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Thread: IRS debt?

  1. #1
    AlexxaHex
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    Default IRS debt?

    If someone files their taxes as an IC and ends up owing the IRS a lot of money, can the debt affect their credit rating if they don't have the means to pay right away?

  2. #2
    Banned Melonie's Avatar
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    Default Re: IRS debt?

    ^^^ you're joking, right ?

    Any taxpayer who finds themself in such a situation does have the option of requesting a monthly payment plan from the IRS. This of course brings into play IRS penalties and interest rates on the overdue tax bill. In the case of sole proprietor businesses, this usually also involves making monthly estimated tax payments on current tax liabilities in addition to the monthly payments on overdue tax liabilities. And if there are also overdue state income taxes involved, the state tax people usually allow / require the same arrangement. See and also page 2.

    If you fall into typical tax brackets for a full time dancer filing a 'single' tax return, the monthly estimated tax payments plus monthly payments for back taxes are likely to consume 50% of your gross income for the next 2-3 years. In regard to creditworthiness, since the IRS and state tax people have absolute priority over all other creditors, your ability to obtain additional credit will undoubtedly be determined based on the existance of that very sizeable 'monthly payment' to the IRS and state tax agency. Hey, it beats having tax leins placed on your property, which can murder your credit rating by erasing any collateral value of your assets !

    ~
    Last edited by Melonie; 04-01-2007 at 05:55 AM.

  3. #3
    AlexxaHex
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    Default Re: IRS debt?


    Thank you, Melonie. Unfortunately, I wasn't joking. I really am very ignorant about these things.

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    God/dess Emily's Avatar
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    Default Re: IRS debt?

    the IRS is the most evil debt collector there is!

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    God/dess Chrissy68's Avatar
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    Default Re: IRS debt?

    ^ agreed.

    Love it!

  6. #6
    AlexxaHex
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    Default Re: IRS debt?

    I am seeing from the various old threads here and from the IRS website that it is better to file and not be able to afford to pay rather than not file at all and possibly get audited. Although I don't see how it's possible to give 50% of your earnings to anybody when you have bills and a family to support.

    Damned if ya do, damned if ya don't.

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    Banned Melonie's Avatar
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    Default Re: IRS debt?

    ^^^ well, from an IRS point of view, 33% of the money that you earned and spent last year was not yours to spend. It belonged to the IRS and the state of California. Thus your choice to spend that money amounts to 'taking out a loan' from the IRS and state of California treasuries that they expect to be paid back with interest.

    Similarly, 33% of the money you are currently earning also belongs to the IRS and the state of California. Thus in order to make any headway in regard to paying back the additional money you owe, your tax percentage by definition must be greater than the 33% needed just to meet current tax obligations. Subtracting somewhere around 3% for interest on the overdue money you owe, making 50% gross payments actually leaves about 14% to be applied towards the overdue balance ... which will probably require 2-3 years worth of payments in order to pay off the overdue balance.

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    Veteran Member josie's Avatar
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    Default Re: IRS debt?

    You're not ignorant! Tax code is farthest thing from user-friendly. I mess something up every year. I never get it right.

  9. #9
    AlexxaHex
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    Default Re: IRS debt?

    I honestly have no idea how people are supposed to afford to live here unless they do it illegally (not filing taxes or as an alien) or they are rich. I can barely afford to live let alone give up 50% of my income to debts. I know I have to file and I will...but I am moving out of CA as soon as possible.

    I'm very glad I understand this now.

  10. #10
    Banned Melonie's Avatar
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    Default Re: IRS debt?

    ^^^ not wanting to turn too far towards the non-economical side of the issue, but in high tax rate high cost of living states it usually gravitates to two types of people dominating the state ...

    the 'rich' who can actually avoid paying high tax rates via investing in tax free bonds or capital gain stocks or other tax favored investments (or who can afford two houses and thus establish legal residence outside of the high tax state), and ...

    the 'poor' who can collect enough social welfare benefits i.e. rent assistance, utility bill assistance, medical coverage via MediCal, food assistance etc. such that their low cash earnings still allow them to maintain an 'acceptable' standard of living.

    the people in the 'middle' i.e. people like us who work their asses off to pay our own bills are the ones that actually get wacked with the high income tax rates.

