QUESTION: I owe the IRS a lot of money for the last several years. I simply have not had the money to pay the IRS when I filed my tax return. So far I have been able to hide and ignore them and that has worked, but now they have found me and are starting to get more serious with me. What should I do?
ANSWER: Although it is a little early, I would like to wish everyone a Happy Halloween! This is a fun holiday for people because you can get out and wear a costume and pretend to be something you are not. People can put a mask on a cover up what they are dealing with in real life. But the truth is, you cannot just cover up some mistakes and expect things to fix themselves. It sounds like you have been trying to cover up the IRS problems and hope they just go away. If you are having trouble keeping up with the demands they have made on you or you simply don’t know what you can do to get out of the hole you are in, we can help. There are options to settle your liability with the IRS and ways to negotiate with them to reach a settlement that you can live with
A federal judge in Las Vegas ruled yesterday convicted tax fraudster Irwin Schiff (and his partner Cynthia Neun) could no longer sell his products that promote people not filing or paying their income taxes while he is in prison or when he is released in the future. One of Schiff’s titles include: “The Federal Mafia: How the Government Illegally Imposes and Unlawfully Collects Income Taxes.”
I represent many people before the IRS and have found that the IRS has absolutely no patience or compassion on those that are involved in these tax schemes and especially not for the people who promote these schemes. I have met with several people that have asked me to represent them because the federal income tax in unconstitutional and they have asked me to provide them common law and case law citations of where they are required to file a federal income tax return.
While I too would like to pay as little tax as possible, these arguments do not hold water when dealing with the IRS or while in court. If you owe the IRS because you have not filed your tax returns or paid taxes because of a fraudulent scheme, I would recommend that you immediately prepare your tax returns. The IRS will not work with you until those returns are filed and there are several things you can do to settle you taxes as long as you are not being criminally prosecuted for tax fraud or evasion.
Check out this site to learn more about the offer in compromise program and the other ways to settle your tax liability - legally - with the IRS.
Question: Can I use the deed to a house we own free and clear to make an offer in compromise to the IRS for back taxes?
Answer: The short answer is no. Basically, in determining whether you qualify for an offer in compromise, the IRS will examine you entire financial “self.” You can kind of compare this to an audit. The IRS will want to see a financial form (433-A for individuals) that shows all the assets that you own including real estate, stocks, bonds, checking accounts, cash, cash-value insurance, vehicles, etc. You will also be required to show back up documentation for most of these assets as well as account statements for the past three months and receipts for payments that you have made. You will also be required to disclose your monthly income and expenses to the IRS (as well as the income of any non-liable person who lives with you such as a non-liable spouse).
You will gather all of this information so that you can properly prepare your offer in compromise to the IRS. Based on your particular financial information you will be able to determine the amount of your offer in compromise.
To get back to your specific question, if you own your home free and clear that will simply be a much larger amount that you offer the IRS for your offer in compromise because you have 100% equity in the home with no debt. The IRS, however, will not want the deed to your house. They are not in the real estate business. They want the money you can get for the house. So it will be up to you to either sell the house, refinance or take out an equity line on the house and give the IRS the proceeds.
Now, as a practical matter, I would not recommend that you immediately go out and refinance your house or put it on the market. I would suggest that you do some research and make sure you will qualify for a refinance by speaking with several banks. Then you can submit your offer in compromise and if it is accepted you can then go out and refinance your home or take out an equity line that you can then use to pay off your offer in compromise. But keep in mind that you only have a limited time after the acceptance of your offer in compromise to pay the full balance.
QUESTION: I filed my 2007 tax return on October 15, 2008 and I owed $50,000. I don’t have the money to pay any of my taxes with my return. What will happen when the IRS receives my tax return. Will they immediately come take my house?
ANSWER: If you filed an extension, your tax return was due on October 15; however, the actual payment was due on April 15 this year, so your tax payment is already late. The IRS will process your tax return and send you a notice in a few weeks that tells you the tax, penalties, and interest that have been assessed against you. Then you will need to begin working out some way to resolve your tax liability. You may receive some threatening collection letters if you wait too long, so I would encourage you to begin the process or working out your problems earlier, rather than later. There are several ways to settle your IRS problems. You can either enter into an offer in compromise with the IRS where you settle your liability for a lesser amount or you may have to set up an installment agreement where you pay your taxes each month, similar to a mortgage on a home.
Question: I owe the IRS about $60,000 and they have a filed a tax lien in the county where I live. Because of the national insecurity due to the upcoming election, the banking crisis, and Wall Street blues I desperately need to sell my house. I would like to just refinance and take equity out to pay the IRS, but I can’t due to my credit. Can I sell the house even though there is a lien?
Answer: A lot of people are running into this problem all over the country. People are feeling a crunch because it is getting harder and harder to finance your property. It can make it more difficult to sell a home when there is a Federal Tax Lien on the property. Many people will not be able to see past that lien. However, there is a solution. It is possible to negotiate with the IRS to have them subordinate or discharge a Federal Tax Lien in certain circumstances. You mention that you believe there is equity in your house that would pay off your federal tax debt. Even if there were not enough equity to full pay, you may still be able to sell your house and have the IRS discharge the tax lien with regard to that specific property.
Question: I stopped paying taxes in 2001, when my long-time employer bankrupted. I have worked on and off as a sub-contractor since earning about $30,000 per year but have no assets of value. I’m getting letters from the IRS. What can they do except throw me in jail?
Answer: Thanks for your question. I would first like to make sure that you know that there is no debtors’ prison. You cannot go to jail just for owing the IRS money. However, you could be criminally prosecuted if you do not file your tax returns or you prepare fraudulent tax returns. The first thing you must do is file all of your tax returns for the past six years (at least). At that time, you will know exactly what you owe the IRS. Keep in mind that penalties and interest continue to accrue all the time. Since you work as a sub-contractor I will assume that you receive a 1099 for what you are paid each year and that no taxes are withheld from your pay, so you will have an obvious tax liability. You mentioned that you have no assets of value so depending on your living situation and monthly living expenses you may qualify for an offer in compromise. An offer in compromise is an agreement between you and the IRS for the IRS to take less money than you actually owe. Obviously, this is an ideal way to handle your tax liability. There are several types of offers in compromise and several ways to pay them depending on what you might qualify for. Every offer in compromise is based specifically on your individual financial situation and not on some universal equation or percentage and the amount you owe does not directly affect your offer amount. The truth is, not everyone is a candidate for an offer in compromise, but that doesn’t mean there is not a solution if you owe the IRS.