Innovative Title Services, Inc., a real estate title services company established in 2003, faces a tax penalty that could virtually shut down the small business.
[WEB EXTRA: Tax Trouble]
According to the company's President, Michael Day, the nearly $20,000 late fee is being assessed on taxes that were never due in the first place. Day and his accountant have been appealing the penalty for nearly a year which is due on April 15.
Day said the problem started in December 2012 when they handled a property sale for an individual of foreign descent.
The seller failed to provide correct documentation to Innovative regarding his taxpayer status until after the deadline had already passed to submit taxes to the IRS.
The federal government assesses taxes on certain property sales when foreign individuals profit on the sale.
Innovative submitted a payment of $157,500 to the IRS 8 days after it was due, but later found out that payment was never due in the first place.
The seller's accountant had provided incorrect information about his foreign tax status, and in face he was actually considered as having U.S. tax residence.
On May 22, 2013, Day sent a letter to the IRS discussing the erroneous payment and asking the IRS to return the money to the seller, which they did.
Then in September 2013 the IRS notified Day that Innovative owed $19,959.73 as a late penalty for the taxes.
"I'm hiring people, wanting to hire people paying unemployment taxes paying payroll taxes and I really don't understand why they would like to impose such a stiff penalty for something that was never due to begin with," said Day.
Shortly after getting the September letter he enlisted the help of CPA Richard Ornstein who described the dispute as a slam dunk case.
Ornstein wrote a letter to the Office of Appeals asking that the IRS waive the penalty due to a reasonable cause. He said if a taxpayer can prove reasonable cause penalties are generally waived.
"As a business person he had a reasonable interest to not transmit the money, and that he should have never withheld the money based on some information that was wrong or misleading at the time of the sale," said Ornstein.
An IRS spokesperson would not discuss this case with Local 6 and cited a federal law which prohibits them from providing tax payer information to third parties.
Congressman John Mica's office has been in contact with Day regarding the dispute.
Chief of Staff Wylie Deck said the office spoke to the IRS on Day's behalf in early April, but it could take up to 30 days before they get a response.
In the meantime, Day has sent a final appeal letter to the Office of Appeals and if the IRS decides to stand by it's decision he will have to pay the penalty or face liens on his business. Ornstein said after paying the fine, Day will have to fight to get his money back in tax court which could costs thousands more.