topic Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea? in General Credit Topics

Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Fri, 15 Mar 2019 19:55:29 GMT

I haven't filed taxes for 4 years(not including 2018). I will owe a few hundred thousand when I file and I have about 100k equity in my house. That's the only asset I have and I don't make nearly as much as I used to. I make enough just to get by nowadays.

I never heard from IRS until Nov 2018 when they sent a letter asking about my 2017 taxes(I made some real estate transactions in 2017 so that's why they finally noticed).They sent a second notice last month. I'm working on getting all my stuff together to file but meanwhile trying to figure out if I can save my equity in the house without pissing them off for tax evasion or anything like that. From what I've researched, it's not likely or easy for them to take your primary residence but I think I have a big enough equity that they might.

Now here's how I think I might be able to save the equity in the house:

I have about 150k credit card debt. Recently I did a balance transfer to my brother's credit cards to be able to raise my score and apply for a business loan. I'm thinking maybe I can sell my house and pay my brother back for the credit cards. Either pay his credit cards off from my bank account or write him a check.

I know tax debt is above all but if I borrowed money from someone to pay them back in a few months, would they say I should have still paid the IRS with that borrowed money? Or will they say I need to use the credit cards that are now paid off to pay the taxes? or would this all be considered tax evasion especially since not filing taxes is considered criminal( just learned). I've talked to a tax attorney and I felt like he's not really sure but he was very sure about getting a 5k retainer... One he did tell me was that I can get rid of the tax debt in 2 years(2 years after filing), that was new informatino to me.

Any help from anyone with experience would be greatly appreciated.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

AlmostNJ — Fri, 15 Mar 2019 21:34:02 GMT

Let me start by saying I am by no means a tax attorney.

The IRS will not take your house away. They also won't make you use your credit cards to pay them back.

However, they will look at everything to see how much you can pay monthly. Credit card payments will not be counted as a way to lower their payments.

Having said that, they can and will put a lien on your house. Then you can't borrow against it so keep that in mind.

Your problem is that you haven't filed. You need to get that fixed asap.

Good luck.

Luis

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Sat, 16 Mar 2019 01:07:05 GMT

@AlmostNJ wrote:
Let me start by saying I am by no means a tax attorney.

The IRS will not take your house away. They also won't make you use your credit cards to pay them back.

However, they will look at everything to see how much you can pay monthly. Credit card payments will not be counted as a way to lower their payments.

Having said that, they can and will put a lien on your house. Then you can't borrow against it so keep that in mind.

Your problem is that you haven't filed. You need to get that fixed asap.

Good luck.

Luis

Thanks Luis. But if you were me, would you sell the house quickly and protect the equity by paying the cards or paying my brother back before filing/talking to the IRS? Or if I just decide to let them put a lien on it so at least I get to stay in my home, will a chapter 7 bankruptcy (in 2 years from now) wipe the lein off or will the court sell the house to pay the tax lein?

Another interesting question comes to mind, if I owe the IRS more than the amount of the equity in the house, if I stop making mortgage payments will the lender bother foreclosing since IRS debt would have to be paid first? The lender would literally get 0 wouldn't they?

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Sat, 16 Mar 2019 02:06:41 GMT

I believe government money that is owed is not cleared by anything, including bankruptcy, ever. No escape.

I would have never put my brother or anyone else I care about in the position you have. What if you can't pay him back and know you have ruined him with your bad decisions to.

I would do whatever I had to to pay him back fully immediately even if that means transferring it to your cc's. Then budget out how to pay everything back.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Sat, 16 Mar 2019 02:43:49 GMT

I guess you know more than the tax attorney that told me I can include my taxes in the bankruptcy. And my brother is fine. I didn't put him in any situation if I'm going to trasfer the balances back to my cards after I apply for more credit.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

AlmostNJ — Sat, 16 Mar 2019 02:46:05 GMT

I don't think we have enough information. The IRS will take payments. There's not enough information here to give you an opinion.

If you could sell your house where would you Live?

What is your source of income?

How do you know how much you owe if you haven't filed for a number of years?

