$750,000 in back taxes due
Hey all, I am asking for advice for a friend. (I swear it's not me and am honestly asking for a friend lol) This guy sold some land a few years back for close to $3 million, and just this week got a letter from the IRS asking where their ~$750,000 cut of the sale is. My friend did not 1031 this deal, did not pay taxes on it, and spent the money on a down payment for a home and other life expenses over the years. The way I see it, my friend has two options: refinance or sell the home to attempt to pay back a portion of this $750,000 tax bill. Does anybody see another route that I may be missing to help resolve this, or am I pretty spot on with my two courses of action? Thanks!
@Anthony Ives. How did your friend come by the land? Is $750k correct, that's a hefty price tag as if the basis was $0 and short term gain. What did you do with the land while you had it?
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@Anthony Ives
There are really no other options and he won’t be able to sell his property or refinance it once they slap a lien on it. Also the penalties must be outrageous - so his best bet is to settle it or go on a payment plan as soon as possible
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Quote from @Anthony Ives:
Hey all, I am asking for advice for a friend. (I swear it's not me and am honestly asking for a friend lol) This guy sold some land a few years back for close to $3 million, and just this week got a letter from the IRS asking where their ~$750,000 cut of the sale is. My friend did not 1031 this deal, did not pay taxes on it, and spent the money on a down payment for a home and other life expenses over the years. The way I see it, my friend has two options: refinance or sell the home to attempt to pay back a portion of this $750,000 tax bill. Does anybody see another route that I may be missing to help resolve this, or am I pretty spot on with my two courses of action? Thanks!
It's interesting that some guy who made $3,000,000 didn't seek tax advice and didn't declare it on his taxes.
There is a third option, I think the IRS will want to know why. Sounds like more than a simple miscalculation. I can't see this going away with a less than full payment. His intention & neglect is what they will focus on.
He'd be wise to talk to a tax attorney or an Enrolled Agent immediately, before more serious letters start arriving, along with personal delivery from a not so nice type of guy.
If the property is in a state that has state income tax, the IRS will report it to the state as well.
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as mentioned basis was probably not zero.. I suspect the 750k was what was owed AND a ton of penalties and interest.
TAx Attorney and then offer in compromise get it settle asap not going to go away...
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#1 Innovative Strategies Contributor
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Quote from @Anthony Ives:
Hey all, I am asking for advice for a friend. (I swear it's not me and am honestly asking for a friend lol) This guy sold some land a few years back for close to $3 million, and just this week got a letter from the IRS asking where their ~$750,000 cut of the sale is. My friend did not 1031 this deal, did not pay taxes on it, and spent the money on a down payment for a home and other life expenses over the years. The way I see it, my friend has two options: refinance or sell the home to attempt to pay back a portion of this $750,000 tax bill. Does anybody see another route that I may be missing to help resolve this, or am I pretty spot on with my two courses of action? Thanks!
There are a few countries that won’t extradite people back to US who have committed tax evasion. Cuba and Lichtenstein come to mind.
Quote from @Rick Baggenstoss:
@Anthony Ives. How did your friend come by the land? Is $750k correct, that's a hefty price tag as if the basis was $0 and short term gain. What did you do with the land while you had it?
I believe it was inherited many years prior, but not 100%
Quote from @Don Konipol:
Quote from @Anthony Ives:There are a few countries that won’t extradite people back to US who have committed tax evasion. Cuba and Lichtenstein come to mind.
Hey all, I am asking for advice for a friend. (I swear it's not me and am honestly asking for a friend lol) This guy sold some land a few years back for close to $3 million, and just this week got a letter from the IRS asking where their ~$750,000 cut of the sale is. My friend did not 1031 this deal, did not pay taxes on it, and spent the money on a down payment for a home and other life expenses over the years. The way I see it, my friend has two options: refinance or sell the home to attempt to pay back a portion of this $750,000 tax bill. Does anybody see another route that I may be missing to help resolve this, or am I pretty spot on with my two courses of action? Thanks!
Oh this made me laugh hahaha. I wish I was close to those connections hunter has lol
Quote from @Mike Hern:
Quote from @Anthony Ives:
Hey all, I am asking for advice for a friend. (I swear it's not me and am honestly asking for a friend lol) This guy sold some land a few years back for close to $3 million, and just this week got a letter from the IRS asking where their ~$750,000 cut of the sale is. My friend did not 1031 this deal, did not pay taxes on it, and spent the money on a down payment for a home and other life expenses over the years. The way I see it, my friend has two options: refinance or sell the home to attempt to pay back a portion of this $750,000 tax bill. Does anybody see another route that I may be missing to help resolve this, or am I pretty spot on with my two courses of action? Thanks!
It's interesting that some guy who made $3,000,000 didn't seek tax advice and didn't declare it on his taxes.
There is a third option, I think the IRS will want to know why. Sounds like more than a simple miscalculation. I can't see this going away with a less than full payment. His intention & neglect is what they will focus on.
He'd be wise to talk to a tax attorney or an Enrolled Agent immediately, before more serious letters start arriving, along with personal delivery from a not so nice type of guy.If the property is in a state that has state income tax, the IRS will report it to the state as well.
Yep state income tax is very much the case here in CO!
@Anthony Ives. Well, then your friend inherited it at a stepped up basis (value when the estate was settled). I think your friend's CPA can fix this pretty quickly. The capital gain would only be on the difference between the value when it was inherited and when it was sold. If he had sold it the same year as inherited, for example, there would have been no gain on the $3 million.
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#3 Real Estate Deal Analysis & Advice Contributor
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If it was inherited a long time ago, it will still have a steep tax hit.
Grandma bought 20 acres way out of town for 10k 50 years ago. The town started moving that way. She past away 30 years ago and the value was 40k. Now it is prime suburban property worth $3mil!!
Get a smaller house quick before there is an IRS lien. Pay some money down on the 750k and make a big pmt plan.