How to prove you didn’t avoid paying taxes (the easy way)

May 5, 2008

Wow - this is one of the few times I’ve had genuinely good dealings with tax officials.  Quick story:  I’d moved away from Michigan in late 2004, and did some consulting work in 2005.  One of the people I’d paid as a straight 1099 lived in Michigan for part of 2005.  In April (letter dated Feb 29) I received noticed from the state of Michigan that I had to file paperwork to explain my business in Michigan (because I may have a ‘nexus’ of business there) and may owe taxes and/or penalties.

Of course, I freaked out.  I’ve spent the past couple weeks looking through old tax returns, trying to find the paperwork I’d filed, receipts proving where I’d lived (and where the contractor had lived) during that time, and so on.  Friday I noticed the letter had a ‘due date’ of April 14 - I was *late* as well on this.  I felt sick.  Truly sick.

But wait - there was a phone number on the letter.  I called it, and the phone was answered by the person’s name on the letter.  How odd was that?  Generally calling state departments is as useful as talking to a brick wall.  Not this time.  I explained my situation, and asked what I should do.  “Give me your reference number”.  Click click click.  “OK, that’s it”.  They took my word (which I can prove if need be) that the work was not done in Michigan, and that was that.

All that fretting over nothing!  I’d registered a business in Michigan, and my SSN had become associated with the state.  Although the work done wasn’t really done under the name of that business, the tax IDs and SSN all ended up implicating me in potential tax evasion, at least from the state’s viewpoint.  Whew!  I’m glad that’s all over…

Posted in Business, Personal