Some friends owe the IRS $85k

[Horse with no Name]

How does a person that doesn't make that much money do that?

Fines and penalties.

They consulted one of those tax attorneys. He apparently took them for a ride...so they ended up owing more money.

So...the wonderfully magnanimous IRS negotiated a payment schedule with them.

Last year, they allowed them to pay $500 month. This year, they have to pay $1000 month and generously NEXT year, they get to pay $1500 month. And it keeps going up until it is paid.

These people don't drive new cars or live in McMansions. To be fair, I honestly do not know how this all happened...but it really sucks because my friends are going to be moving so they can get jobs paying a little bit more money so that they can meet the monthly obligations next year.:(

I don't know how all of this works---I wish I could help them.

[alcibiades_mystery]

1. Fines and penalties my left foot

Your friends didn't pay any income taxes for a very long time.

This didn't happen because they were short on a $3000 tax bill. This happened because they actively avoided paying their income taxes for several years, at a minimum. I'd bet closer to a decade. They're moving? They should consider themselves lucky that they're not moving to a federal prison.

[Name removed]

3. Deleted message

Message removed by moderator. Click here to review the message board rules.

[MADem]

7. If you are self-employed you need to have the discipline of an employer and

pay your taxes FIRST. When you work for a company, they take out the taxes before you get your paycheck--as a self-employed individual you have to do the same. It's not going to get better by robbing Peter to pay Paul.

The credit cards, loans, etc. can be renegotiated--harder to do with the IRS if you blow them off.

Why are you calling people "dufus?" The dufus is the person who thinks they can wish the IRS away, like, oh, say, Wesley Snipes...

[alcibiades_mystery]

9. A self-employed person pays exactly the same amount in taxes as a non-self-employed person

The only difference between your friends - a couple of tax cheats - and a non-self-employed person is that your friends didn't pay their taxes.

Oh, of course, the non-self-employed person has a company do withholding for them. This is difficult? They couldn't set aside the money they knew they would owe? They're lousy business people, then, but still tax cheats.

Non-self-employed people also have expenses, and probably wish they had that withheld money to spend on this and that. But that's the money they owe for their taxes.

[iris27]

11. Not true - self-employed folks have to pay the additional half of SS/Medicare taxes that are paid by

the employer for non-SE folks.

That's not an excuse to avoid paying taxes, but anyone who is not a W-2 employee DOES pay more in taxes.

[JVS]

12. If your work doesn't bring that money into the company, your boss would fire you.

Workers pay both halves, always.

[hfojvt]

16. maybe

although my employer, the city government, does not really care about profit, and many other people are employed by the library, the schools, the county, the state, the water department, etc.

But the point is that when one says $60,000 in income, for a paid employee that means $60,000 - 7.65% FICA and for a self employed person that means $60,000 minus 15.3% FICA, although I believe the employer half of FICA is a deductible expense. My businesses never made enough money for me to pay FICA, so I don't know for sure.

[county worker]

39. If you do a schedule C the employer portion of FICA is a business expense.

The expense offsets income thus lowering taxable income. But if you don't have income to offset it is still tax you have to pay.

[Sherman A1]

19. Agreed

If you work for a company (even one that you own or yourself by being self employed) you are still paying both sides of the taxes. That you don't see them being paid does not mean you don't pay them. Just as you don't see the credit card service fees that a retailer pays because they are built into the cost of the item you are purchasing.

[county worker]

40. If that were true you are paying every expense the business has which is pure bull shit!

[alcibiades_mystery]

15. Since half of the self employment tax can be deducted from gross earnings

(on income) the difference tends to be negligible.

[hfojvt]

14. that's hard to imagine

although the kicker with being self-employed and making $60K is not so much the income taxes, but the FICA taxes to the tune of $9,180 because they have to pay both the employer and the employee side of it.

