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Financial Planning / Tax Strategies
|Subject: Tax Facts...||Date: 1/10/2010 6:52 PM|
|Author: comptche||Number: 108406 of 124815|
Today I received this list of Facts from the tax preparer, and EA, who does our taxes. He sent it to aid in our discussion with our son who is behind in his taxes with the IRS. I would like to say that we had a great discussion and that the problems were greatly exaggerated as our son told us, but I cannot be certain of that. The discussion has been halted at this time, so we only hope that things will turn out well, but realistically we do not believe they will. It is of some comfort to know what the procedures are from the various agencies... and... as a thank you to all of you who listened and commented earlier, here are the facts that were sent to us:
The key to getting out of tax problems is to file all returns due. That sets a ten year statute of limitations running from the date the returns are accepted by the IRS (about 45-60 days after they are filed usually). Assuming that the taxpayers do not sign a waiver of statute (can you believe that over 70% do), the debt will expire at the end of the ten year statute.
The State of California has no such rule, which is why most people get the state paid off first. They are vicious and aggressive tax collectors, and seize bank accounts quickly and virtually without warning.
The first step is usually an installment agreement with the IRS. The taxpayers must pay all estimated taxes due for the current year and file all tax returns timely and accurately. Installment agreements are usually for 5 years, but may be longer. The taxpayers usually default on these after a few months.
The next step is for the IRS to seize bank accounts and then lien wages. Both husband and wife should expect 25% of their wages (each) to be liened.
If the wage liens are seen as insufficient to pay the amount due, the IRS will then lien the home for security. The home cannot be sold by the IRS without the signature of the Commissioner of the IRS, an unusual event. However, in the meantime, money cannot be borrowed and ownership of the home cannot be transferred without paying off the lien with the proceeds.
The State of California will do one year installment agreements, sometimes 24 month, but the payments are electronically debited from a bank account. One missed payment and seizure activity begins. The IRS will usually lien the home before the state can get to it, but not always.
No one goes to jail unless they commit fraud. Criminal fraud is hard to prove, so the only people who go to jail are people like Leona Helmsley who are nasty, stupid, rich, conceal assets, and otherwise do really arrogant and stupid stuff.
It is unlikely that penalties and interest can be reduced. It is almost impossible to get an Offer in Compromise unless there is a complete descent into hospitalization or incarceration for both spouses. Most of us in the profession don’t even try any more here because the likelihood of success is so low except in extreme cases (I’ve had two that were). The rules are here: http://www.irs.gov/businesses/small/article/0,,id=104593,00....
Most delinquent taxpayers are like alcoholics. They live in denial, refusing to face reality, until the elephant in the living room gets so large that it crushes them. The effect on families is devastating. Kids who dream of college generally have to sever ties with their parents because, if not, they need to have their parent’s tax returns by March 1 to submit for FASFA. The likelihood of getting those on time is small. The kids have to prove that they are fully supporting themselves and living independently. http://www.fafsa.ed.gov/before015.htm The complete information is at http://www.fafsa.ed.gov/ .
The reality is that the change in family behavior is so extreme, that none of the family members are willing to change unless forced to do so by the tax authorities. They have to become accustomed to living on 75% of their family income plus paying all taxes due on time. No amount of well-intentioned talk accomplishes this. Only massive change in lifestyle and determination to pay the debt owed is successful. The males (usually) think that all they have to do is earn more to get out of the problem. As they earn more, taxes due go up of course, making the situation harder. Reduction in cost of living (or inheriting money) is the only successful way.
Again, thank you for your help and understanding,
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