First representation client - where to start?

Hello. I am happy to have found this forum.

I am a brand new EA just starting a second career in tax. I only plan to do a handful of returns per year and they will mostly be for low income folks that need more help than VITA can give them. I had no intention of ever doing any representation, but...

A family member and her husband are behind in their taxes. They are in their early 60s and he is the only one working. He is in a 1099 position and is making about 50k, which is their only income. They are current in their filing but have not paid anything toward their 2022 or 2023 federal or state taxes. They are also not paying their estimates. Their income just goes to food and shelter. They do own their home and keeping the mortgage paid is about all they can manage. They bought it 25 years ago so the payment is manageable. If they had to sell they'd never find any place to live that's cheaper.

Anyway, I want to help them so they'll sleep better at night but I am so new to this. I have urged them to contact the low income taxpayer clinic but they won't. They are overwhelmed and terrified. They hadn't planned to file 2023 at all but I convinced them to. I will do what I can for them and I am not charging them. (I do realize that I am a glutton for punishment but they are family and they are freaked out about this. I have to help.)

From the little I know about the process, I'm thinking that CNC is their only option. They don't dispute the debt, they just can't pay it.

Can you nice folks point me toward an affordable continuing education class? I want to learn the basics before I start this. From there we will do the POAs for federal and state and get started. They have gotten letters from the IRS but not from the state yet.

Thank you,
AnnieK

“He is in a 1099 position.”

Does he truly have his own business where he may be able to increase his income so he can pay the taxes? Have you asked why they did not pay estimated taxes or budget for taxes? I know you say they use it all for living expenses, but when you have a business, you have to factor in taxes as an expense, or things will go downhill fast.

What have they done as far as planning to pay taxes for 2024 and forward? Is wife disabled? Can she go to work to help get this debt knocked out? Will she start drawing SS benefits soon?

If they have equity in the home, they likely won’t qualify for an OIC. I would recommend getting them on a payment plan paying as much as possible to keep interest and penalty as low as possible.

My guess is that a large part of the tax liability is the SECA tax. That may be what caught them off guard. How long has he been in business for himself?

Look at the 433A, and you will get an idea of what the IRS looks at when considering OICs or CNC status. They generally don’t accept them if it looks like the money can be collected under fair tax administration. If there are unusual circumstances, there might be an argument, but you don’t indicate any extreme medical conditions, disasters, etc.

NAEA has an excellent program for rep CE. It’s NTPI. They offer it live and virtually. Go to the NAEA site for more info.

Is there a possibility it might be better for him to close his business and go to work somewhere else as an employee? That will help relieve some of the SECA bite, and his portion of FICA will be witheld regularly. Will make it easier to budget.

Thank you.

A large part of the debt is the self-employment tax. He should go get a regular W2 job somewhere but just won't. He is underpaid where he is but he likes it and his wife and I can't talk him into doing something else. We can't even talk him into keeping receipts and records so he'll at least have things to deduct.

She isn't disabled but hasn't worked in a couple of years. She has some headspace issues I can't get her to work through and she won't get help with that. They have no health insurance and medical care is so low on their list of priorities. She has just turned 62 and she has applied for Social Security. That will help some.

Outside of the taxes they see their situation as hopeless and believe they can't do anything to fix it. That's so hard to get on top of so they continue to make it more hopeless every day.

Enough about all that. I will look into the NTPI classes at NAEA and just do what I can for them.

Thanks!

It sounds as if he is a misclassified employee. Even if not claiming expenses, he probably is getting benefit of QBI deduction, which would be wrong for an employee. He apparently has agreed to this arrangement, so he must deal with the taxes. Set them up on an installment plan, get $$ in the budget for 2024 taxes now, or they may be going down a hole that will be hard to dig out of. The additional income from her SS should be budgeted to the taxes until they are paid.

As far as insurance, would they qualify for APTC on a marketplace policy?

If they apply, be sure to include all income expected, including her SS.

One of the most frustrating aspects of this type of engagement is the client that will not listen to reason.

Next up is the client that presents what first appears to be a straightforward issue, and upon review becomes a multi year cluster due to their own actions.

Welcome to the wild west of tax client representation.

I would be very slow to take a case for family. Too much risk for the possible reward, especially given how unmotivated to fix the issue they seem.

Just explain what percentage of each deposit MUST be set aside for taxes from here on. For many SE folks, it can be 40% give or take with state and Fed, assuming no expenses, or not many.....when they know that, they budget life accordingly.

Thank you, everyone. You are right that this is all risk with no reward. It will never end well for me.

I have recommended ACA but they won't sign up. He is opposed to it.

I also think he is a misclassified employee. That is one of many things wrong with his employment situation. He is building an addition for a veterinarian. They have agreed on an hourly rate that is too low for them to live on, too low for the commute (1.5 hours each way that he can't deduct because it is his commute), and too low to pay the taxes.

He's in his 60s and working construction. He was having no luck finding a job and he thinks this is all he can get. He likes the people and they like him. He won't listen to either his wife or I that this is a totally unworkable situation. His argument is that some income is better than none, which I get. With her not working at all she doesn't have a leg to stand on when she disagrees.

It is just a bad situation all the way around. If I was not related to her I wouldn't touch this with a 10-foot pole. Being an EA is almost irrelevant here. Even if I wasn't one I'd be the only person they know able to help.

I have explained the importance of paying estimates. Everything falls on deaf ears. I spent over an hour explaining options to both of them and he never took his eyes off the TV.

What I have done is have her start filing MFS. I know it will cost them more in the long run. My thinking is that the hole they are in will just get deeper and he'll never be able to get out of it. I suspect he will never pay any of the debt. At least I can stop the bleeding for her. (If this was a bad thing for me to do, I'd love to hear the reasons while there is still time to amend.)

Thank you everyone for taking the time to respond to me. I know this is impossible. I appreciate you all.

What income is she filing MFS? Or are you just having him file MFS, which increases his tax liability?

They are both MFS for 2023. Her income was $20 for interest on their escrow account.

They were MFJ for 2022 and owed roughly $3000 for Federal. They paid what they owed to the state. They are both getting IRS letters for the $3000.

For 2023, which they just filed in early October, he owes about 10k to Federal and about $1500 to state. They both filed MFS to limit her liability to only the $3000 for 2022.

She is about to start collecting her social security which could turn out to be the only steady income they get in the foreseeable future. (He has an on again / off again work history.) She opened a separate bank account for her SS so they can keep everything separate until he gets this resolved. He is convinced the IRS will empty his bank account regularly so they wanted some money protected.

I know the MFS increases the overall liability. My concern is that he just pretends this isn't a problem for the next few years and keeps doing what he does. I don't want her social security subject to garnishment for the rest of her life for his bad decisions.

Yellowdog, thank you for hanging in and letting me talk through this.

Family or not, sometimes you have to walk away to preserve the relationship, sad as it will be to continually watching the flames eat away at them....as we say around our church, you can only people to the extent that they're willing to be helped. He's not willing....so time for you to step back. "I've given you all I've got, best suggestions, etc...that's all I can do. Sorry..."