cballard[at]tyyni.net wrote:

- quote -

To summarize, we offered in our OIC all our non essential
personal assets (which amounted to our IRAs and a utility
trailer). Essential assets are the two (old) vehicles that
we need to live/work. They don't have a lot of value
anyway. We also offered ALL the business profits from the
S-Corp and LLC. Because our approved living expenses were
more than my wife's salary and our business income (profits)
reported on Sched D the business profits wouldn't do
anything other than make other potential asset value
available since the income is not quite meeting our approved
living expense needs.

The problem is that the IRS wants the business'es income and
its assets, which makes no sense (business can't produce
income/profits without assets), and which I cannot legally
take for myself anyway until I have paid off all creditors.
Instead of counting the businesses as assets they treat them
as our personal piggy bank. What they want is a physical
impossibility.

Chad

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rich said:
- quote -

Yes, I understand that. What I meant was that for the 2
years in question, they had no profits which flowed through
for which taxes were missing. In other words, they did not
contribute to the "income" for the affected years.

- quote -

No, I understand. I just did not describe what I mean.

- quote -

Yes, but until they attach those shares, they have no claims
to the income or assets of those companies and in
determining "collectable" value have no right to do
something with those shares that even I cannot do. In other
words, the collectable value of those shares is "assets
minus liabilities". Not "assets and screw the liabilities."
I cannot raid my own businesses, take all the assets, and
run away without covering the liabilities of the companies,
so why can the IRS count that? The S-Corp and LLC are
separate legal entities and until the IRS were to become the
owner, they have to treat them the same way anyone else has
to treat them -- my shares whose value [as private
companies] is best calculated at "assets minus liabilities."

And another thing that makes no sense. How can the IRS
count as collectible both the assets (without the
liabilities) of the companies as well as 5 years worth of
income at the same time???. That is a physical
impossibility. They either count the assets (and then the
businesses are liquidated and can't produce any income) or
they count the income those businesses provide to me (for
which the businesses need the assets to continue in
business). It seems to me to be a physical impossibility.

Thanks
Chad

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Chad wrote:

- quote -

Unfortunately, you've got the shield concept backwards.
Having the LLC and te S Corporation could possibly protect
you from a liability of the LLC or the S Corporation.
Because you are a 100% owner, the LLC and the S Corporation
have no protection at all against your liabilities. You
control them: you decide whether the businesses make
distributions and you have the ability to liquidate them.
(Think about it--if your approach worked, everyone would
just run up huge debts, transfer all their asssets to
controlled corporations, and then tell the creditors that
they were out of luck).

The S Corporation shares and the LLC interest are just
assets on your balance sheet as far as the IRS is concerned.
Really not very different from holding shares in IBM. IBM
is a separate company, too, but you'd still be expected to
liquidate your holdings there if you had to pay a tax
liability.

It sounds like the IRS is actually giving you a deal. They
let you continue to own and operate the two businesses, and
you agree to turn over income from the businesses until your
tax liability is settled. The IRS could have demanded that
you transfer the ownership to the IRS to help pay your
taxes.

If you've been reinvesting all the profits back into the
businesses, is there any way either of the businesses could
qualify for a loan? If so, you might be able to distribute
the loan proceeds to yourself, pay off the IRS to get them
off your back, and then work hard to get the bank loans paid
back. Given your current problems with the IRS, it could be
difficult to get a loan approved, however.

--Chris Ballard

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"Chad" <chad[at]pengar.com> writes:

- quote -

What do you mean when you say the S-corp and the LLC "have
paid their taxes"?

S-corps and LLCs *don't* pay taxes. They are pass-through
entities. Yes, returns get filed for them, but those are
just informational returns for shareholders and the IRS.
*All* of their profit flows through to shareholders'
personal returns and *must* be reported on those personal
returns one way or the other (through a combination of
reasonable wages and dividends).

- quote -

It sounds like you are confused as to how S-corps and LLCs
are taxed (or, rather, are not taxed) and how they interact
with shareholders' personal returns.

And keep in mind that if you are in a position where the IRS
has the power to attach your assets, and your assets are,
among other things, shares in S-corps/LLCs, the IRS can
attach those shares, become the owner of those shares, and
then as the owner, seek to liquidate the entities to bring
in cash to pay the tax debt.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

In 1999 I did some consulting as a sole proprietor (ie,
Sched C under my own SSN). I paid some quarterlies but not
enough as I underestimated the total value of the
consulting. The consulting reached into 2000 (was open
ended contract) but came to a sudden close in March of 2000.

