well you know we are right you are wrong, tough luck and my penalty was $500 and here’s a classic definition right $500 was a lot of money to me because it was more than I wanted to pay particularly cause I filed the extension on time.
KATRINA MADEWELL: Because you filed on time.
DARRIN T. MISH: So she says toward the end of the conversation she is being really rude and kind of nasty and curt and I said or she says unless you have that green slip showing that for the certified mail showing that you sent it in on or before the due date then you are going to owe us the penalty and I said well as matter of fact I do have that copy of the green slip.
KATRINA MADEWELL: Do you want to eat some crow now or later I’m just asking.
DARRIN T. MISH: Exactly so I think that cost me 5 or 6 dollars to send that in that particular year and it’s about the same now and that saved me roughly a hundred years’ worth of late filing penalties so I thought that was definitely worth it.
KATRINA MADEWELL: And I guess the bigger issue is like you said file on time if you can within the first or second extension and then pay whatever you can even if it’s not all of it.
DARRIN T. MISH: Yeah you know back to that whole idea of you are supposed to pay your tax you know by the deadline whether or not your return is due or not. Well, I can tell you with first-hand experience that self-employed people don’t know what they are going to owe.
KATRINA MADEWELL: And so what happens if they like alright I am going to take a stab at it and send a random check for whatever they have in mind, let’s say they think it’s a 1000 dollars right that is the magic number of the day. They think it’s a 1000 bucks, they send the check and let’s say they don’t quite owe that much maybe they only owe $500 are they going to get that money back from the IRS?
DARRIN T. MISH: I’m going to change your example because I don’t like it a 1000 dollars there’s no….
KATRINA MADEWELL: Alright a 100,000 fine.
DARRIN T. MISH: It’s 10 grand let’s say, I think I’m going to owe 10 grand so they send in certified funds for 10 grand but their returns says they only owed 7 grand…
KATRINA MADEWELL: 5
DARRIN T. MISH: Ok 5 whatever. Yeah they get the $5,000 back or there’s also….
KATRINA MADEWELL: Yeah but how much do they have to hunt the IRS down and chase them to get it.
DARRIN T. MISH: They won’t.
KATRINA MADEWELL: They don’t?
DARRIN T. MISH: They don’t because that’s just a refund, just exactly like if on your W-2 you had over payments on your W-2…
KATRINA MADEWELL: It’s a $30 question though.
DARRIN T. MISH: Yes it is and there’s also another option where you can just elect to have that money pushed forward into the next tax year.
KATRINA MADEWELL: What I’ve never heard that one before.
DARRIN T. MISH: Yeah you can go ahead and have that you know that refund applied to the next year and if you are self-employed…
KATRINA MADEWELL: Oh the refund not that the tax.
DARRIN T. MISH: Yeah not the tax, the refund so if you are a self-employed kind of person who is always going to owe or you feel like you are always going to owe and you are always going to have to pay estimated tax payments then it’s actually kind of a liberated feeling to push that refund into the next year. Now does it make a lot of sense mathematically no not really.
KATRINA MADEWELL: Put that money somewhere else.
DARRIN T. MISH: Because they’ve had that money for the year but if your first quarter estimated tax payments gonna roughly be equal to your refund then it kind of does make sense right?
KATRINA MADEWELL: Yeah if you are using it right away and not paying it.
DARRIN T. MISH: Exactly if it’s more than you are going to owe for the following year than by all means just go ahead and get your money back.
KATRINA MADEWELL: So in that scenario where maybe they do or don’t know how much they owe but they know they owe some money they should, like what kind of payment options are there if they know they don’t have all of the money to pay whatever it is?
DARRIN T. MISH: Well the first thing is and this is actually pretty neat it’s kind of a secret thing you can call the IRS, you have to call before the CP 504 letter comes.
KATRINA MADEWELL: Ok what, that’s nerd talk what is that?
DARRIN T. MISH: A CP 504 is a letter that comes certified mail and it says notice of intent to levy. Now conspicuously absent is the word final ok so it says notice of intent to levy and it’s a pretty scary letter but when you read it, it just talks about the IRS could levy which means seize your state tax refunds. So to people in Florida where we are right now like big deal we don’t have State tax refunds who cares but the CP 504 accelerates those penalties number 1…
KATRINA MADEWELL: Which means?