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

SouthJamaica — Sat, 16 Mar 2019 02:51:07 GMT

@Anonymous wrote:
I haven't filed taxes for 4 years(not including 2018). I will owe a few hundred thousand when I file and I have about 100k equity in my house. That's the only asset I have and I don't make nearly as much as I used to. I make enough just to get by nowadays.
I never heard from IRS until Nov 2018 when they sent a letter asking about my 2017 taxes(I made some real estate transactions in 2017 so that's why they finally noticed).They sent a second notice last month. I'm working on getting all my stuff together to file but meanwhile trying to figure out if I can save my equity in the house without pissing them off for tax evasion or anything like that. From what I've researched, it's not likely or easy for them to take your primary residence but I think I have a big enough equity that they might.

Now here's how I think I might be able to save the equity in the house:
I have about 150k credit card debt. Recently I did a balance transfer to my brother's credit cards to be able to raise my score and apply for a business loan. I'm thinking maybe I can sell my house and pay my brother back for the credit cards. Either pay his credit cards off from my bank account or write him a check.
I know tax debt is above all but if I borrowed money from someone to pay them back in a few months, would they say I should have still paid the IRS with that borrowed money? Or will they say I need to use the credit cards that are now paid off to pay the taxes? or would this all be considered tax evasion especially since not filing taxes is considered criminal( just learned). I've talked to a tax attorney and I felt like he's not really sure but he was very sure about getting a 5k retainer... One he did tell me was that I can get rid of the tax debt in 2 years(2 years after filing), that was new informatino to me.
Any help from anyone with experience would be greatly appreciated.

You should go to a tax professional with this. They will negotiate something. I just think you didn't go to the right tax attorney. In addition to tax attorneys, good deals can be negotiated by (a) accountants and (b) companies that exclusively do tax settlement negotiation.

I agree with what has been said that the IRS will usually not take someone's home.

I disagree with what has been said that the IRS will not ask you to use your borrowing ability.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Sat, 16 Mar 2019 02:55:56 GMT

If you have a tax attorney then do what they say and don't ask a forum of strangers if you are going to dislike the answers.

And once you add more debt to your plate by applying for even more credit, whose to say you will be able to transfer that back?

You seem to be digging further to China than the surface.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

FlaDude — Sat, 16 Mar 2019 02:57:53 GMT

According this page, some BK versions can erase IRS debt in some cases.

For BK 7, a couple that affect the particular situation in question:

The debt is at least three years old
You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy

Read the linked article for more details, it also has links to more detailed articles for chapter 7 and 13.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

CreditInspired — Sat, 16 Mar 2019 13:28:30 GMT

What a pickle. I’m no tax attorney either so I’m just brainstorming some suggestions and talking out loud.

First, you should file your taxes real soon! Because outside of a possible lien, IRS will and can seize your bank accounts or garnish your paychecks.

Second, you may not owe as much as they say. Why? Because since you hadn’t filed, IRS didn’t know of any deductions you could claim so they did the basics and just added penalties and fees to that, which became cumulative over the years. I know because I hadn’t filed for many years (shame on me), but when I finally did, many of those years I was owed a refund, so my IRS debt went from $56K to $15K. Real lucky me.

Third, after filing, look into the possibility of doing either an Installment Agreement or an Offer in Compromise.

Fourth, if a lien is put on your home, I don’t think you will be forced to sell (but know property can be seized). But, this is what will happen when you do try to sell. The title company does a search for liens and judgements attached to the property. So at closing, since you have enough equity to pay the lien, it will be deducted from those finds. If you don’t have the equity, then the sale won’t occur.

Fifth, not trying to scare you but since IRS first wrote you in November 2018, and you haven’t taken action, I think you should check with the courthouse. IRS may have already placed a lien on the property if they have not heard from you.

Sixth, unless you’re in a hot real estate market, it could take anywhere from 2 to 4 months to sell your home. By that time, a lien could be placed.

Seventh, you could consider refinancing and take a cash out and pay IRS a big lump sum partial payment to show goodwill.

Eighth, the mortgage has first right since it recorded the lien first. IRS has second right. So if the property is foreclosed, lender will be paid first.

Right now, you’re panicking and that’s understandable. But IMHO, try to think of ways to get this settled correctly instead of trying to think of ways to skirt around it. Honestly, for me I found the IRS was more than amicable when I worked with them to find a solution to my problem. Matter-of-the-fact, once I got all my taxes done, I went to the office and did a face-to-face to file them and talk to them.