I did not find another gig for a few months and the one I
found never amounted to much as the project I was supposed
to work on was in limbo and then got cancelled as the
company it was for got bought. I was actually on contract
under a 1099 to another company that was contracted with a
consultant group who was helping this company with the
project. But the end result was that for 2000, after the
initial work that had continued from 1999 into 2000 ended,
there was about $30 or $35k gross earned for the
limbo-contract with a few months of no work and about the
same, a little more in the initial 3 months. Due to
self-employment etc the tax bill for 2000 was over $20k.
August of 2000 I got married and when I got back from my
honeymoon it became evident that that contract had died more
or less and about $14k was taken in gross from August
through December 2000 and the contract officially ended at
the end of the year and after that I was unemployed though I
looked long and hard for new contracts as well as FT work. I
never found any -- still have not though the past few years
I have been devoting to another business or two I started in
the mid 90s.

For 1999 I had prepaid some but not enough. When that
became evident, I was going to pay it and the small penalty
from money I had saved for my final payment and then from
ongoing revenue, and then adjust my quarterlies to avoid the
problem in 2000. The unexpected loss of the work in March
2000 and then the lack of new work for a few months and then
the work that never took off and got going and kind of
sputtered along and died, and then the lack of new work for
years as it turned out, meant that my tax savings ended up
being used for rent, food, car payments, etc. as did the
ongoing new income from the contract that never really got
off the ground. My wife is from Japan and was not allowed
to work until she got permanent residency. She had been a
student and had had permission to work as a student up to
around $3k-$4k worth, which she did and paid taxes on.
(Before we got married). She finally got temporary work
permission at the very end of 00 or 01 while the INS worked
on her application and in 2001 got a job as a waitress.
This is the money we lived on in 2001 until she was able to
get licensed as a nurse and get a nursing job towards the
end. Then we lived off her beginning nursing salary.

Anyway, I was unable to make up the missing 1999 taxes due
to lack of work and using the saved money and the meager
incoming to cover rent, food, etc. I also did not pay any
for 2000 for the same reason. So now I owe for 1999 and
2000. (1999 is just the difference from what I had paid in
quarterlies and the end tax and 2000 is for it all except
the money my wife had earned before we married). We
foolishly filed a joint return in 2000. 1999 is my name
alone. 2000 is both of us. So now, even though most of the
money was earned before we got married etc, they naturally
are trying to collect from her as well. She has filed for
innocent spouse relief since the bulk of the money was
earned before she married to me and she is from Japan and
did not understand things about the US tax system etc. It
is my mistake to file jointly but as a new married, I wanted
the tax break that came with that and fully expected to get
new work to be able to catch up and get on with life.

That is all background. The issue is thus: In 1995 I
started an S-Corp in my name. It of course has its own EIN
etc. It sells product on the internet and was a side-job I
did (started as full time but I started FT employment in 96
so the business became part time in middle of 96 and stayed
that way until mid 2001). After not finding any work
despite head hunters looking, my own efforts, etc (looked
for PT, FT, and contract work), I decided to make my part
time Corp a full time job and try and build the business so
I could eventually get an income from it to support my
family. Prior to 2001 it had been a $10k-$15k a year gross
business and some years had taxes to pay, which we paid, and
some years had a small loss. But we were trying to get it
to be a sustained profitable business. Since then it has
grown to over $200k gross in 2004 (this year is down 10%)
and has reported profits since 2001. (1999 and 2000 it
reported a loss so it contibuted no income to my 1999 and
2000 woes). It has paid taxes through our own personal
returns since 2001. (We have of course been filing and
paying 100% of taxes since our woes of 1999 and 2000 -- both
my wifes PT nursing job and our business profits). The
profits themselves have been reinvested in the corp so we
have never had any cash of our own but did count the
profits, naturally, on our taxes. If we had been taking the
profits, the business would not have been able to grow.

We also have a small LLC from 1997 that is still small and
provides internet services to clients with servers it
maintains. In 1999 and 2000 it had losses but since
mid-2001, when I decided to make a full-time effort in my
own businesses, I have worked to grow it and it has been
profitable the last 2 years (03 and 04) I believe. Maybe 02
too. I forget. Its profits were duly reported and taxes
paid. It provided no income to the 1999 and 2000 problem
years. It is slowly growing and I have been reinvesting all
profits back into the business and have been able to double
or triple its gross in teh last 4 years due to these
investments.