DARRIN T. MISH: It makes those penalties go out to the max to where they could eventually be 50% of the tax so you want to call the IRS before you get that CP 504 letter which is usually not going to come any faster than about 75-90 days ok so if you call within the first 75-90 days after you file a return and you can ask them for this, this is pretty cool stuff, you ask them for a 4 month extension to investigate the possibility of you being able to pay the full tax liability.
KATRINA MADEWELL: Ok say that again and explain it.
DARRIN T. MISH: So you call the IRS and you ask them for a 4 month extension and you say I’m trying to full pay this and so I need 4 months to see if I can get that all together. Now if you owe a $1000 I mean this is agreeable.
KATRINA MADEWELL: Well use your 10 grand, $10,000.
DARRIN T. MISH: Even $10,000 that is imminently reasonable you know just 4 months just to kind of see if you could get it done. I’ve done this on $100,000 cases, $200,000 cases and it’s not always fiction. Sometimes that is the solution, somebody is gonna sell a house and there is no lien yet and they are going to sell the house and they are going to full pay this big liability, but the neat thing about this 120 day extension is you know when on day 119 or day 120 you can call and just work out some other thing, some other solution to the problem and that can usually work out to but his is gonna get you 4 months with minimal penalties and more time to figure out what it is you need to do.
KATRINA MADEWELL: Makes sense to me. You are listening to the IRS Solution Attorney show just in case you didn’t already know that. We are happy to have you with us. If you have a question related to today’s show please call us 888-404-1010, we are happy to answer them even if you just want to call and say hello in your commute we are happy to talk to you. 888-404-1010 we will be back with some other great tips and also some relevant stories we will be back in a minute.
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DARRIN T. MISH: That’s Pat George digging deep for the bumper music. I’m liking it, it’s a lot different than money.
KATRINA MADEWELL: I’m dying it’s so great. Who is that anyway do you know? He’s thinking about it, digging that out of the DJ archives, see I put him on the gun and he is like oh snap.
PAT GEORGE: I think it’s Gal-antis.
KATRINA MADEWELL: He wasn’t expecting that.
PAT GEORGE: Gal-antis yeah.
DARRIN T. MISH: Ok so moving right along since I had nothing to say about Gal-antis.
KATRINA MADEWELL: I want to make sure you are paying attention to the show Pat.
DARRIN T. MISH: So the topic of the show is Things you Should Know About Filing Late. Filing late and paying penalties for doing such and we talked about the different kinds of penalties for you know filing a tax return late without an extension and paying your taxes late with you know without an extension it doesn’t matter and so let’s talk about how you actually, before the break we were talking you can get a 120 day extension right so you can investigate the possibility of full payment of the tax. If that doesn’t work then you can, if you under $50,000 it’s relatively simple to get into a payment plan which they call an installment agreement to pay off your taxes over time so basically if you owe $50,000 and you can full pay within 72 months they’re probably going to give you that payment you know you have to bump it up for interest and penalties you know that kind of thing. But there is one thing that I wanted to bring up and that is called IRS direct pay. It’s actually a portion of their website which is at irs.gov/payments, now I’m not usually a big fan of the government because I think they screw pretty much everything up, the bureaucracy is just a mess but that website, that web address actually makes sense right it’s the irs.gov website and then forward slash payments. I would probably change it to pay us or pay your bill but…
KATRINA MADEWELL: Pay Uncle Sam now.
DARRIN T. MISH: Uncle wants your money something like that but I’ve actually used this and it’s really pretty simple you just, it’s, they used to have a situation where you had to pay a fee like an extra fee of like 4 or 5 bucks to pay the IRS but now they have finally figured out that the rest of business and commerce you can make electronic payments that aren’t you know don’t cost money.
KATRINA MADEWELL: Right.
DARRIN T. MISH: And you can actually use credit cards if you need to and on those there is a number of providers and you do have to pay a percentage and a fee and all that kind of stuff.
KATRINA MADEWELL: Is there ever a time that the late penalty does not apply?
DARRIN T. MISH: Yeah if you requested an extension of time to file your taxes.
KATRINA MADEWELL: So like right now someone filed an extension.
DARRIN T. MISH: Yeah and you had already paid in at least 90% of what you ultimately owe then you are not going to have…
KATRINA MADEWELL: We could use our same example so 10 grand paid in 5 or maybe more than 5 maybe 75.
DARRIN T. MISH: Let’s say they paid in, the ultimate tax bill is 10 grand and they paid in 9100 dollars then there is not going to be any late payment penalty because 90% is considered close enough it’s like horseshoes and hand grenades, it’s 90% it’s close enough to the IRS land so if you had that situation then you would not have a late payment penalty which would be a good thing. I think that’s the, their basic recognition that people you know need to get close enough and they might not know exactly but you know if you are going to owe 100 grand on your tax bill then you probably ought to pay in more than a 1000 bucks cause you got to know that it’s coming.
