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Ask HN: Owe over $100k US backtaxes. Not sure what to do.
73 points by bad_decisions on May 23, 2014 | hide | past | web | favorite | 45 comments
I did not file for a couple years while doing affiliate marketing. I got an estimated IRS tax bill of well over $100k. After a CPA filing, I still owe over $100k in backtaxes and I don't have it. I emptied the bank account and worked out a monthly plan, but basically the IRS wants all my after tax earnings for 5 years. I'm not really sure what to do now.

I know I deserve snarky you are stupid and you are an idiot comments. I'm wondering if there's anything else I can actively do to lessen the burden, or interest or penalties, or if there is something outside the you're screwed for next 5 years plan. I have already talked to a CPA, but they seem to vary greatly in quality and knowledge. The one I got to file my taxes seemed pretty cookie cutter. I haven't talked to a tax attorney, and considering my stressed finances, I'm not sure if it makes sense to.

edit: I am now a salaryman. The installment plan monthly amount due to my high cost location ends up being total after tax dollars minus rent and very frugal and basic living expenses. I could move to a cheaper location (which I am considering), but that doesn't seem to address the more immediate and core problem.




Email me. Contact info in profile. The IRS cannot waive interest. That's the law. They can waive penalties but not just because. There has to be a reason. The IRS has procedures to follow. It's a bureaucracy. See if you can fit yourself in the rules. (The rule book is the Internal Revenue Manual and it is online).

I will put you in touch with someone who is good at this.

Appeal to authority: I am a tax lawyer.


I appreciate the clearly marked "Appeal to authority" as it is both relevant information and clearly marked as to it's (unintended I assume) auxiliary consequences. Very classy move, will be copying it in future.


This is why I love the HN community. HN can be a harsh bunch, but I'm in awe how whenever a member needs help someone always step up to the plate.


I was just thinking that exact same thing. How many places are there on the entire planet where you have access to this many compassionate, intelligent people with bonafide expertise??


I don't see your email, but see a link. Does your username@domain suffice? Thanks so much!

edit: I see it. Wow I am so stressed that I fail basic reading right now.


HN username works on ... The Google's email service.


From a similar personal experience, definitely contact a tax lawyer or "Enrolled Agent". They know the system. An Enrolled Agent helped me get my situation resolved relatively quickly, which let me move on with my life.


Stupid question, but bear with me: have you filed your taxes correctly now? There are CPAs and there are CPAs. If you don't have someone wise in the ways of net commerce, find someone who is to give you a second opinion. Mine consistently finds me a tens of thousands of dollars every year versus equally valid but less advantageous ways of filing a return with the same underlying economic facts. (e.g. I've used the Foreign Earned Income Exclusion since forever, but when I have a good year, taking the foreign tax credit and some provisions of the US/Japan tax treaty is more advantageous, even though that means I can't take the FEIE. This saved me low five figures one year.)

Knowing what I know about affiliates, it's at least possible on the outside that you might not have had the world's most businesslike records. Can you reconstruct better records, at least for the major expenses for the business? If so, you can have your CPA file amended returns. You'll still be looking at principal and interest for your taxes but it's in your interests to pay principal of $80k and interest versus principal of $100k and interest.


$100K in back taxes means in income of a low multiple of that.

Where did the money go? Did you turn it into assets? If so then you may want to simply sell all or part of what you have.

If you did not turn your income into assets but it has all burned up see what you can do in terms of documenting your business related costs over that time. Conditional on the IRS agreeing with all this you could then make them a proposal on how much you'll pay month-to-month.

If you feel that that is not going to be a possibility you might end up having to declare bankruptcy. That's a real pain in the ass, but if you have no assets and no income that's probably where you're headed. If you have assets or income then likely you can make a deal. If you have assets that are somehow worth something to a bank you could possibly use these as collateral for a loan.

Best of luck!


I made a multiple of that amount. I thought that the good times would last. They didn't.