So, to recap, after it became clear in mid 2001 that I was
not going to find more work (tech recession and dot-com bomb
made sure of that), I went to work fulltime on my two
business and have grown them, but not to the point that they
support me and my family and I am trying to continue to grow
them.

For our 1999 and 2000 tax problems, we have been trying
since 2001 to settle with the IRS. I filed an OIC in 2001
but never got an answer until Jan 2004. They seem to have
lost it and we moved [and duly reported our new address] in
02 to be near family and live with family since my wife was
pregnant and our landlord wanted to sell the house we were
renting. We hired a tax law firm to help us in 2004 and
they dilly dallied around and finally in October 04 (we
contacted them in Jan 04), after I complained to AMEX [we
had paid them a flat rate package deal using 2 AMEX cards],
they got around to producing an OIC for us which was almost
identical to the one I had submitted in 2001. We submitted
it but the IRS came back and said we needed to submit a
second one since only my name was on the 1999 bill but both
of our names were on the 2000 bill. So they, the tax firm,
produced two new ones which when added together equaled the
original and we sent them in. Long story short, the IRS
sent some worksheets to us in June saying they were going to
recommend denial. I asked the tax firm to respond. They
did not. Then the OIC was denied and I spoke with the tax
firm and we agreed to do an appeal (our flat rate package
included up to 3 appeals in the price). We left town to
visit my mother in law in Japan about 10 days after the OIC
was denied (thanks to some Free Tickets from a frequent
flyer program) and this firm was supposedly working on an
appeal. We returned a day before the appeal needed to be
filed and they missed that deadline too. Now I am trying to
work with AMEX to get my money back since this firm did not
uphold their end of the bargain.

Anyway, I had sent in requests for info in June about the
warning of denial as I did not understand where they were
getting their claims of collectable income. We live
paycheck to paycheck and make up the difference with credit
cards (and have amassed in the last few years a large CC
balance due to that). We have two old vehicles, a small
IRA, and a utility trailer as assets. No real estate or
anything. We had offered the full value of the IRA as the
trailer, at the original time of offer, was mostly owned by
the bank. It has since been paid off.

I finally, last week, got the offer manager to explain where
all this collectable money was coming from on the worksheets
(he only did it verbally and refused to provide it in
written form even when asked both in writing and verbally).

The IRS is claiming all business income for the next 5 years
(minus cash expenses but not things like depreciation) plus
all assets [without taking into account the high debt and
payables of the businesses] of the S-Corp and LLC, even
though they have no beefs with the IRS. They have paid
their taxes and filed as they should and even I as the owner
am not allowed to raid the businesses that way. We
naturally included Schedule E income from the businesses,
even though we don't actually get any of that in our hands
due to trying to grow the businesses to a sustainable level)
on our income statement. That is not the issue. The issue
is the busines income above and beyond that and the business
assets. I claimed to the IRS that they only had claims to
the business profits of the S-Corp and LLC and perhaps any
assets of them both if I were forced to liquidate them by
the IRS -- they would first have to cover any of their own
creditors and payables and debts first before I would see
any "profit" from asset sales. But the IRS claims they have
first dibs to the income and assets of these two businesses.

These businesses are separate legal entities, have paid
their taxes and filed their returns, are on the up and up
with the IRS. They contributed no income to the problem
yars of 1999 and 2000 so there is no residual tax problem.
Why can the IRS pierce the corporate shield/LLC shield due
to the stock owners/share owner personal tax problems? Why
do the current creditors of the businesses have no claim to
assets if they are forced into bankruptcy by the IRS due to
the stock owners personal problems? Up through the general
meetings of the companies in 2005 I had 100% ownership. At
the general meetings ownership for both was split between me
and my wife as a way of sharing assets in the marriage.

These are the two businesses I have pinned my hopes on to
support my family and the IRS wants to destroy them. I have
tried to settle and offer the IRS all our
non-essential-to-life assets (ie, our two ld vehicles are
used for my wife to go to work and me to deliver packages
etc) but they want more. The tax firm we hired took us for
thousands of dollars and basically did nothing. (They don't
even return calls or anything, don't call back when they
promise to etc and miss IRS deadlines).

I don't know what to do.

If I can recover some of the money through AMEX that we paid
these shysters I may be able to afford to pay another tax
lawyer to help us but for now I can't and am looking for
some simple answers regarding the corp shield/LLC shield etc
and why the IRS can raid these businesses directly without
going through bankruptcy (by forcing the owner to liquidate
to raise cash for example).

thanks
Chad


<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >