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

[gdale6]

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.

[SouthJamaica]

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@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. 

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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.

[Anonymous]

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.

[Anonymous]

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.

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[Anonymous]

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@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.

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

[Anonymous]

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.

[Anonymous]

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

[Anonymous]

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@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.

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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.

[sjt]

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.

[Anonymous]

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@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.

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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.