I am now a salaryman. The installment plan monthly amount due to my high cost location ends up being total after tax dollars minus rent and very frugal and basic living expenses. I could move to a cheaper location (which I am considering), but that doesn't seem to address the more immediate and core problem.


> The installment plan monthly amount due to my high cost location ends up being total after tax dollars minus rent and very frugal and basic living expenses

So what's the problem? You are highly in debt, and you worked out a payment plan that will have you pay off your debt in five years.


I'm inclined to agree with this comment. Saying "The IRS wants all my after-tax income" is a very different statement from "The IRS gave me a payment plan that allows me to pay an expensive rent and basic living expenses while also paying off my debt in five years". Living frugally and paying down debt might be uncomfortable, but it's not unusual and is fairly well understood. If you can move to a different area, you can allot more money for your living expenses.


I can think of a few scenarios where you could end up with a tax liability with no actual associated "income" in the normal sense - indeed I almost encountered one myself a few years back but dodged it by being suitably stroppy and threatening to pull completely out of the relevant transaction (an IPO on the LSE).

Mind you my experiences are with the UK tax system where you are guilty until proven innocent.


So very sorry my man, I had the same thing happen to me, so I COMPLETELY understand what you are going through.

I had one really good year as a freelancer and wound up spending the money I'd put aside for taxes because a client who had been paying me a retainer suddenly cut me loose right in November (the absolute worst time to try to pick up work as a freelancer). I was burned out and depressed about losing the gig so I didn't work for almost 8 months and wound up burning through the $30k I had set aside for taxes. I missed filing my taxes or an extension and the penalties just mounted until eventually my bill came out to about $40k.

After "negotiating" with the IRS (complete bullshit, they tell you how its going to be and you just have to deal) They decided that I could pay $2k a month on a $80k salary (how insane is that?). I lucked out and got a job that paid me almost double about 3 months later, if not for that I'd be toast.

Its easily the most stressful thing that has ever happened to me. Tax Lawyers were rude and dismissive ("Maybe get a cheaper car?" said one) once they realized I wasn't Mr Moneybags. And nobody can or will loan you that kind of money.

The only thing I can offer up apart from the Offer in compromise is that once you get the bill under $25k. You can negotiate directly with the people you talk to on the phone, once your bill is over that, everything they say/offer you has to go to some faceless manager somewhere, and it can be rejected and ridiculous alternative unilaterally offered back to you.


Follow up comment:

I have responded to two people from this thread and I thought I should make it publicly available to help others who might be out there.

At some point you owe money to the IRS. You've filed the tax returns, you've wrestled with the IRS about waiving penalties, and there is a number. You're looking at it, and it's big.

This is what tax lawyers call "collections work." You owe money, and the IRS is trying to collect. As I noted in my previous comment, the Internal Revenue Manual is the operating procedure manual for Revenue Agents in handling collection of taxes owed. Plus of course there are shards of wisdom here and there that are important to know. Some are published by the IRS (they have an assortment of published documents, like things called 'Revenue Procedures') but some of this wisdom is informal, learned through experience with the system.

The work is time and paper intensive. Going to a tax lawyer is probably not cost-effective, because the hourly rates are too high, and you don't have money. So you need help. Where do you go?

Well, call tax lawyers, accountants, and (most importantly) Enrolled Agents. Enrolled Agents are regular people who pass an exam administered by the IRS that enables them to represent taxpayers in tax controversies.

The particular type of human I would look for is an ex-IRS employee who has left government work and set up shop as an Enrolled Agent. You now have the best of both worlds: someone who knows the inside baseball game, and is out here in the real world, working for you. Also, the costs are likely to be more reasonable that an attorney or CPA.

Look particularly for an Enrolled Agent who specializes in collections work. Buzzwords include "offer in compromise", "Lien", etc.

In the case of the two people who contacted me directly, I pointed them to John Knight in Southern California. His website is www.knight-ea.com (don't judge him by his website) [EDIT: thanks 'dewey for pointing out that it is really www.johnknight-ea.com] and he fits the criteria I mentioned. He gets frequent referrals from the top tax lawyers here in Los Angeles. (I know, because I talk to my colleagues.) I send him 100% of my collections problems.

