We came across a potential client recently who had recently applied for a refinance on their mortgage. They were in a situation where they had a joint owner on the property and the joint owner wanted to move and get their name removed from the title. The other issue at hand of course was the fact the client is self employed, both he and his wife. Now, there are several ways a refinance can take place of course. However, this one was tricky and in my mind crossed an ethical standard.
The taxpayer had been dealing with the underwriter as well as the mortgage professional for awhile. They wanted the same song and dance, bank statements, tax returns, etc. However, this time around the underwriter along with the mortgage professional decided it would be best for the taxpayer to file an incorrect tax return. The return was not fraudulent, and didn’t lead to any increase in the refund, or even take deductions one shouldn’t take. The tax returns was prepared without all of the taxpayer’s deductions on the Schedule C. In other words, the taxpayer was asked to not take as many deductions, in order to show a higher net self employment income. The primary reason for this of course was so the bank felt comfortable lending money based on the taxpayers net self employment income. Makes perfect sense right? The plot thickens.
Low and behold, due to the taxpayer not taking all of their deductions, they have a tax bill they simply cannot pay. They owe the IRS $20,000 for 2013 alone. Typically from what the client told me, they owe somewhere in the neighborhood of $6,500 to $7,500, which they promptly pay off each and every year. However, now they are faced with a situation where they cannot simply pay the tax bill. We met for lunch a few weeks ago and came up with some viable solutions:
– Set up a payment plan on the liability with the IRS
– Look to borrow the money from the bank on a line of credit (depending on terms the line of credit may have a better long term interest rate and repayment program than the IRS)
– Pay half down and set up a plan
– or, the best plan in my opinion would be to amend the tax return to take ALL necessary deductions and itemization’s for 2013
The taxpayer’s preparer seems to think the amendment will cause a red flag. However, the fact of the matter is the return was done incorrectly and needs to be amended to insure the taxpayer accounts for ALL deductions possible. Moral of the story, seek out sound tax advice from a few different professionals before taking advice from a non-tax professional. If you or someone you know needs sound tax advice do not hesitate to contact Highland Tax Group, Inc. at 720-398-6088. We would be more than happy to guide you in the right direction. Feel free to check out our website at www.highlandtaxresolution.com for more information.