Today TaxMama hears from Suzanne in Brooklyn, NY tells us “I am 21 and had a job shampooing, off the books a couple of years ago. I was never paid with checks, receipts or paystubs. I received $5,000 in cash in2003. But IRS’ records indicate my previous employer said I made $21,000. The IRS insists that I pay the tax on that large amount when I did not earn it. Shouldn’t the business have to show proof? IRS said no.”
You reported the $5,000 you received on your tax return right?
You didn’t? No kidding.
And now you expect IRS to believe YOU when you say you’re telling the truth?
Let me think about this?
A business that files tax returns and keeps books.
Someone who they already know committed tax fraud. Who would you believe?
Put yourself in IRS’ shoes.
Now, if you had reported the income the earned on your own tax return on time, today you would have a strong basis on which to build a case.
If you never did, well, you’re going to have to prove you never got paid that much. And that’s going to take some work – especially, since you probably didn’t keep records. And I’ll bet you never even deposited your pay into your bank account, right? Sigh.
Sure, you could win your case. (I often do.)
But you’ll have to build it first.
You’re going to need to seek out a good, NY Tax Pro, who is experienced with fighting these cases with IRS. I wouldn’t try to do this one on my own if I were starting from the position of not having reported the income in the first place.
You’ll have to weigh the cost of this battle, though. Find out what IRS wants to charge, including penalties and interest. Then, have your Tax Pro compute how much you will owe NY for their tax bill (yes, they will get a copy of IRS’s notice and send you a bill, too).
Compare that to the cost of the Tax Pro’s fee.
Which is lower?
Incidentally, the money paid to IRS is not a tax deduction. The attorney’s fee might be.
Incidentally, if you let IRS decide that you have unreported income in 2003, you can surely expect them to look at all the other years that still open under the statute of limitations – or the years when you didn’t file tax returns. So, you may end up with three years just like this one. (I doubt IRS would go back to before you were 18…but if you were working…)
OK, this IS the worst-case scenario.
It could turn out to be easy and IRS will believe you if you simply bat your sweet, innocent eyes and say you never received that money. After all, you were 18 at the time, pretty young and unfamiliar with the system. You could get an IRS agent who believes you and decides to investigate the business, instead. It could happen. But, don’t hold your breath. Be prepared with a solid case and good representation..
And, remember, you’ll find answers to questions about tax disputes and all kinds of tax issues, free. Where? Where else? At TaxMama.com
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