KATRINA MADEWELL: Right. And so last week we had some folks listening and we have to recognize that a lot of times, people they don’t want to call the studio number, the 888-404-1010 so you can reach Darrin directly at his office.
DARRIN T. MISH: 888-get-mish, that’s 888-get-mish, 888-438-6474 that’s our office phone number and you can, that works toll free even in Puerto Rico when I was in Puerto Rico I tried it and it does in fact work down there.
KATRINA MADEWELL: And he’s also across the web on Facebook, on Twitter, on all your social feeds you can get him on Twitter @darrin_mish.
DARRIN T. MISH: Yeah and our website address is getirshelp.com/blog/ so that's getirshelp.com/blog/ and so you can actually find access to lots of videos, lots of podcast episodes all of the radio show episodes are on there as well as just tons and tons and tons of content it's been a project that we've been working on for over 15 years and so it's one of the biggest sites in the tax problem area.
KATRINA MADEWELL: So a lot of things including a book which are like Secret tips, what’s the name of your book Darrin Secret tips the IRS doesn’t want you to know?
DARRIN T. MISH: Yeah the 7 Secrets that the IRS Doesn’t Want You to Know that book is available on the website it’s also available on Amazon, Kindle and all those kind of places. That book is more about just things you know it’s really, I didn’t write that book to make money I wrote that book so people would know what these secrets are that the IRS doesn’t want them to know. We really should do a whole show on that sometime.
KATRINA MADEWELL: Yeah I think we will do that. Maybe in a couple of weeks we will plan it out and do that. So the reason why I mentioned your office line is because we actually got a message from Pat that someone tried to call in last week and they couldn’t get through and so they wanted to ask a question on Twitter and so he wants to know his father informed him that he hasn’t filed his tax returns in 12 years what’s the procedure for filing missing tax returns? That’s Joan, thank you for listening, Joan.
DARRIN T. MISH: The first thing I’d say is, don’t freak out, because despite the fact that probably later in the show we are going to talk about some people who were criminally prosecuted and did go to prison for similar behavior. The IRS…
KATRINA MADEWELL: It’s rare.
DARRIN T. MISH: It is rare and the IRS does not have the capability, the capacity to prosecute everyone who is a non-filer so…
KATRINA MADEWELL: No do the present system for that matter.
DARRIN T. MISH: Yeah I mean, I actually spoke to a…
KATRINA MADEWELL: What are you in for? Murder… What are you in for? Not filing my Taxes.
DARRIN T. MISH: Well the irony of that comment is I was talking to a guy who is a local politician here who ultimately was prosecuted for tax fraud and the amount of fraud was very, was under 6 figures, and he told me the story about going to prison I said well how was it? He says well you know prison’s not good, I was in a camp he says it wasn’t that bad but he said he would be talking to the other guys and they would say well what are you in for he would say tax fraud and then they would find out the amount and they would, they said, he said it basically he was the butt of all jokes in the prison because what he did was so minor as compared to the other guys that were in there so back to Joan’s question Dad hasn’t filed tax returns for 12 years well number 1 question is going to be you know was he a wage earner or self-employed right so if he was a wage earner and had appropriate taxes withheld from his paycheck then it’s really not a big deal. You are going to file the last 6 years’ worth of returns just so you can avoid the criminal statute of limitations for prosecution of the crime of unfiled, of failing to file a tax return. So you are going to just file the past 6 years, he is probably going to have refunds coming, he’s only going to get the refunds for ding, ding, ding, 3 years, he’s not going to get any credit or anything, offset or anything for the 3 years before that although.
KATRINA MADEWELL: But he’s in compliance.
DARRIN T. MISH: Although I have seen refunds from you know 5 years back and it just happens sometimes, kind of bizarre.
KATRINA MADEWELL: Really. Sweet.
DARRIN T. MISH: Yeah so if that happens it’s just kind of like a windfall but if he was self-employed this can probably be more complicated, now if he was self-employed 1099 kind of person, had one basic you know employer, let’s just call him that it’s not the right word but let’s say he was a painting contractor but he always went out and painted for the same guy you know and he got one 1099. Well that’s not such a hard thing to figure out you know what the income was and the expenses now if he was a painting contractor and he just dealt with the general public and he has no records, this is significantly more complicated right because I’m actually dealing with somebody right now who is a contractor, has contracting type of business preferably related to construction and doesn’t necessarily keep any records.