And above all, you don’t want to be on the wrong side of IRS because they can make your life a living hell.

GL2U

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

gdale6 — Sat, 16 Mar 2019 19:00:32 GMT

Some taxes can be discharged in BK but only if you have filed said returns and certain time periods have passed. The clock wont even start on these tax years until the returns are filed. In the future I would advise you to file even though you may not be able to pay as the penalties for failure to file is what is really going to hurt.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

SouthJamaica — Sat, 16 Mar 2019 21:28:12 GMT

@Anonymous wrote:
I haven't filed taxes for 4 years(not including 2018). I will owe a few hundred thousand when I file and I have about 100k equity in my house. That's the only asset I have and I don't make nearly as much as I used to. I make enough just to get by nowadays.
I never heard from IRS until Nov 2018 when they sent a letter asking about my 2017 taxes(I made some real estate transactions in 2017 so that's why they finally noticed).They sent a second notice last month. I'm working on getting all my stuff together to file but meanwhile trying to figure out if I can save my equity in the house without pissing them off for tax evasion or anything like that. From what I've researched, it's not likely or easy for them to take your primary residence but I think I have a big enough equity that they might.

Now here's how I think I might be able to save the equity in the house:
I have about 150k credit card debt. Recently I did a balance transfer to my brother's credit cards to be able to raise my score and apply for a business loan. I'm thinking maybe I can sell my house and pay my brother back for the credit cards. Either pay his credit cards off from my bank account or write him a check.
I know tax debt is above all but if I borrowed money from someone to pay them back in a few months, would they say I should have still paid the IRS with that borrowed money? Or will they say I need to use the credit cards that are now paid off to pay the taxes? or would this all be considered tax evasion especially since not filing taxes is considered criminal( just learned). I've talked to a tax attorney and I felt like he's not really sure but he was very sure about getting a 5k retainer... One he did tell me was that I can get rid of the tax debt in 2 years(2 years after filing), that was new informatino to me.
Any help from anyone with experience would be greatly appreciated.

Since the later posts suggest that you are thinking bankruptcy, you should be talking to a consumer bankruptcy attorney, who will be able to give you clear answers about the complex way taxes are dealt with in bankruptcy.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Sun, 17 Mar 2019 20:45:33 GMT

What type of income is this? Income from and employer, self imployment or investment/capital gains? The income separate from the financial transaction in 2017.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Sun, 17 Mar 2019 21:12:00 GMT

I am an IRS licensed Enrolled Agent with 35 years tax practice experience, 25 of them as an Enrolled Agent dealing with tax problems like yours. I will break your original post into sections and comment about each one.

I haven't filed taxes for 4 years(not including 2018). I will owe a few hundred thousand when I file and I have about 100k equity in my house. That's the only asset I have and I don't make nearly as much as I used to. I make enough just to get by nowadays.
This is problem #1. File the tax returns. IRS will not make any deals with you until you do, and when the IRS does a "SFR" (Substitute For Return or Service Filed Return, I have seen it called both) they do it in such a way as to create the largest possible tax liability - meaning assets sold will be considered as having no basis and are all Short Term Capital Gains, your filing status is Single with no dependents, Standard Deduction, etc). Very often this alone can reduce the tax liability by as much as half, and I have seen instances where balances owed to the IRS turned into overpayments just by filing a correct return.