I am not competent to give advice on exactly what to do in this area -- if you owe a ton and need to figure out what to do. I would recommend that you stay away from any tax law firm that advertises heavily on the traditional media. There are no miracles, but the "One Day at a Time" mantra will carry you through. You will, eventually, be (tax) debt free.

Again, anyone else out there -- if you're in this boat shoot me an email. But now you know what you'll get when you email me. :-)

/Phil.


For those wondering why the website isn't working, the URL is: http://www.johnknight-ea.com/home.html


Thanks. I fail at Internet today, I guess. :-)


You took the time to write an extremely thorough and compassionate reply. I'm not trying to be argumentative, but I'd give you an A+ at internet!!


>but basically the IRS wants all my after tax earnings for 5 years.

Typically the IRS can set you up with a payment plan that's a portion of your income. Its time to find a tax lawyer, not a CPA about this. Settlement/compromise, installment plan over a long term, and even bankruptcy are options.


I might get backlash for this advice, but If you are considering bankruptcy, you might want to first consider quitting any job that is providing you income and going on unemployment. Once you have done that for a while, go ahead and take a look at this: http://www.irs.gov/Individuals/Offer-in-Compromise-1

If you are unable to legitimately pay (not working and unable to find work by being on unemployment) you will be able to qualify for the irs' settlement plan.

You are facing being broke either way, your basically going to have to figure out how long your going to be broke...


Well, if you quit, you're generally not eligible for unemployment benefits. Make sure you check your state rules.


Depending on where you live, you might have to wait six months to a year to go on employment after you quit a job or are fired for cause, as opposed to being laid off.

Unemployment has also been severely cut, and the term severely shortened since the days of the 99ers. There's really not any government support other than unemployment available for able-bodied single people (they've even cut food stamps recently, which is one of the cruelest things you can do in a depressed economy.) Of course, if you become homeless the IRS will definitely leave you alone.


In the U.S., you can't choose to quit and then go on unemployment.

Also, a (relatively) healthy, single person with no children isn't going to qualify for many other programs.


I'd get a tax attorney if at the least for the free one-hour consult most offer - preferably one that doesn't advertise on late night TV. I am not an attorney, just a guy on the internet so take my advice for what it's worth.

I think the last step for you is the Offer In Compromise - in simple form you'll show them how much your net worth is, and give it to them. In return they'll retire your tax debt. Obviously, it's going to depend on how much you are worth/vs owe, and if they think you operated in good faith or not. You need to not be in bankruptcy, and current on all filings to offer it. They also will come down HARD on you if you miss any filings/payments for 5 years after.


Similar spot here.

Note: be sure you file your taxes. You legally have to file, whether you can pay or not.

Once you file, after two years the debt can be part of a bankruptcy, but you have to keep filing.

As you know, this is a really sucky spot to be in. I believe the IRS has a program for people who have no chance of repaying -- not sure what the title is. It's worth looking into.

You did a brave thing coming online with this. I imagine a lot of folks would just call you names and be done with it. Speaking for other guys in the same situation, thank you.

Good luck!


Is there a statute of limitations on not filing? E.g. if you forgot to file a decade ago, and nobody ever came after you, is it better to come clean or let sleeping dogs lie?


I don't think there is a statue of limitations for the debt, but there might be for failure to file each years. Best I understand it, they could throw you in jail for "hiding", but they can only come and take everything you own for filing but failing to pay.

The temptation here is to let sleeping dogs lie, but I think this just makes it worse. I imagine if you don't make a lot, it's probably not worth their time to chase you, but heck if I'd want to live with that constantly hanging over my head. It's bad enough owing money you can't pay.

ADD: For what it's worth, I have a sneaking suspicion that there are a ton of people in this situation.


There is a statute of limitations for the IRS to audit you on a properly filed return (3-6 years, depending on the specific return). However, there is no statute of limitations for imposing back taxes/penalties/interest on income that was never reported.

