Dear Susan & Co.,
I owe the IRS approximately $20,000 dating back to 1988, and most of that is due to interest and penalties. I was thinking about an offer in compromise, but I don't have much money. I have heard some stories that the IRS has taken pennies on the dollar to settle some cases. My questions are: 1) do you have any knowledge about this kind of settlement, and 2) do you have to have all the money up front or will they take a certain amount and then take payments so that there is an end in sight. Any help would be appreciated. Thanks. IRS Debtor
Dear IRS Debtor:
Yes, the IRS has an Offer in Compromise where you can settle your tax account for less than what you owe. Under certain conditions the IRS will settle unpaid accounts for less than the full amount of the balance due. This applies to all taxes including any interest, penalty or additional amount arising under IRS laws.
Contact an IRS office to get Form 656 Offer in Compromise and Form 433A Collection Information Statement for Individuals or Form 433B, Collection Information Statement for Business, plus additional information regarding the filing procedure. To order these forms by phone, call 1-800-829-3676.
The IRS will accept an application for an Offer in Compromise if it is made on one or both of the following grounds: (1) Doubt as to the liability of the amount owed, or (2) Doubt as to your ability to fully pay the amount owed. If the IRS accepts your offer, you may be able to pay from a percentage of future earnings. Good luck on you dealings with the IRS.
Dear Susan & Co.,
I've recently received a letter from the IRS telling me I didn’t claim all my income for 96. In particular, I didn’t report income from a 1099C. I never received the 1099C, so that’s why it wasn’t claimed.
However, here's my confusion. I used to own a house with a former boyfriend. When we broke up, he took over the house and unfortunately my name was never "officially" removed from the mortgage. I signed a quit claim deed, but never filed it with the state. In 1996, the guy was behind in payments and deeded the property to the bank in lieu of foreclosure. The IRS sent me a copy of the 1099C, and it says "debt forgiven $70,000, interest forgiven 1,000, fines 3,000".
According to the IRS this means $70,000+ is added on to my income. But, I've gained nothing because the bank took back the house so that doesn’t make sense. Also, the total mortgage value was $70,000 so even if I got a free house it should only be $45,000 since I was 1 of 2 owners. I've been in contact with the guy, and he has gotten similar notices from the IRS. He states that some accountant friends said the 1099C means he(we) is only liable for the interest forgiven.
So, which is it? The interest seems to be the likely answer, but I'm not an expert in these things. I need to draft up a letter to the IRS explaining why I did not claim this income. Do you suggest I contact a lawyer or accountant? Thanks, Brooke
Dear Brooke:
You need to contact an accountant familiar with handling IRS matters and not an attorney. Before you do that, you might want to schedule a meeting with the IRS and explain your situation to an agent. The agent might be generous enough to offer you some type of settlement in this matter. If you feel the agent isn't sympathetic to your case, you can then contact an accountant to see exactly what your options are.
Dear Susan & Co.,
Hi there! I don’t have any "consumer credit" problems because nobody has given me credit in years. I owe the IRS for taxes going back to 1985-88. I filed in these years but my withholding was not sufficient to meet the taxes due and I had no other resources to fall back on. Now the interest and penalties have grown to an amount that seems virtually impossible, and I can’t get any kind of credit anywhere.
Can CCCS help me in negotiating with the IRS? Why, if I am claiming zero deductions, does my withholding seem to always be too little to meet my tax obligations? Thanks. Barbara
Dear Barbara:
The IRS accepts payment plans through CCCS, but the interest and penalties continue. So we do our best to work out an affordable payment that gets the debt paid as quickly as possible while allowing you to eat and keep a roof over your head.
So many factors affect taxes that claiming zero deductions sometimes is not enough to cover the tax obligation. Extra withholding then has to be planned.
So if you owed again in 1995, divide the amount owed by the number of pay periods in the year. Then ask your payroll clerk to deduct that amount as extra withholding to prevent your owing next year.
The only way to get free of this debt is to pay it off. You have two choices.
I hear your frustration, Barbara, and either way, I wish you the best.