I never heard from IRS until Nov 2018 when they sent a letter asking about my 2017 taxes(I made some real estate transactions in 2017 so that's why they finally noticed).They sent a second notice last month. I'm working on getting all my stuff together to file but meanwhile trying to figure out if I can save my equity in the house without pissing them off for tax evasion or anything like that. From what I've researched, it's not likely or easy for them to take your primary residence but I think I have a big enough equity that they might.
They are asking for 2017 for a reason - their document matching says you might owe money. See my paragraph above about the SFR's. As far as taking your residence is concerned, Taxpayer Bill of Rights 3 says they can't do it unless they can convince a Federal Judge that you are some sort of drug lord about to skip out of the country.
Now here's how I think I might be able to save the equity in the house:
I have about 150k credit card debt. Recently I did a balance transfer to my brother's credit cards to be able to raise my score and apply for a business loan. I'm thinking maybe I can sell my house and pay my brother back for the credit cards. Either pay his credit cards off from my bank account or write him a check.
I doubt this will work for several reasons - first, it is very likely the IRS has already filed a tax lien against you for years 2017 and earlier, so you can't borrow against your house without the money going to the IRS. Second, what you are proposing is a BIG badge of Fraud - secreting assets from the IRS while you are aware of a debt to the IRS. Do this and you can expect an all-expense vacation for about 2-3 years. I hear the wheat fields of Kansas are lovely in the late summer (right outside Leavenworth).
I know tax debt is above all but if I borrowed money from someone to pay them back in a few months, would they say I should have still paid the IRS with that borrowed money? Or will they say I need to use the credit cards that are now paid off to pay the taxes? or would this all be considered tax evasion especially since not filing taxes is considered criminal( just learned). I've talked to a tax attorney and I felt like he's not really sure but he was very sure about getting a 5k retainer... One he did tell me was that I can get rid of the tax debt in 2 years(2 years after filing), that was new informatino to me.
You need to sit down with an Enrolled Agent in your area who has experience in Tax Settlements. He or She should complete a Form 433-A to see what your IRS collectability is. THEN and only then will any discussion of your options be possible. Either the attorney didn't know what he was talking about with the comment about 2 years or you misunderstood. The Statute of Limitations to audit a return is 3 years after the later of due date or filing date, and the Collection Statute Expiration Date is 10 years after assessment.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Sun, 17 Mar 2019 21:09:40 GMT

@Anonymous wrote:
I believe government money that is owed is not cleared by anything, including bankruptcy, ever. No escape.

I would have never put my brother or anyone else I care about in the position you have. What if you can't pay him back and know you have ruined him with your bad decisions to.

I would do whatever I had to to pay him back fully immediately even if that means transferring it to your cc's. Then budget out how to pay everything back.

Not true. Fedral tax debt (not Trust Fund Recovery Penalties) is dischargeable 2 years after the Assessment date.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Mon, 18 Mar 2019 00:20:12 GMT

How is it dischargable if they will come after you until they get their money however they do it? It seems it is dischable once they have their money not when it is still owed unless you fall off the face of the Earth, no job, no nothing. I know this is your area of expertise, so would you mind explaining to a novice who hopefully will not have to go through the above situation but would like to know the correct information and why behind it.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Mon, 18 Mar 2019 01:55:26 GMT

How did they not know about your income from previous years? Did your employer not pay in?

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Mon, 18 Mar 2019 14:22:35 GMT

@Anonymous wrote:
How is it dischargable if they will come after you until they get their money however they do it? It seems it is dischable once they have their money not when it is still owed unless you fall off the face of the Earth, no job, no nothing. I know this is your area of expertise, so would you mind explaining to a novice who hopefully will not have to go through the above situation but would like to know the correct information and why behind it.

Dischargeable in Bankruptcy because teh bnkruptcy laws supercede even the Internal Revenue Code. While the IRS has very impressive powers to collect, they are still limited by what the law allows them to do.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

sjt — Mon, 18 Mar 2019 17:58:04 GMT

Nobody on these boards know the specifics of your situation and I highly recommend that you seek a tax professional, especially a tax attorney, that can assess your situation in details and present options.

One option they can do is put a stop on all collection activity until you file your returns. They can also negociate penalty waivers and payment plan.

Re: Large Tax Debt. Selling my house before IRS/collectors take it. Bad idea?

Anonymous — Mon, 18 Mar 2019 18:06:21 GMT

@sjt wrote:
Nobody on these boards know the specifics of your situation and I highly recommend that you seek a tax professional, especially a tax attorney, that can assess your situation in details and present options.

One option they can do is put a stop on all collection activity until you file your returns. They can also negociate penalty waivers and payment plan.

While the general gist of this post is accurate (talk to someone who knows what they are talking about) I dispute that the person needs a tax attorney, who just happens to be the party who would have the highest fees and the least useful advice. An EA or CPA would be a much better choice. You only need a tax attorney in two circumstances - you vhave committed a criminal violation of the tax laws or are thinking of doing so. Nothing short of a Bankruptcy filing can absoutely stop all collection action, although the filing of an Offer in Compromise or Installment Agreement request will usually succeed in doing so. Penalties are abated (not waived) under certain circumstances, which an EA or CPA would be better attuned to than an attorney.