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I need help resolving an IRS issue.

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  • Wilson Montgomery
    I am new to the group, and I see that you help with issues concerning the IRS. I will try to give you the Reader’s Digest version of my issue and not bore
    Message 1 of 5 , Aug 2, 2010
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      I am new to the group, and I see that you help with issues concerning the IRS.

      I will try to give you the Reader’s Digest version of my issue and not bore you with the details.

      I live in California (near Los Angeles). I have been self-employed since January 2003, operating my own full service travel agency out of my own home, mainly making ends meet with my own personal savings with a hope that my business would take root and grow. Yet by late 2006, my business was dying a slow death and my personal savings started running out. I was not making any profit on my travel business, however in the meantime, I experimented in several other work-at-home business, yet I never made any profit on them either. So bottomline, I never made any business income/profit from 2003 to present date. 2005 was the last time I filed my income tax, since I had some investment income I had to claim up until the 2005 year ended.

      Yet since I was doing what I loved, I remain optimistic and kept operating my travel business and several other businesses along the way, with a hope that I would one day make a profit from one of my businesses, however none of my businesses did. Yet by late 2006, my savings started to run out. So in January 2007, I meet up with a sub prime loan company (that I will call Mortgage Company A)  that did a lot of fudging to grant me a home equity loan (since my house was fully paid for, with an approximate $400,000 value at the time). I was desperate for a loan and I guess my loan officer/agent  was desperate for a $5,000 commission, so he made my loan go through and my $188,000 loan was quickly granted. Upon getting my loan, all was right with the world. However Mortgage Company A sold my loan to Mortgage Company B, then Mortgage Company B was later taken over (via a merger in 2008) to Mortgage Company C. Yet since I never made any income from my travel business or any of my other businesses, I never filed any income taxes since 2005. Since I was not making any profit in any of my businesses and living off of my loan,  I thought about getting back into the workforce last year, but with the Great Recession, I could not find anything . . . yet meanwhile, my home equity loan money was almost gone by this spring and I had started living heavily off of my credit cards and my cash advances just to keep up with my bills (and paying my mortgage with my loan money). Yet I am looking for work now, but so far, I have had any luck, yet I am working on keeping my house, and I do not want to sell it.

      Then in mid May of this year, I received a letter (with a July 7th deadline, which I later got an extension for until August 6th) from the IRS stating the following:

      We believe you need to file a 2007 California tax return.

      We received information that you made mortgage payments to Mortgage Company B during 2007. The amount of mortgage interest you paid indicates that you may have sufficient income to have a filling requirement for the 2007 tax year.

      We also received information that you earned income from, but not limited to Mortgage Company A.

      We checked our records and failed to locate your 2007 California personal income tax return.

      Identify the sources and amounts of all income received that enabled you to meet your California mortgage obligation and other living expenses during 2007. Attach documentation of the income.

      * * *

      So I went ahead and told my tax preparer I had less than $500 income in the 2007 year, and gave him my supporting documentation for both my income and the interest I had paid on my mortgage. Yet I now have two questions.

      How do I successfully address the IRS requirement of “Identify the sources and amounts of all income received that enabled you to meet your California mortgage obligation and other living expenses during 2007. Attach documentation of the income.”? (this is one of the questions I must answer before I can return my 2007 return back to them.

      Do you think this issue will cause the IRS to dig deeper into my affairs . . . i.e. cause them to ask for my 2008 to 2009 tax returns? Or maybe trigger an audit?

      I know that I have made some very bad and poor choices since 2007, yet I am trying to get out of the mess that I created for myself, and I only blame myself.

      My only thought is to return all of the paperwork that I can to the IRS, along with my completed 2007 tax return, and skip sending the requirement of:  “Identify the sources and amounts of all income received that enabled you to meet your California mortgage obligation and other living expenses during 2007. Attach documentation of the income.” So that they will see that I am not ignoring them and I have at least provided them with some of the required paperwork. Yet while doing this, I hope this will give me time  to get some professional tax help on this issue, before the IRS contacts me again stating that I failed to include this information in my mailing.