Dear Susan & Co.,
I took out a cash advance on one of my credit cards, and then I got behind on the payment. I got a call from the credit card company, and they said that if I didn't pay them, he was going to report me to the IRS, and I'll have to pay taxes on the money I owe. Can he really do this? Cash
Dear Cash:
He can if the company is going to declare the money you owe as "forgiven debt."
Let's say you owe $1000. If the creditor declares that $1000 as forgiven debt, you no longer owe them. However - big however - that $1000 is now considered additional income for you. The creditor will issue you a 1099C and you will be expected to pay taxes on the $1000.
While checking facts with the IRS, I asked if there were a possibility you wouldn't have to pay taxes on the 1099C.
"If the person can prove he's insolvent, he won't owe taxes on it, " was the reply. "How do you define insolvent"? I asked. "In the tax code 108(d)3, insolvency is defined as 'an excess of liabilities over fair market value of assets'.."
In other words, broke. You owe more than you make or own.
"And the customer would have the responsibility of proving he was insolvent prior to the discharge date of the debt," the IRS source added. If you need more information, you can call the IRS. Or you can go to a major library and read the tax code for yourself. Now there's a fun Saturday afternoon for you!
Dear Susan & Co.,
Last year when I filed my income taxes, I used a rapid refund loan from the bank to get my $2000 back quicker. The IRS was supposed to send my refund to the bank to pay off my loan. Instead, the IRS sent the check to me. So I kept it. I figured it was their mistake and it was up to the bank and the IRS to work it out. But the bank has reported me to the credit bureau. How can I get this off my report? Mad About my Report
Dear Mad:
"Finders keepers, losers weepers," does not apply to legal contracts.
You signed a loan contract with the bank agreeing to repay the $2000 that they loaned you. If you don't repay, the bank has the right to try to collect the debt and to report the account to the credit bureau. If you want the bank to report the account as paid, pay back the loan.
By they way, if you lend me $200, are you going to expect me to repay you or not? Just thought I'd ask.
Dear Susan & Co.,
For the last five years, I have used rapid refund to get my IRS tax refund quicker. But I have had to pay as much as $90 for this service. Is there some way I can get my money back quick without paying so much? Need My Refund
Dear Refund:
Yes. There is a way.
When you use rapid refund, you are actually paying for two separate services: an electronic filing fee and a Refund Anticipation Loan (RAL).
To cut your costs this year, skip the RAL. Instead, use a combination of electronic filing, direct deposit and good timing.
Shop for the lowest electronic filing fees. Then, arrange a direct deposit of your refund to your bank account. Finally, plan to file early in the week.
Generally speaking, if you file electronically early in the week, your tax refund should be deposited to your account by the end of the following week. *Note I said "generally"*. Thanks to the tax fraud perpetrators out there, legitimate refunds may be slow in coming.
"But if I use a Refund Anticipation Loan, I'll get my money quicker." Maybe 6 to 9 days faster. Let’s see. You’ve lent interest-free money to the government all year. Now you want to pay a lender interest plus fees to borrow your own money because you just can't wait 9 more days? Think about it.
Dear Susan & Co.,
I haven't filed income taxes for 8 years. I don't think I owe anything, but I'm still really nervous about contacting the IRS. I don't know what to expect. Should I get a CPA to do this for me? Scared of the IRS
Dear Scared:
I called the IRS about your question. After I worked my way through the touch-tone system, I spoke with a very helpful representative. The word from here is "relax". You can make the call yourself, and here's what to expect.
Call 1-800-829-1040 or the local Houston number 713-541-0440. Ask to speak to someone in the non-filer unit. The assister in the non-filer unit can go back in your records up to six years for the income information that your employer provided. You will need to provide records to prove deductions, exemptions, etc. The assister will determine the forms you need and mail them to you.
Complete each year's taxes, make copies and then mail each year's return separately to the Internal Revenue Service, Austin Service Center, Austin, Tx. 73301.
If you don't owe any taxes, you won't face any penalties. If you do owe, you will have penalties and interest in addition to your taxes. If necessary, you can work out a payment plan for the amount owed. Generally, any refund you are still eligible to receive will be held until taxes for all prior years have been filed. Ask your assister for specifics in your case.