[TDA Dispatch No. 8] A change in tax debtor's luck
Stories about Americans who are in and trying to get out of Tax Debt America
Hello from me, George, the tax debt guy, founder of The Tax Debt America Project. You are receiving this weekly newsletter because you have reached out or interacted with our tax resolution company in the past.
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If you’ve followed some of my previous writing, you’ll know I’ve talked to over 10,000 people with tax problems. Everyone one of those conversations is unique but rarely am I surprised.
Today I was surprised.
Recently I spoke with someone who perceived an opportunity, took advantage of it and became self-employed. This is the American way. I have tons of respect for people who do this. Most people don’t do this because it is harder work that working for someone else.
Frank Sanchez recognized an opportunity to help banks clean and weatherize the homes vacated by those who could no longer afford to live there. You might remember the housing crash of 2008. This is one part of good business sense - noticing opportunities. The other necessary element of a business is being able to make money from the opportunity. Frank couldn’t make money from this opportunity and could not decide to quit soon enough.
Bad Business Man
Frank’s problem began with labor. He hired day laborers to help him clean out debris from these foreclosed homes. This wouldn’t have been a problem if he gathered their basic information from a job application. Not having address phone and social security numbers made it impossible to issue 1099s. No 1099, no deductions on your tax return. No deductions means more tax owed.
In general, businesses must spend money to generate revenue. If you think about simplest businesses, for example, a lemonade stand, the proprietor must spend money on cups, lemons, sugar, water, signage etc. Those expenses are necessary for the production of income. There are no “zero overhead” businesses, i.e businesses where no investment is required. There might be low startup costs but they are costs, nevertheless.
Frank exacerbated his situation by keeping poor records of the cost of doing business. He would need tools like moving straps and dollies and clean up materials like garbage bags, solvents for stains yet he failed to keep the receipts or to perform a detailed accounting of these purchases which were needed to do this work.
Also, because Frank’s service provided clean outs for geographic area, he found himself driving all across central Florida. Current tax law has a provision for deduction of miles driven for business. Frank didn’t know this or didn’t account for it. For a business that drives a lot of miles, this is often a make or break deduction, meaning that if a business doesn’t take this deduction, they lose money.
Frank had some very lean years while he operated this business. Often, he would pay his guys first and then, not have enough to cover his own bills. Embarrassed, he explained how many times his electricity or water was shut off. Eventually, he figured out this wasn’t going to work and Frank changed what he was doing.
A stable income allowed Frank to fix his tax problems. He had failed to file for 13 years - and was under the incorrect impression that all missing returns had to be prepared and filed. He actually hired a company that did his returns before we met. They filed his 2019 and 2020, electronically. He was told to file 2008-2018 via mail. This is where things get interesting.
For Frank, English is not his primary language but he gets along fine. We did our review of the facts like we do for all of our clients. Then I presented the findings to him. He was very fortunate. There was only one “Substitute For Return” (SFR) from 2009 and the statute of limitations expiration date was approaching.
My experience tells me that a tax preparation only company usually won’t help fix someone’s tax debt. This proved to be the case for Frank. I questioned him closely about the tax returns that were prepared.
Who prepared them? The company I hired. Who filed them? They filed 2019 and 2020. What about the other years, who filed those? I did. Did you sign the returns? No. Why not? No one told me to do that. You mean to say you sent prepared tax returns to the IRS with no signature? Yes. Are you sure you didn’t sign? I’m positive. There were 11 returns and nearly 1,000 pages I printed out. Me and my wife would both have to sign and we didn’t do that.
A miracle of incompetence
The returns Frank sent to the IRS will not be processed without a signature. Moreover, he probably won’t have to file any return earlier than 2015 and his 2009 SFR debt will be expiring soon. He’ll save a ton of money and that makes me very happy. Sometimes I joke with my clients telling them, if they didn’t have bad luck, they would have no luck at all. Frank got very lucky.
As always, thanks for reading this Dispatch from Tax Debt America. I hope you find a nugget you can use. There’s so much information online, that if find something useful to share with you, I’m OK with the investment of my minutes. If you want to leave a comment, see above. If you want to share this post, click on the button below. If you want to discuss a tax debt that you’re thinking about discussing with the IRS, give me a call beforehand at 312-529-5009 and mention you read the dispatch.
Whatever you decide I wish you nothing but success on your journey. Getting stuck in Tax Debt America is definitely not a one-way journey and my hope for you is that this material is helpful and hopeful.
Good luck!