Need some suggestions to help my mom...

[Left Seater]

Granted most of y'all will do what you do, but a few of you likely have knowledge that can help steer her in the correct direction.

Background:

My mom retired from her teaching job about a decade ago. She works part time for a non-profit and also part time for a consulting firm. These regular pay checks add up to about $40K to $50K per year.

She also owns a percentage of two different oil and gas exploration companies and is an equity partner in a third. Two of these go back prior to my dad being killed and the other she purchased a few years ago. These ownership interests don't pay a salary or regular wage. She might go a year or three between disbursements. When these holdings do pay out it is in pretty large chunks, of which the majority goes into accounts strictly for the cost associated with the ownership interest, ie her share of drilling a new well.

Since she never knows until about 6 weeks before she receives a payment, it is difficult to plan for tax payments. A few years ago she received a disbursement at the end of the 2nd quarter. Within a few days she sent a check to the IRS for quarterly withholding but was hit with a fine because it wasn't processed until the third quarter.



Recent events:

After this IRS fine she was told by an IRS employee she would need to withhold more earlier in the year in the event of a large disbursement. So in the past two tax years she had almost all of her regular salary withheld from her part time jobs in case she had a large disbursement. Problem was in each of the last two years the disbursements have been very small as they are dumping everything back into more exploration as the situation here demands.


Today:

The IRS is sitting on a large overpayment from 2012 and 2013, that they have yet to refund to her. Letters from the IRS outline their concerns over her returns saying that the overpayments raise a red flag. That is understandable, but this was the course of action suggested by the same IRS. Her accountant has retired this year and no accountant or attorney in her small town has the knowledge or desire to help her.

Any of you DC types or attorneys have contacts that know the IRS system? Any of the rest of you have any contacts in your area that might be of help?

[jiminphilly]

Doesn't the IRS have tax advocates for this type of stuff..http://www.irs.gov/Advocate

[Left Seater]

Yes, they are the ones who got her the info to withhold more originally. Now they are saying things like this is a unique situation and not a systemic problem so she just needs to be patient.

[MgoBlue-LightSpecial]

DC types

DC, you say? I'm not aware of any DC peeps in here. Nope, none that I can think of. Zero. Zip. Nada.

[Shlomart Ben Yisrael]

[Left Seater]

DC types

DC, you say? I'm not aware of any DC peeps in here. Nope, none that I can think of. Zero. Zip. Nada.

Yeah, there are also lawyers here as well. Figured instead of 5+ PMs one post would work and maybe someone else had a suggestion.

[MgoBlue-LightSpecial]

:|

It's becoming increasingly clear your wife didn't marry you for your sense of humor.

[Left Seater]

My bad, misread your intent there.

[Left Seater]

Selling isn't all that easy.

The other owners would have first option. If none of them wanted to increase their share then she has to find someone that is acceptable to the other partners. Plus, with the boom happening now, the value is increasing each day.

Further, these ownership intrests aren't monies she is ever going to need to liquidate to live off of. Retirement accounts, 401K, planned sales of investments etc are plenty for her living expenses.

[Dinsdale]

So, on this board, you thought it wise to start a topic with a reference to your Mom in the title?


Since I don't really have any insight to the matter at hand, I'll just leave it at...








Your Mom.


Probably did JTR. Or AP. Or some shit like that.


Jeez, is nothing sacred around here?

[mvscal]

She needs to get a new accountant and never overpay the IRS. At best, you are giving the government an interest free loan.

[Y2K]

Screw it!

just have Mom give you all her cash and put her in a home.
She doesn't need it anyway.

Should make some intersting new PET's.

[L45B]

Lefty--

Going forward, I would obviously recommend not withholding additional $$ from Mom's regular recurring paychecks.

Not sure if this would be the run-of-the-mill CPA's financial advice, but if I were in this situation without any guidance, I would only make estimated tax payments (ONLINE or by phone, don't further rely on worthless government services-- USPS-- to help you here!) once a quarter after having received at least one disbursement. Just make sure Mom does so before the quarterly payment due date, and that she cover local taxes separately also (State & City). Don't worry as much about filing the paperwork by that date (let an H&R Block stooge worry about that), just make sure she makes payment by that date.

For a reasonable quarterly calculation, I would take [the amount of annual accumulated disbursements] x [the approximate tax rate (federal, state or city) for {Mom's annual gross income + accumulated-to-date earnings from disbursements}] less [any disbursement-related tax payments to-date].

So for instance, if Mom expects to make $50k annually from her salaried work and she gets a $10k check in Q3 2014, she should pay (assuming that the $10k is the 1st disbursement of the year thus far) the IRS $1,400 by September 15. The weighted federal tax rate for someone making $60k/yr ($50k+$10k)is ~14% for surviving spouse. You can look up the same for her state and city, if applicable. Round up if you want to be more conservative but also note that this method doesn't take into consideration any deductions she might claim at year-end. Then file the supporting quarterly tax documents as soon as possible.

Rolling that example forward, if she received another $30k in Q4, she should pay the IRS an additional $3,400 by January 15, 2015. See below:

$40,000 (annual accumulated disbursements $10k+30k) x 16% (approximate federal rate for surviving spouse making $90k/yr $50+$10+$30) less $1,400 (tax payment made in Q3) = $3,400

Though Mom may get penalized for underpaying in certain quarters (that she would consequently cover by overpaying in the next), this would at least minimize that to some degree and avoid her loaning the government a huge sum of money, as mvscal noted.

A more conservative option would be paying quarterly tax by averaging previous years' annual disbursement income, but only paying the IRS out of Mom's disbursement income slush fund for that year without withholding more from her regular salary. Again, still might not avoid all penalties, especially if a big check comes at the end of the year, but won't get screwed if zero checks come in the mail all year.

Verify with a CPA, preferably from a Big Ten school, before going down this path!