But that was the other thing about a business. I could buy $10,000 worth of new books for a wholesale cost of about $6,000. Sell half of them for $4,000 (at 20% off which I priced them at to beat both the competition (which was 10% off) and compete with Wal-mart (which was often 25% off). According to the IRS, I have just made $1,000 worth of profit (and also seen my inventory go up by $3,000). But while I theoretically have $1,000 worth of income, in practical terms, I have not even gotten my $6,000 back yet.

[gateley]

4. The fines and penalties ARE excessive and oppressive whether

you were short on a $3000 tax bill or if you didn't pay for a decade.

[alcibiades_mystery]

10. Oddly, I've never run into this supposed problem

Largely because I pay my taxes as I'm supposed to every year.

Novel concept, I know.

[gateley]

25. As do I. nt

[JVS]

13. Without stiff fees, nobody would pay.

If the balance didn't accrue penalties, then the wisest move would be to defer payment indefinitely while letting the money you owe work for you.

[gateley]

26. Good point, but I still think they're punitive. As well they

should be as it's against the law to not pay taxes, but still...

[Matariki]

17. You don't know what you are talking about.

[Liberal_in_LA]

37. agreed, The IRS doesn't apply fines and penalties like student loans and payday loans

[Mimosa]

2. EASY!

I know some self-employed people (in the 45-60K income group) who couldn't keep up with quarterly payments during the 2000's. Meaning they weren't payeing enough for the wars in Iraq and Afghanistan.

The IRS threatened to take their condo. They borrowed from the guys parents. They kept running behind. The IRS threatened them all the time. :(

[Horse with no Name]

5. This was probably more like the deal

I know he was self-employed and owned a garage.
I also know they were having some other personal issues at the time so I expect bookkeeping wasn't a strong suit.:(
These are not evil people and they have paid a considerable chunk of change back already.
But, they are sitting ducks...like the rest of the 99% of us. Only the 1%'ers could get by without paying their taxes...and get tax breaks while doing it.:(

[PassingFair]

22. Maybe he owed on taxes for his employees as well.

It happens to family businesses all the time.

[Yupster]

6. Self employed people have to pay

self employment tax which means both halves of their social security payments, the employee portion and the employer portion. And then comes the regular income tax that everyone pays.

Since they don't have withholding and often have good and bad months as you say it's easy for that group to get behind quick.

[Mimosa]

29. Exactly!

I've known a few self-employed artists who fell behind and got BULLIED by the IRS.

lately the IRS threatens to foreclose on homes. :(

[Quantess]

8. I know someone who owes IRS 4 times that amount!

A big winner in the real estate bubble who neglected to pay his taxes for a couple of years.

[Downwinder]

18. Did they follow Legal advice?

Is it in writing?
Obviously if they followed Legal advice they re absolved of any wrong doing, e.g. Iraq War, torture renditions, Gitmo.

[Lyric]

20. We are so quick to crucify individuals for being "tax cheats"

But where is this level of snark and outrage at the corporations like GE that get away with paying no taxes at all? Or the ones that hide their cash overseas to avoid taxes? The IRS always seems to be willing to negotiate an embarrassingly low settlement for the tax cheats in the 1%, but god help you if you're a poor person who did the math wrong and got too much EITC money back, or a middle-class person who made a mistake and got behind on your taxes. The IRS would rather pursue average people ANY day. Why? Because it keeps us fucking terrified of the IRS. That's the whole point. It would make more money for the government if the IRS redirected its full resources into pursuing corporate tax crooks, but that wouldn't keep the wage slaves cowed and frightened enough.

If the corporations of America were actually forced to pay their full fair share every single year, we'd be swimming in Treasury cash. Social Security would be just fine. We'd be able to fund our social safety net programs and our education system without a problem. And we'd probably STILL have enough left over to give a huge tax break to everyone making less than $100,000 per year.

But no. That'll never happen. This is no longer government of the people, by the people, and for the people. It's just a Madoff-style Ponzi scheme that is so enormous, we're all pledging allegiance to it by kindergarten.

