Reader Question: Stuck between IRS and a hard place (help!)
Reader Kyle has the following question that I hope some of you can help with. If you have a knowledgeable answer to his dilemma, please comment below:
Looking everywhere for a helping hand. Question about taxes. I’m in a serious pickle it would seem. I am now 3 years behind in taxes and have got some big fees to negotiate. Never mind how it happened, it’s complicated, 1099 and was catching up on rebuilding a life after a brief spout of homelessness and couch surfing. Got out of that hole, but right into a new one.
I was planning to file everything, set up a payment plan and be on a smooth road to recovery when a lay-off struck. Now I am unemployed and just barely getting by again. Even if I get a job soon, I won’t be making close to as much, savings are drained too. What can I do in this situation to approach the I.R.S. for repayment without just losing everything?
Everyone says get a tax attorney do work it out, but I can’t afford that right now. Is there a way I can pause till I’m back in the game. I hear they are being mindful of the recession. How mindful can I expect them to be?
I know I have some tax geeks in my ~3000 daily readership, so help your fellow reader! I purposely stay away from taxes because it’s all I can do to not screw up my own each year (and just imagine if I stayed in the Accounting major in college!).
Thanks in advance!
It is possible to negotiate with the IRS without an attorney, but I wouldn’t recommend it. People frequently wind up agreeing to things that can harm a legal case.
There should be an organization in his area that helps with this kind of issue. He should contact the bar organization in his state or just run a search on volunteer legal assistance. Additionally, the law schools in his state should have tax clinics (or even general clinics) that specialize in this exact issue. Law schools will even run the clinics in the summer so he can get help soon. He should contact the school’s clinic and find out what the process is or what the referring agency is to become a client of the clinic because there may be a few hoops to jump through (to satisfy those who fund the clinic).
Obviously, the first thing I would do is get a job. I would then approach the IRS with exactly what you are making. I imagine they have a certain amount that you are allowed to make in order to cover your ordinary living expenses. After that is taken into consideration, the IRS will probably want whatever is left in order to settle this debt. If you do not talk to them soon, I imagine they will come after any assets that you have. They are willing to work out a payment plan that works for your situation and may even be able to lower your tax liability.
Without knowing your other debt situation, it’s hard to recommend one thing over the other. However, I would definitely work this thing out with the IRS first and foremost (at least after paying your living expenses). They have the power to do a lot of unfriendly things. However, I do not think they are going to repossess everything of yours if you approach them. Believe me, they want to work it out.
Definitely call and communicate with them. This will help tremendously. Many people fall behind every day. The object is to work with the IRS and they will work with you and many times for you. They will waive fees and interest and even hold off collection while you regroup.
The thing to remember is that you should never agree to a payment you can not make. You will need to uphold your end of the negotiations. So, if you can afford $100 a month, do not agree to $150. In fact, it would be best to agree to $75 and pay $100 if you can. You want to be good to your word, it will help.
Talk, talk and talk some more. Remember the folks at the IRS are human too.
First of all – Damn 3,000 Readers (send some love my way!)
I handle mostly Estate Tax Planning which is the OPPOSITE of this problem, but I did some research for your reader.
I can’t think of anyone worse to owe money to (outside of Gotti) than the IRS. But luckily, the IRS does have some great free resources to read PRIOR to making any other moves.
http://www.irs.gov/pub/irs-pdf/p594.pdf
http://www.irs.gov/pub/irs-pdf/f656.pdf
http://www.irs.gov/pub/irs-pdf/f9465.pdf
After reading those, I would then call all your local law schools. Each school has some sort of clinic program where they help people in exactly your situation (no money and need legal help). Second, I would contact any LARGE law firms in your area and ask about their pro bono program.
There are literally hundreds of first year associates in NYC with very little work to do. You get help, and they get experience what is better than that.
Hope this stuff helps.
I’m going to reiterate that calling the IRS may cause problems if you get an attorney later.
An offer and compromise is good for people who have money to offer (you indicate you don’t).
An installment agreement is good for people who can afford a monthly payment.
There is another option. The IRS may be able to place a temporary hold on your account a temporary “non-collectible status,” but it’s a bit complicated and there are some serious downsides. You should get an attorney familiar with your financial and legal situation to go over it with you and guide you through the process.
There are free attorneys and law students that can help you and they are available for people in exactly your situation. Getting one would be your best option for digging yourself out of this.
Kyle – I am a CPA based in MD – www.drapermcginleypa.com. Your story is not unlike a client we just worked through. There are options and it does not necessarily require an attorney although I am not a low cost provider. My advice would be to reach out to a licensed professional in your area and start the process i.e. you must file the 3 yrs of returns before you can start to compromise. Do not let the IRS do it for you if you were a 1099’d individual. There method may not result in the most advantageous calculations. Once you are caught up, you can begin to make amends to the IRS (and don’t forget your state).