Hey guys, I'm helping a friend with a tax mess. He didnt file with the state of CA for 97, 98 and 99. I had him file those 3 last month. CA has been hounding him for a while and he put his head in the sand - been there - done that! They estimated his taxes using some very high numbers and hit him with liens for 97 & 98. And the way CA works is that he was hit for a 25% demand penalty on total tax - not just the tax due. So for 1998 he overpaid by $531 but was hit with a $750 penalty anyway on his tax of $3000. Yep he withheld $3531 but still owes a penalty of $750 and has the lien on his CR. Well when I tried to figure out how he got in this mess in the first place it stemmed back to tax year 1994 - the year he moved to CA. In 1998 CA said he underreported income from 1994 and as a result owed $301 more in taxes plus interest. He ended up paying $512 to pay that off. Yet now I realize that that income extra income was for WI and as a result his CA liability was only $65 + interest. Then in turns out he didn't file 1995 although he was due a refund of ~$250. So when all is said and done for the 7 years he lived in CA he overpaid his taxes by ~1000 and yet owes ~2000 in penalties and ~400 in interest. And the state told me on the phone they'll probably disallow his 95 refund and the 94 overpay (based on their faulty info!) I guess the moral of the story is pay your taxes on time, file on time, and open those notices! My question is - should he pay the $2000 they say he owes and then protest it and ask for forgiveness of fees and such, or pay what he thinks he really owes and then protest some of the penalty (while interest of 7% continues to accrue if he lose?) Should he get a lawyer from CA involved or would thowing himself on the mercy of the state work as well. He didn't do everything he should have but he also was not a tax cheat or fraud. And of course the sooner he pays the sooner he gets the liens lifted (I realize they stay on for 7 years as paid.) And is there any chance of not only having one or both evil dmand penaties waived but maybe negotiating with the state to write a letter that the lien was filed in error? Sorry for the long post - comments and suggestions welcome. Thanks, Tom
Write to the Taxpayer's Advocate office at the FTB. I got them to take my account back from the collection agency. I then was able to file the return for the year in question and establish an installment plan.
Thanks DaveL, I did download the form for the TaxPayer advocate. I also learned that they have since modified that harsh 25% demand penalty and now it only hits 2nd time offenders - everybody was upset that it punished people that withheld none of their tax liability the as total deadbest who withheld nothing. Maybe they will take their change of heart into account. But are you recommending appealing to the TaxPayer advocate regarding all these issues before paying what they say he owes, or after paying what he thinks he owes, or before paying anymore? ALso is it worthwhile to contact TaxPayer Advocate by phone or is mail best? Thanks Tom
Contact them before he pays anything. I don't think you can just call the Advocate's office. You can write in and then someone from their office gets back to you. They were really nice to me.
Great - I'll tell him to write before paying. On a related note - has anybody ever been successful in negotiating payment for delete with a state Tax department? I'm guessing it's not that likely but I figure he could ask for the moon. Thanks
I asked and of course they said it was not possible. I've had two California tax liens, one that I paid in 1996 and the one that is currently open. The released one was reporting on all three and the current one was reporting only on TU and Experian. In the normal course of disputes I got the current lien deleted from TU and the previous lien deleted from Experian. Experian is now the only CRA that is reporting my current lien (they verified it in my last round of disputes). My experience shows that it is possible through dumb luck to get a current unpaid tax lien removed. I plan to keep disputing the lien on Experian until they remove it.
Here's a late reply, but his situation almost parallels mine & hubby's. We got everything together & took to an accountant. Rather than owing after all, we even received a refund. All monies, fees, penalties, interest, etc. owed are now zero'd. You can refile with new info at any time. He should refile that year. He should also go to an accountant. I now worship the ground mine walks on. I thought we'd never get out of that mess alive. I am currently disputing the liens as being posted in error by creditor. That was at the suggestion of the lady I spoke with at Equifax. I had explained the whole thing to her, and that's what she suggested. I was looking to just get the amounts to zero. That was just yesterday, so we'll see how it turns out.