In some circumstances, this can even include later years in which a return was filed, if the unreported income affected the income, deductions, credits, losses, or other tax items in that later year. This is usually not an issue for individuals, as the problem usually arises from carried-over losses or credits that are generally available only to corporate entities.


A. I don't think so, and if there were it would be a very long time.

B. I don't think this is the thing the IRS forgets about anyway.


Why did I get a down vote for responding with the link that he was looking for???? http://www.irs.gov/Individuals/Offer-in-Compromise-1


There is really no point in complaining about downvotes. Maybe someone misclicked.


Did you commit any allegedly fraudulent activity to get that money? Not trying to be snarky or accusative, but happened to see a similar case[1] of an affiliate marketer who is also an HN member yesterday and want to make sure you get the right lawyer/legal service.

[1] http://nypost.com/2014/05/22/wolf-of-wall-street-wannabe-all...


My regular tax preparer is an Enrolled Agent, and I can heartily recommend him. He helped me clean up some old tax messes that I'd made; he's very smart, very knowledgeable, and very much not cookie-cutter.

Charles Markham: http://www.markhamandcompany.com/

His website is terrible and he screens his phone calls ruthlessly. Don't let either of those things put you off; he's worth it. Feel free to use my name or not; it won't get you (nor me) anything. Maybe it will get him to pick up the phone the first time...

My email is in my profile, but most of what I'm going to tell you is above: call Charles. :)

Good luck!

PS: Yes, you probably are a little screwed for the coming few years until you get this cleared up. It is a very good feeling once you emerge from the other side, having caught up on filing, and having cleared up the IRS debts. This is money that you owe; you lived beyond your actual means for a while. It's going to suck a while, but assuming you have your health and earning power, you'll get out of it and it's bright on the other side.


You file an Offer in Compromise. There is a specific form to do this; it is best done with the assistance of a tax accountant or attorney. Even if you leave the United States, the tax bill will keep growing unless you address it. Extradition is not an issue btw, this is a civil matter.


There are quite a few things you could do to mitigate the burden. Are you still working for yourself, or do you have a full time position? Its going to be a lot easier for you to mitigate this if you are running your own business. Let me know if you want to talk about some strategies to review with a tax accountant. Disclaimer, I am not a tax lawyer, however, I will give you some good points to review with your tax lawyer that they can help you setup.


I have a great accountant. He has helped a lot of people and fought the IRS. I am sure he can help http://www.manta.com/c/mt17npq/patrick-frawley-associates

I promise you I am not the accountant himself :) and this is not a spam comment. He can help!


Another option is to find some work you can do off-the-books. That's legally risky if you get caught, but it allows your "official" income to stay low while you earn enough money to pay your living expenses.


I have a friend who is in a similar situation, and he was able to negotiate the total down quite a lot with the IRS. I'd definitely recommend finding a tax attorney or CPA who can help you with that.


Good luck! I think the best thing is to work with a law firm to file an Offer in Compromise on your behalf. Google and check ratings. I believe there are some good, legit services.


If you actually cannot afford to pay the amount and don't mind the IRS digging through your financial records you can file an Offer in Compromise. Might be worth looking into.


File for bankruptcy?


Possibly. Probably not. That'll only help if the tax debt is > 2 years old. Some of it might be. However, not filing on time will probably make the tax debt non-dischargable.

Since it seems the poster has income still, the bankruptcy court may or may not come up with a better plan for repayment than the IRS.

Anyway, tax attorney is the way to go here. But the system is set up such that if you can pay it, you probably will.


Call JG Wentworth.


Seeing as no-one else has suggested them yet:

- Move to a country without an extradition treaty with the US.

- Change your identity. I don't imagine they'll put that much effort into hunting you down for just $100k.

- Create a Kickstarter campaign.

- Ebay the next 2 years of life. That way you are only in hock for 2 years, not 5.

- Marry someone and don't tell them about the debt until it's too late.


bwahahaha




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