      One thing that I do not understand is how can the IRS see a home equity loan as “income”, instead of a “loan” . . . since I did not earn this money. Up until I read the letter closely, I just was going to send a copy of my loan check, a copy of my bank statement where I deposited my check, tell the IRS that my business had failed in 2007 and I was making ends meet with my home equity loan.

      Any help or advice would gladly be appreciated. Thank you.

      Wilson





    • dave
      Wilson: The State of California and/or IRS went fishing and you’re starting to take the bait. Read the letter again within the guidelines of someone fishing
      Message 2 of 5 , Aug 2, 2010
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        Wilson:

         

        The State of California and/or IRS went fishing and you’re starting to take the bait. Read the letter again within the guidelines of someone fishing for information based on a “hunch” yet without any proof. Trust me: If they thought you owed, the letter would be much more threatening. Government is all about getting innocent people to volunteer incriminating evidence government is prevented from collecting.

         

        Not much time to waste….Since you’re new to the game, contact “Legal Bear” for immediate educational help.

         

        If you stick with freedom thoughts long enough, eventually you’ll desire to know “how it ALL works” ….if so you’ll want an advanced course on how government and law works by becoming a student of www.edrivera.com . Well worth the money.

         

        Dave

         

         

         



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      • Chris
        Dear Wilson Your situation appears complicated however it really is not. (in my opinion) I suggest that you file for the years where you did not. If no one
        Message 3 of 5 , Aug 2, 2010
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          Dear Wilson

          Your situation appears complicated however it really is not. (in my opinion) I suggest that you file for the years where you did not. If no one generated a W-2 or a 1099 on your behalf, then there is no income to report� If you show a loss every year in your business then there is still no income to be taxed�. As far as California goes, paying one�s mortgage with savings, or proceeds from a loan is not taxable � income. It would appear to me that someone there is assuming � that you made money. What happens is the banks issue 1099’s stating interest paid or charged and send these 1099’s to the state and IRS. It is then up to you to rebut these information returns. If you do not, they eventually send you a Hey you did not file� notice. Did you receive any of these little notices? If so, they must be rebutted.

          If you had a loss then it is a simple matter, (again my opinion) of correcting them (the state) and showing the loss, etc.Tedious, yes but necessary to stop future harassment.

          It might be as simple as writing them a letter asking them to send you any documents they have showing where you made taxable income. Please send them to you for your verification. Does California have a tax account transcript they can send to you? This would show if they indeed had any records stating where you made $$$. If the IRS has not sent you anything yet it is probably because they have not received a W2 or 1099. That is their only notice that you have made taxable income if no one sent any of these to them, they have no idea if you owe anything at all. Again, you can request an account transcript from the IRS. It will show any information returns (W2s ,1099 etc that were sent to them�

          Use form 4506t to request transcripts from the IRS.

          Hope some of this helps.

          -C
        • Wilson Montgomery
          Stupid question below : - ( Since I have to return my completed tax returns for the 2007 year (reflecting zero income) to the State Of California Filing
          Message 4 of 5 , Aug 4, 2010
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            Stupid question below : - (

            Since I have to return my completed tax returns for the 2007 year (reflecting zero income) to the State Of California Filing Enforcement Section Franchise Tax Board in Sacramento California (per their request, since they are the one that wrote to me with the August 6th deadline for my 2007 tax returns), I am not sure which form(s) I should send them, as they did not specify what tax form(s) they actually want. My tax preparer gave me a completed form 540 to send them, yet he also prepared form 1040. Yet I am thinking I should just send both to the state of California. Please review and advise. Thank you.

