How Michigan Business & Personal Tax Center Helped A Client With Tax Insurance Liabilities

Author: MICHIGAN BUSINESS & PERSONAL TAX CENTER | | Categories: Accounting , Bookkeeper , Tax Accountant


At Michigan Business & Personal Tax Center, we are passionate about reading the federal tax code, which can be fascinating and challenging at the same time. LOL!

Seriously though, we know that the federal tax code is incredibly boring, dull, and dry!

The most complex circumstances require a thorough understanding of the U.S. Code > Title 26- Internal Revenue Code (IRC). It pertains to a published IRS publication or set of instructions on how to handle a tax matter.

We have also encountered cases where the IRC contradicts these published instructions, which can affect clients if they don’t receive the correct advice. Therefore, we strive to help these types of clients get out of tricky situations.

Keep reading to learn about how we helped a client with a tax insurance liability.

The Challenge: A non-taxable claim was reported by the insurance company

A taxpayer was receiving payouts due to a personal injury, and the insurance company was reporting these payments to the IRS on Form 1099-MISC as Non-employee Compensation.

There are two (2) rules for payments received for personal injury.

  1. Payments received for personal injury are never taxable
  2. Payments received for personal injury should never be included in gross income.

So, the insurance company was incorrectly reporting the payments to the IRS.

The incorrect reporting by the insurance company created several burdens on the taxpayer by:

  1. Making her incorrectly report income on a federal, state, and city income tax return.
  2. Increasing her cost of income tax preparation services.
  3. Subjecting her to unnecessary tax liabilities.
  4. Forcing the taxpayer to incorrect reporting.
  5. To add insult to injury, the insurance company would not admit reporting incorrectly, even after providing written legal proof. Therefore, we had a fight on our hands.

The Solution: Filing an accurate tax return

Unfortunately, our client’s previous tax preparer filed her returns in a way that was acceptable for the IRS but was technically incorrect, which left our client open to liability.

What was even more challenging was that our client had a close family member who previously worked for the IRS and was providing wrong advice.

So we are tasked with the following:

  1. We help our clients realize that their family member who was previously employed at the IRS may no longer be qualified to advise them regarding tax issues.
  2. Every day, we help people realize that their barber, auto mechanic, doctor, and brother-in-law, whose cousin’s, best friend’s, ex-wife, sister’s neighbor who once listened to a podcast about taxes is not qualified to advise them.
  3. Just because the IRS previously employed a person, it does not qualify them to make written opinions or provide bona fide tax advice.
  4. We explain abstract concepts such as the federal tax code in simple terms for our clients to come on board with our way of thinking.
  5. Once we achieve these objectives, we can move forward with our strategy.
  6. Our strategy generally begins with reviewing IRS publications and instructions manuals.
  7. Then we move on to the federal tax code, which is the federal law everyone has to follow.
  8. We have to interpret and apply federal tax law to the specific conditions and circumstances of our clients.

A person must possess excellent reading, comprehension, writing, and communication skills to create written and organized responses.

Each response we create is handcrafted.

Income Tax Returns are like snowflakes, they look similar, but no two are identical!

-Andre “Tax Man” Tirado

The Bottom Line

In the end, we achieved our goal and filed an accurate tax return which did not subject our client to an unnecessary tax burden.

This job took over twenty hours to complete, spread over three weeks.

If you’re facing a similar issue, get in touch with us today.

We pride ourselves in being one of the best tax consultants in Michigan, if not the entire country.

At Michigan Business & Personal Tax Center, we pay close attention to detail when analyzing financial statements.

Our specialties include accounting, bookkeeping, payroll, and tax planning.

We also undertake notary services for clients.

We serve clients across Detroit, Troy, West Bloomfield Township, Birmingham, Farmington Hills, Wixom, Ferndale, Novi Township, and Lake Angelus, to name a few places.

To get started, get in touch with us by clicking here.

To learn more about how we can help you, please click here.