I Got A Tax Question For You

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It’s that time of year again. Over the last couple years I on occasion get phone calls from old friends, co-workers or business associates.

They all want information, information that they think I have. Late 2008, I got a call from this guy name Jose from Los Angeles. I was living in Hesperia, California at the time in a 3,000 sq foot house with 3 full baths, and 4 bedrooms. The house wasn’t mine, and it wasn’t Mr. Seria’s house either. The bank owned it; they just hadn’t gotten around to getting the house back. So we lived there rent-free.

“Rebecca, I got a question to ask you about taxes.”

That’s usually how it starts out. I try to get a feel of what the problem is, before I say anything else.  Its good to stay non-committed because you may set someone off, and say something they don’t want to hear. Jose requested I drive sixty miles to Los Angeles and he would pay me. I agreed at first, but later decided not again unless I get paid more. That was a long drive down the mountain and through Los Angeles traffic to the jungle..I hated Los Angeles.  I loved living outside the city, and this kept my blood pressure down.

After waiting about fifteen minutes, Jose sits me down with his wife who does the records for him. It strange how people tell you things, that later has a strong bearing on an issue at a later date. I was shown the I.R.S letter, and I went through some of the records. I was there about a good hour. I explained to the wife what I needed done, and told her how to handle her audit with the I.R.S auditor. I jumped back in my car a few dollars richer, and went home.

When Obama was elected president, one of the changes in the law was that people offering services to help people with their loan modification could not charged these ridiculous fees. This particular business offered assistance in loan modification. They would work with your lender to get your mortgage loan modified. They charged anywhere form $1500 and up, and would pocket over $500 a transaction after paying their secretary and other incidental expenses. The person who is in contact with the homeowner if they were able to get them to sign the contract would receive $650 per transaction. People who paid these fees were usually very desperate and in the process of losing their homes.

I met Jose through Albert. Albert worked as a part time real estate agent, and he told me about this side job. He told me he had an “arrangement” with Jose. When Jose paid him, he would pay him under the table, which worked out good for him because he was going through a nasty divorce with his wife. He had lied about how much money he was making, and did not want her to find out about it.

Hum, I scratched my head. It was about seven or eight months later when Jose had contacted me about his I.R.S problem. I met with Jose and his wife a second time, and reviewed the information she provided. I could see they had a big problem.

  1. The Secretary nor Albert was issued a 1099Misc

  2. You couldn’t’ tell exactly how many of those $1500 payments were received

  3. The bank deposits did not match the paper trail

Albert had another problem, he needed to file the 1099Misc with the IRS if he wanted the auditor to give him credit for the tax deduction. Also, the secretary was considered an “office” worker and not in business for herself so he needed to pay her on a W-2 and not a 1099Misc.

I was curious as to what expenses the secretary claim on her return? Taxes for an independent contractor were higher that a W-2 employees taxes.  I figured she used creative finances on her tax return to reduce her taxes. Ever heard of Enron? Google it. She is also opening herself for a possible audit, because of what her employer did with his tax records.

Now poor Albert was going to have even more serious problems, he has had this arrangement with Jose for at least a couple of years. The IRS could get him for tax invasion for failure to report income. The fraud penalty could be as much as 75% of the tax he failed to pay. Most likely he did not bother to keep records of his expenses. After the IRS is done with him the Franchise Tax Board are going to want their money. Just when he thinks nothing else could possibly go wrong…. Ex-Wife.

Somewhere written in the code section regarding divorce law is the clause “ you must report all assets” It reminds me of the incident years ago when this man won the state lotto, and he failed to report this information in his divorce paper work. Ex-wife finds out, the court awards the lotto winnings to the ex-wife. 50% community property laws were thrown out the door. He probably still how to pay child support.

Jose’s wife calls me a third time for more advice. I kept my answers brief, and was thinking she needed to go hires someone and let them charge her a few hundreds of dollars for what she was trying to squeeze out of me for free. I don’t know what happened at their audit. I know with the change in the law that pretty much put them out of business. I wish them all the best.

Story is fictional, and the person Jose is fictional, but I wanted to tell you a story because it’s tax time]

Rebecca P.

http://goals4u.viviti.com/

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