KATRINA MADEWELL: Do they get 1099’s, did they?
DARRIN T. MISH: Some but the 1099’s might only cover 5% of the total gross revenue.
KATRINA MADEWELL: A percentage of what they got.
DARRIN T. MISH: So what we would do in Joan’s father’s case is we would get a power of attorney which allows us to communicate with the IRS and we would get the transcripts from the IRS that showed us what 1099’s were filed or W-2’s in this case.
KATRINA MADEWELL: Against their social?
DARRIN T. MISH: Or yeah against their social and their 1098’s which is like mortgage interest and that kind of thing and help us to basically see what the IRS has within regards to that tax payer and then try to prepare a tax return from there.
KATRINA MADEWELL: Then you have to come in and figure out where to start.
DARRIN T. MISH: So what we do which is a little bit different than most guys in my business is we try not to file the returns until, like in a situation like this where there’s, they are not bugging him, he just hasn’t filed. We try to get all the returns prepared and devise a plan before we file return number one.
KATRINA MADEWELL: Makes sense.
DARRIN T. MISH: Because when you file return number one I just told you like within 75-90 days you are going to start getting relatively scary letters and the penalties are going to accumulate and stuff like that.
KATRINA MADEWELL: You are going to say, Oh you want to play ball, we are here.
DARRIN T. MISH: Right, exactly so that the filing of that first return after you have been missing for a while is a catalyst to getting the ball rolling you know the IRS knows that you are back on the radar and then they are going to start the collection machine which is largely automated so that’s another reason why often times we won’t just start representation with a phone call to the IRS. So in Joan’s father’s case let’s say a lot of reps who were inexperienced and I don’t know why you wouldn’t do this, a lot of those guys would just literally with him in the office just pick up the phone and call the IRS. This is like malpractice in my opinion because the IRS is going to go well Joan’s father you’ve been missing for a while and then they are going to give you a deadline typically of 30-60 days and then it’s on, after that you know day 61 if you are not compliant…
KATRINA MADEWELL: You’ve raised your hands and now the attention is on you.
DARRIN T. MISH: Yeah you put a big neon sign target on your back like hey I’m here and I’ve been a bad boy so…
KATRINA MADEWELL: Have a plan, have a plan. One of our listeners Jim he has a question he says what are your thoughts on the Panama papers, is it more smoke than fire?
DARRIN T. MISH: So let’s talk about what the Panama papers are.
KATRINA MADEWELL: Yeah cause I don’t know what it is.
DARRIN T. MISH: I haven’t been following it really closely but my understanding is there was a massive data breach of attorney client privilege information that came out of Panama. Now Panama is a, you know, it’s been for years, decades it’s been a haven for off shore banking. What does off shore banking mean? Well it means that there are certain countries where their laws are conducive to putting large amounts of money in those you know in those jurisdictions so they are not overly taxed and their secrecy and privacy and what not. All of the privacy for US citizens all around the world is pretty much gone. So when I saw the data breach on the Panama papers I thought to myself well if there are Americans that are involved in that, that didn’t report those foreign bank accounts they are in big trouble but there is nothing in and of itself illegal or unethical about being wealthy and constructing your affairs such that you pay less tax.
KATRINA MADEWELL: In another country.
DARRIN T. MISH: There’s nothing illegal about that. Apple actually has a huge presence in Ireland and one of the reasons is because the Irish banking laws are really you know advantageous. Bermuda is another one of these countries where a lot of US companies you know are so called head quartered in Bermuda. I’ve been to Bermuda there’s no manufacturing that I’ve ever saw in Bermuda but it’s because of their banking laws and what not so I think the Panama papers for Americans is largely you know it’s more smoked than fire I don’t think it’s really that big of deal. I have seen some rumors that you know some high level politicians that are running for office now might be peripherally related or involved. I don’t know I haven’t seen anything that was all that interesting and again you know just setting up your financial affairs so that you pay less tax is perfectly legal. In fact, there’s been court case after court case that says that’s not just legal it’s you know it’s preferred.
KATRINA MADEWELL: Tax payer rates you would think.
DARRIN T. MISH: Yeah so taking advantage of the tax laws is not really a problem, not filing or committing fraud those are problems.
KATRINA MADEWELL: So we do have a couple of stories we can at least start it and then probably finish it after the break but there’s one story in the headline news that prominent rapid city businessman gets years in prison on tax evasion.