[lunatica]

21. They can make an 'Offer in Compromise'

http://www.irs.gov/individuals/article/0,,id=243822,00.html

It means they can make an offer to the IRS to pay it an amount agreed upon so the IRS will forgive most of the debt. It's based on the fact that people simply can't pay the entire debt or the monthly payments. The IRS does accept these because they get it that people can't pay the draconian debts and it would rather get something they agree to than have delinquent debts on the books. I will be doing this with my tax lady as soon as H&R Block will pay her to do it. She's my neighbor and friend and knows I can't pay. She's helped me every step of the way as best she can, even if it's only for emotional support.

The least they can do is do this and maybe they won't have to move or get higher paying jobs. I think it's worth looking into.

[Mimosa]

30. IRS has gotten TOUGH

The IRS is so desperate fro bucks they are usually reportedly refusing compromises as of late. :(

[WolverineDG]

23. Have they actually talked to the IRS?

There is a form they can fill out to show they are "uncollectable."

dg

[seabeyond]

24. i am sorry for your friends BUT... when i was young and poor, i let my brother do my taxes cause i

got back a couple thousand. two years in a row. i had never gotten back that amount. he said it was legt. but i had never gotten back that amount. and i was poor

three years after first year, i get a letter saying i owe for the first year brother did taxes

second year, i get a letter saying i owe for the second year. i knew it was coming and had money saved.

and i paid it.

it is a bummer when we get caught. but we need to put head down and proceed, fix it and move on.

[unblock]

27. generally speaking, fines are assessed only for trying to get away with something illegal.

typically (not always, but typically), if you merely got something innocently wrong, you owe the back taxes, plus interest and penalties simply for paying late. these days that's just a few percent because interst rates are so low. maybe as much as 5% annually i'm guessing for interest and another 5% annually for penalties.


the FINES come in when you do things you're not supposed to do, like claiming a portion of you house as a home office when you also use it for personal use. when you claim a deduction, you're supposed to know and be able to document that you're entitled to it. if you can't do this, then it's not the irs that's to blame.

to me, the only real sob stories come in when you had documentation at the time you filed, but then had an accident, such as a fire, so you aren't able to support the deductions when the audit comes.


this is why i prefer to do my own taxes. it forces me to learn and understand everything i deduct because *I* am responsible for it and *I* pay the penalties and/or go to prison if i get it wrong. i'm not paying someone else to make those kind of decisions for me given that i can't shift the responsibility to them.

[Mimosa]

28. Penalties and interest rack up the debts people owe to the IRS

So, just as with credit cards they fall behind. :(

[unblock]

31. but the bulk of the problem is simply that they didn't pay the proper taxes in the first place.

it may feel like penalties and interest add insult to injury, but if someone owes the irs $85k, chances are really good that the bulk of the problem is that they legitimately owed and failed to properly pay at least $50-55k. yes, the rest might be all interest and penalties over the course of several years of continuing to fail to pay, but again, people tend to blame the interest and penalties when in fact the real problem is that they spent and now can't find the money to pay back even just what was owed in the first place.

nor to they give any consideration to the fact that they had the government's money for several years, either earning interest or perhaps helping them avoid interest on something else (e.g., if they used the money to pay down a loan or credit card). there's no basis for thinking that if you owed $50k three years ago and failed to pay on time, that it's somehow right to figure you don't owe the government any interest or fees for paying three years late.


i do my own quarterly withholding and annual taxes. i diligently set aside enough cash to make all my payments, and i don't dip into that money for ANYTHING. on the rare occassion, i've been slightly off in my calculations or estimations and have had to pay interest and penalties for under-withholding. on those occassions, i pay the interest and penalties without a beef.

taxes are a significant responsibility and it's important to take it seriously. if you claim a deduction that you think might come back to bite you, it's especially important to maintain enough savings to cover an unhappy audit result.

[Mimosa]

35. ^ "They had the government's money" ^ ?

