IRS Trouble Solvers - November 2021

The client came to us, having been behind on filing his 1040s on time, with an IRS assessment of over $165,000 liability inclusive of penalties and interest. Several years previously, he had owned a self-directed IRA, took a distribution of $150,000 that he in turn invested the total distribution in his employer’s promissory notes. Subsequently, the value of the promissory notes became worthless. CASE SNAPSHOT Type of IRS Issue: Assessment of taxes due on a defunct investment Tax Year in Question: 2017 IRS Claimed Liability: $165,000 Savings: $165,000 During the time the client was behind in filing their 1040s, the IRS issued an erroneous Form 1099-R and filed a Substitute For Return (SFR) which included the erroneous $150,000 in taxable income and assessed a $15,000 penalty for early withdrawal. This SFR also included the WIN OF THE MONTH Individual Who Invested $150,000 of a Self-Directed IRA Into Employer’s Promissory Notes

assets in the event that the business is ever sued, as the plaintiff or creditor can only go after business assets. LLCs are typically subject to one layer of taxation, which can add up to a significant amount of savings over the lifespan of the business. Typically, LLCs are considered the most flexible because, as a business owner, you can choose how the business’s income will be taxed — you can choose between S corporation or C corporation taxation. With an LLC, you can choose how financial interests are divided and how the business is managed. However, LLC owners need to pay self-employment taxes on all income. In an LLC, the income flows through to the owners. In an S corporation, income and deductions are calculated at the corporate level before the income makes it to the shareholders. OR YOUR BUSINESS? ORP, OR LLC

The differences between LLCs, S corporations, and C corporations are complex. To best determine which business structure best suits your business, contact

your trusted tax professional. At IRS Trouble Solvers, we are always here to offer advice and guidance!


client’s business income, but none of his expenses, thereby overstating the client’s taxable income by $216,358. With our assistance, the client then filed his missing tax return, reporting the

1 whole turkey, thawed

2 cups chicken or vegetable broth

Salt and pepper to taste

Schedule C and 1099-R distribution but also deducting the $150,000 as a loss due to the worthlessness of the investment as well as including all the business expenses the client had. Using the newly filed returns, we were able to appeal the IRS ruling, by proving the worthlessness of the underlying promissory notes and validity of his Schedule C, thereby reducing taxable income by $216,358


1. Preheat the oven to 450 F. 2. Remove packaging and giblets from inside of the turkey. 3. Place the turkey in a broiling pan breast-side up and rub it with salt and pepper. Pour the broth around the turkey. 4. Place the pan in the oven and turn the temperature down to 350 F. Turkey should cook for 12–15 minutes per pound, typically 3–4 hours. 5. Remove the turkey from the oven every 45 minutes and baste it with the broth. 6. Once finished, let the turkey rest for 15–20 minutes before carving and serving.

and obtaining the non-assertion of the $15,000 penalty for early withdrawal, thereby saving the client $165,000!

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