DARRIN T. MISH: Yeah this is a guy is South Dakota in Rapid city South Dakota which is a really cool place it’s close to Mt. Rushmore in the Black Hills and he was running a business and it was related to construction and it started going downhill and instead of laying off employees he didn’t pay his taxes and now he is in big trouble .
KATRINA MADEWELL: Ouch. We will talk about his whopping penalty when we, the amount owed and stuff when we get back in a minute. You are listening to the IRS Solution Attorney show with Mr. Darrin T. Mish and I’m your co-host Katrina Madewell. If you have one of these questions that are right on time you can call us at 888-404-1010, 888-404-1010 or if you want to call Darrin’s office directly you can at 888-get-mish.
DARRIN T. MISH: 888-438-6474.
KATRINA MADEWELL: We will be back in a minute.
(commercial break)
KATRINA MADEWELL: Keeping it right on time and right with your lifestyle right the way you like it.
DARRIN T. MISH: Yeah a little tribute to Panama there and the Panama papers.
KATRINA MADEWELL: So you are listening to the IRS Solution Attorney show, we were talking about real quick before the break a prominent Rapid City businessman he went to prison for tax evasion.
DARRIN T. MISH: So the story as I understand it was he was a contractor, he had a construction company and when the economic downturn occurred in 2008…
KATRINA MADEWELL: He didn’t want to lay anybody off.
DARRIN T. MISH: He started having trouble, obviously a lot of people did in fact most people probably did if they were self-employed because it was just a shock to the economy and he, he needed to make some tough decisions in business and I see this a lot in payroll tax problems and that is that..
KATRINA MADEWELL: And that is the worst tax that you can owe right?
DARRIN T. MISH: Yeah payroll taxes are the most serious and the government takes them the most seriously and the reason is that you are withholding taxes for the benefit of the employee and the government. It’s actually, that part is called the Trust Fund portion, it’s called Trust Fund for a reason, you are supposed to be holding it in trust for the government and the employee and so when you don’t do that as the employer then there is serious ramifications. Now not every….
KATRINA MADEWELL: Now do you ever, those ever get any lower are they always like bam you owe $270 that’s what it is.
DARRIN T. MISH: Well the irony is you know a lot of people can do offers and compromises on that kind of tax, I’ve done it and you can do an installment agreement, there’s lots of things that you can do and I found this particular story interesting because I have cases in my inventory right now where they owe more than $270,000. I think that the real gist of this situation is that this gentleman was a well know figure in Rapid City South Dakota. Rapid City is not a real big place I would say it is probably the equivalent size of you know Bradenton or maybe even Brandon, it’s just not that big of a place and so he was a big name in that city and when it became known, when the IRS you know became aware that he was behind on his taxes they decided to you know refer him for prosecution and make an example of him. Now there were, there were some aggravating factors to and that it wasn’t just that he was the soft hearted, kind hearted guy who didn’t want to lay off employees, I mean he had vacation homes and boats and motorcycles and those kinds of things.
KATRINA MADEWELL: Which they love that kind of stuff.
DARRIN T. MISH: Yeah he had you know a healthy lifestyle and he didn’t make the hard choices at the beginning when the business was beginning to suffer and that’s what I see quite a bit and I’ve learned from my own business that when things start to look like they are going downhill you have to make changes, you have to make cuts, you might cut your own salary, you might cut you know unnecessary employees or other expenses but you have to make those changes because hope is not a strategy.
KATRINA MADEWELL: Make changes. No it’s not a business plan either.
DARRIN T. MISH: And wishing that it will go away doesn’t typically work. I’m sure it has at some point.
KATRINA MADEWELL: So do you think he will actually do a whole year in Federal prison?
DARRIN T. MISH: The guy that I spoke with this week that was sentenced to a year did about 5 months in a camp kind of a place, a minimum security kind of place because it is generally considered to be a white collar crime so you are not going to be in Fort Leavenworth or that kind of thing but it’s not a fun time and I’m sure he didn’t enjoy it.
KATRINA MADEWELL: So we have one more story real quick there’s another guy in Branson, he plead guilty to tax evasion.
DARRIN T. MISH: This story I found was really interesting, it was a member of a Branson performance group called six and he actually pled guilty to not filing or paying Federal and State income taxes for over a million dollars of income for over a 6 year period. And what I found to be interesting was it’s a million dollars of income which sounds like a lot right?
KATRINA MADEWELL: Yeah?