^ A very revealing comment. *

Do you realise many people in this economy do not make enough money to be able to save?


I'm happy that you are well off enough to be able to plan and budget. Some people have uneven, uncertain revenue streams.We barely get by. :(

Do you realise the IRS most fervent harassment and collection efforts are aimed at working people -usually self-employed- who earn less than 100K a year?

I've seen it time and time again and have been on the receiving end more than once when my partner and I had highly variable month by month incomes as self employed people. It was nearly impossible -because of the irregular payments from companies- to pay quarterlies. Mortgage, food, utilities, transportation had to come first. Of course when people average around 35-65K most of their 'taxes' are FICA.

I expect you'll say people who can't keep up should 'get a job' or have gone into different lines of work. Well, companies in many fields have not been hiring full time employees for over a decade when they can hire temps or independent contractors. The reason is so THEY won't have to pay FICA withholding or provide health insurance.

Our former accountant in another city had worked for the IRS. He told us about who they 'go after' and why. Working class people can't afford tax attorneys and are the easiest to intimidate. More than once, years ago, IRS collection people, coming after us for just a few thousand, had me breaking down in tears. The latest tactic, even on small amounts, is to send out a letter notifying that they will be filing to seize one's HOME. They refused to make a payment plan like they used to and suggested my partner borrow from relatives.

[riderinthestorm]

32. But "illegal" is entirely in the eyes of the IRS, as we discovered when we were audited

As a horse business, we've been audited 3 times. The first time they tried to tell us we were not really in the "horse business" and were not "professional equestrians" legally able to deduct legitimate expenses to run our business. Could they quantify why we were not professionals? No. They didn't know enough about the business to know. The auditor just mandated that it was so and disqualified many of our expenses. We paid out thousands of dollars when the judgement came against us. We'd done our taxes ourselves, felt we thoroughly understood the process and what we needed to do (we have a relative whose a tax specialist who helped us in the early days with our returns). Boy did we get screwed because we didn't know that clout means everything in these cases.

Since then, we've hired a high end tax attorney to do our taxes (and represent us on the next two occasions we've been audited in the past 25 years). Same bills, same expenses, same business, same people involved in helping us run the business - essentially the same returns. But voila! With an (expensive and connected) tax attorney, we are NOW all legit.

We've been the same professional trainers, riders, boarding, sales and breeding operation that we ever were but NOW we are savvy enough (and with enough extra money) to hire real representation.

The IRS is a racket. I am convinced. I have the bills to prove it, the judgements to prove it, and the decades of fighting them to prove it. They go after the little to medium size guys because they know we do not have the means, stamina and wherewithal to fight them forever - they know we are going to cave. It's easier to go after those (theoretically) owing $85k than to go after those who owe millions and can hire the right attorneys to fight the IRS every step of the way.

[unblock]

33. well there's certainly an element of "racket" to many institutions

from the irs to the parking enforcement to to divorce court, people get an unfair edge by hiring upscale lawyers, who in turn get an unfair advantage sometimes by superior understanding of the law but often by superior understanding of the power of negotiation and influence and image.

but then, private institutions are at least as corrupt in that sense. little companies and consumers get pushed around all the time compared to big companies. but they just call it the 'free market' and pretend like there's nothing wrong with that.

[Mimosa]

36. Riderinthestorm, you said exactly what I heard from accountant who used to work for IRS

A good CPA who used to work for the IRS told me essentially what you said:

They go after the little to medium size guys because they know we do not have the means, stamina and wherewithal to fight them forever - they know we are going to cave. It's easier to go after those (theoretically) owing $85k than to go after those who owe millions and can hire the right attorneys to fight the IRS every step of the way.

[AngryAmish]

34. I'm a lawyer. I never talk to the IRS without my tax lawyer.

Never talk to federal law enforcement. Easy for me to say but you really need a tax lawyer.

[slackmaster]

38. That sounds like the result of neglecting a small mistake and allowing it to snowball

Procrastination and denial may be factors.