Client owes $60k to the IRS & $40k to CA FTB and can’t pay…any thoughts?

Forum|Forum|2 years ago
April 5, 2024
5 replies
23 views

Had a client drop off their tax info:

$365k 401k withdrawal ($73k Federal w/h and $1300 in CA FTB w/h)

W-2 for $122k (went exempt for the year)

Anyone ever have anything like this happen to them? Once a year client, so I had no idea this was coming.

Obvious answer is that they need to pay. File extension and/or any other thoughts?

ProSeries Basic

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Dusty2

Level 6

Filing an extension only extends the time to file not to pay.

Dusty

Just-Lisa-Now-

Intuit Community Champion

Seen it too many times, people are dumb.

Get the return filed on time. Have them send what they can before 4/15, then once the return gets processed and IRS sends a bill, they can call IRS or create an Online IRS account and set up a payment plan.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

abctax55

Level 15

Options :

1) File the returns without paying; the IRS & CA will shortly send letters - "HEY, where's the money"?

At that stage, the authorities can be contacted to set up an plan for installment payments.

2) File an extension showing the amounts due, but don't send any money (or, send some money?). THEN, the letters from the IRS & CA don't show up until after the returns are actually filed. Actually, the CA extension is automatic if no money is being sent ** .

HOWEVER @Dusty2 is correct, late payment penalties and interest continue to accrue until full payment is made. Make sure your client understands that 'minor' detail.

It is 'critical' to either file the return, or the extensions so that late filing penalties are off the table.

**Personally, I would send some $$$ to CA, to prove the extension.... I don't like relying on that 'automatic if no money sent' clause. But I do have OCD issues 😉

HumanKind... Be Both

BobKamman

Level 15

Presumably they are expecting free advice from you so you are asking for some free advice from us.

Please introduce us to your client. Owns a home? How much equity? What credit score? This could be a simple matter. Have you asked, what they were thinking? Maybe Stage 4 cancer and they are living like there's no tomorrow, because there isn't?

abctax55

Level 15

@BobKamman

Favorite client (I mainly interacted with her but not as much the last two years) went against my advice re: drawing down retirement funds, taking a HELOC out on primary home to do major remodel on 2nd home.

Fast forward to early February 2024; husband comes into the office. She died three days before from the recurrence of breast cancer and had been battling it for the last two years. She didn't want 'anyone' to know. Remodeling that 2nd home in the Wine County, where she wanted to die and did die, with the help of hospice, was important to her.

So yep, the back story is important. It's not always about the taxes....

HumanKind... Be Both