            Wilson


            --- On Mon, 8/2/10, Chris <creile@...> wrote:

            From: Chris <creile@...>
            Subject: RE: [tips_and_tricks] I need help resolving an IRS issue.
            To: tips_and_tricks@yahoogroups.com
            Date: Monday, August 2, 2010, 1:46 PM

             

            Dear Wilson

            Your situation appears complicated however it really is not. (in my opinion) I suggest that you file for the years where you did not. If no one generated a W-2 or a 1099 on your behalf, then there is no income to report� If you show a loss every year in your business then there is still no income to be taxed�. As far as California goes, paying one’s mortgage with savings, or proceeds from a loan is not taxable � income. It would appear to me that someone there is assuming � that you made money. What happens is the banks issue 1099’s stating interest paid or charged and send these 1099’s to the state and IRS. It is then up to you to rebut these information returns. If you do not, they eventually send you a Hey you did not file� notice. Did you receive any of these little notices? If so, they must be rebutted.

            If you had a loss then it is a simple matter, (again my opinion) of correcting them (the state) and showing the loss, etc.Tedious, yes but necessary to stop future harassment.

            It might be as simple as writing them a letter asking them to send you any documents they have showing where you made taxable income. Please send them to you for your verification. Does California have a tax account transcript they can send to you? This would show if they indeed had any records stating where you made $$$. If the IRS has not sent you anything yet it is probably because they have not received a W2 or 1099. That is their only notice that you have made taxable income if no one sent any of these to them, they have no idea if you owe anything at all. Again, you can request an account transcript from the IRS. It will show any information returns (W2s ,1099 etc that were sent to them�

            Use form 4506t to request transcripts from the IRS.

            Hope some of this helps.

            -C


          • Frog Farmer
            ... They ? In California?? You must be new to this list. Welcome! For you and other newcomers, it might be news that nobody in California decided to commit
            Message 5 of 5 , Aug 5, 2010
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              Wilson Montgomery presumes:

              > Since I have to return my completed tax returns for the 2007 year
              > (reflecting zero income) to the State Of California Filing Enforcement
              > Section Franchise Tax Board in Sacramento California (per their
              > request, since they are the one that wrote to me with the August 6th
              > deadline for my 2007 tax returns),

              "They"? In California?? You must be new to this list. Welcome!

              For you and other newcomers, it might be news that nobody in California
              decided to commit as needed and fulfill the prerequisites for acting in
              any official capacity under the requirements mandated by the state's own
              constitution. It's been years since anyone wanted to be the only one to
              stick their neck out and buck the herd mentality and take personal
              responsibility. Most paycheck-anticipating public employees are honest
              but merely ignorant, having never actually read and understood the very
              constitution they believe they've sworn to uphold. If they actually
              read it they'd understand their own inability to act upon anyone other
              than gullible na�ve believers who themselves cannot be bothered to read
              it and act as though it carried any weight.

              > I am not sure which form(s) I
              > should send them, as they did not specify what tax form(s) they
              > actually want.

              Admissions and confessions are often left to the creative minds of the
              victims of predatory agencies and power-hungry types. They'll be happy
              to use anything against you that you choose to give them!

              > My tax preparer gave me a completed form 540 to send
              > them, yet he also prepared form 1040.

              You are blessed with educated and capable people where you are located,
              but I cannot find ONE accountant capable of correctly accounting for the
              monetary items I carry in my pocket that I received in trade for my own
              time and attention and labor and other substance I trade from time to
              time. Which of the two monetary systems created to operate
              simultaneously by congress did you choose to use? Did your professional
              assistant go over the differences and advantages of each one with you
              before you made your choice of which one to use? Why did he choose to
              use an expired form for you?

              > Yet I am thinking I should just
              > send both to the state of California. Please review and advise. Thank
              > you.

              We cannot give legal advice here. But we can advise that one read and
              understand the laws that affect them, beginning with the constitutions
              and actual statutes that govern ones activities. One may disregard
              those laws which only deal with the activities of others that one does
              not partake in. For example, I do not even read the laws dealing with
              disposal of nuclear wastes because I do not produce nuclear wastes.

              Do you waive rights voluntarily or are you being blackmailed the way
              most legislators are?

              Regards,

              FF
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