DARRIN T. MISH: Over a 6 year period? It’s really not that much money but again I think that this is the situation where he was a part of this you know this well known Branson performance group right, he didn’t pay his taxes on about $250,000 of income, I’m sure there are people listening right now saying well that’s a rich guy and he is not paying his fair share and I’m not going to say I disagree with that, I’m just saying that in my experience this is not a real large either, I have cases in my inventory right now that you know exceed that. So it’s interesting because it’s one of these situations where if you’re a prominent person, if you’re a person that’s in the spotlight, if you’re a doctor or a lawyer or judge or a politician or have a business that is well known in the area and you’re a non-filer or non-payer, tax fraud, tax evasion kind of thing then there is a better chance than average that you are going to be prosecuted for those types of offense.
KATRINA MADEWELL: So what do you think the delio’s with him waving his right to a grand jury? Do you think that was a good idea and just pleading guilty?
DARRIN T. MISH: I think it was a deal.
KATRINA MADEWELL: Yeah.
DARRIN T. MISH: I think that he decided that he was just going to go ahead and just cooperate in full from the beginning, he probably got some advice from a pretty good lawyer to good ahead and cooperate because cooperation is a mitigating factor and he will probably do like a year as well.
KATRINA MADEWELL: Right on time.
DARRIN T. MISH: Every time that comes on it scares me to death it’s time for the IRS train wreck of the week this is the segment of the show where I get to talk about someone who came into the office and….
KATRINA MADEWELL: They were a hot mess.
DARRIN T. MISH: They were a train wreck and here’s the punch line they always leave it’s always a happy ending. So in this particular case he was also a contractor, it seems like that’s the theme for today.
KATRINA MADEWELL: Theme of the week.
DARRIN T. MISH: And he over a period of years ended up owing the IRS $207,000 about 207 or 208 that was the number and we filed an Offer in Compromise, an Offer in Compromise is where you make a deal to settle for less and it’s….
KATRINA MADEWELL: Every time you say that I’m like deal with the devil yep.
DARRIN T. MISH: It’s a deal to settle for less and basically it’s a math equation and I won’t bore you with the details of that math equation. And there’s actually 2 types of offers that we are going to talk about, one is a cash offer which means the IRS wants their cash, whatever you offer them they want that within the 5 months of acceptance of the offer..
KATRINA MADEWELL: Oh really cash is 5 months? Wow.
DARRIN T. MISH: They have 5 months from acceptance.
KATRINA MADEWELL: I was thinking like 3 days or 30 days or something like that.
DARRIN T. MISH: Yeah so only in government land is cash you know 5 months later but and the offer takes about a year or year and a half to process but in this particular case there is another kind of offer as well that we don’t talk about that much and there’s a, it’s called a short term deferred payment option and that means they have 24 months to make their payments on their offer amount and the multi players are different so usually the 24 month option is double the money but you get to pay it off over 2 years. In this case…
KATRINA MADEWELL: And I think you glazed over that but didn’t you say it takes a year or so to file the paperwork and then your 5 month clock starts ticking?
DARRIN T. MISH: Exactly. Now in most short term deferred offers the IRS wants you to start making your monthly payments on month 1 you know when you file the offer and they want you to make those payments while the offer is pending. I can confidently say I have never done that because I don’t agree with that, I don’t like it. But in some cases and I can’t go into too much of the deal but where the assets constitute the amount of the offer it makes sense to go ahead and spread it out over 24 month payoff so in this particular case they owed 207 grand we got it settled for $13,640 and because of some money that already paid down that works out to $547.17 a month for 2 years.
KATRINA MADEWELL: And he was done after 2 years.
DARRIN T. MISH: Yeah he will be done after 2 years and actually in his particular case he couldn’t raise 13 grand all at once but he thinks he can do it relatively quickly and so he will probably full pay and be off of you know that kind of probation kind of status really pretty soon. So that was a really happy ending. That offer had lots of twists and turns and we thought it wasn’t going to work but it ultimately worked out great.
KATRINA MADEWELL: Well you are listening to Mr. Darrin T. Mish and this is the IRS Solution Attorney show, I am your co-host Katrina Madewell, Pat George back there on the board doing a great job thank you.
PAT GEORGE: Thank you because of this show I’m going to open my own accounting office as much as I learn every week.
KATRINA MADEWELL: We appreciate you listening thank you so much for calling. If you are listening and if you want to call Darrin directly 888-get-mish. We will be back next week. Same time, same place for this week.
DARRIN T. MISH: We’re out.