  11. #11
    AlexxaHex
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    Default Re: IRS debt?

    I thought welfare benefits were only given for a period of up to 2 years? At least that is what I was told in the past. I used to get food stamps and welfare in New York.
    And if that is the case, then it would be near impossible to make a "career" of living off of the government. I imagine there is a cutoff point.

  12. #12
    Banned Melonie's Avatar
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    Default Re: IRS debt?

    ^^^ nope, various NY courts have ruled otherwise. And even in cases where the NY courts have actually ruled in favor of saving money on social welfare program benefits - the specific case of no further increases in welfare checks being required beyond the third child being born to a welfare mother comes to mind - the state agencies simply choose to continue providing benefits as before despite the fact that they are not legally required to do so. I assume their reason for doing so is related to the inevitable mainstream media charges of 'cutting' benefits to the poor, with expected repurcussions during the next state/local election.

    Also, when it comes to non-cash programs like rent assistance, utility bill assistance, MedicAid etc. low income is low income - in other words as long as your income isn't allowed to increase beyond the eligibility thresholds you can collect these benefits forever. This is the main reason that many poor NYers choose not to work more hours and choose not to take promotions or choose to quit their jobs that would otherwise increase their gross incomes above $25k per year ... because even though their gross incomes might rise to $30k the cash value of the lost social welfare benefits would easily exceed the $5k pay increase !

    Of course there are always some people who try to 'game' the system. There have been some highly publicized recent cases of girls working as dancers and earning $1000+ per week, but not declaring any of that cash income, claiming that they were officially unemployed, and thus still being 'eligible' to collect social welfare benefits ! When one such girl chose to buy a newish car, the NY state DMV tipped off the state tax dep't who in turn tipped off the welfare dep't, resulting in a whole bunch of investigations and several girls winding up in jail for welfare fraud on top of being slapped with huge overdue income tax bills plus penalties plus interest.

  13. #13
    AlexxaHex
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    Default Re: IRS debt?

    One of the main reasons I am filing (although late) is because I bought a car last year. Assuming that a purchase over $10K will not inspire an IRS audit is just silly.

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    Default Re: IRS debt?

    it's not silly, it's based on class perceptions that are probably too complex to discuss within this particular thread.

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    Banned Melonie's Avatar
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    Default Re: IRS debt?

    One of the main reasons I am filing (although late) is because I bought a car last year
    This is exactly how some NY dancers wound up being busted. The DMV automatically reported the car title registration to the IRS complete with the buyer's name, address and SS#, the value of the car, the name of the leinholder (finance company) etc. When IRS computers couldn't match up the SS# with a tax return reporting enough income to jive with the car payments, the IRS started digging deeper - requesting bank account / credit card / other financial records corresponding to that SS# from the financial network.

    Eventually the IRS wound up hitting these girls with huge back tax bills based on the amount of dancing income that the IRS 'estimated' that the girls had actually earned over the past 3 years (i.e. amounts of income that jived with the car payments plus rent payments plus local cost of living plus checking account / credit card cash flows).

  16. #16
    AlexxaHex
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    Default Re: IRS debt?

    (<---you'll probably see me putting this smiley in any thread regarding IRS practices - LOL)

    3 years is a loooong time to be owing money. I imagine those dancers are still paying it off.

  17. #17
    Banned Melonie's Avatar
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    Default Re: IRS debt?

    ^^^ yup ... and it was even worse than you anticipated, because ...

    When the IRS wound up auditing these girls' finances back 3 years, the fact that they had obviously under-reported their incomes caused the IRS to essentially discount all 'credibility' in regards to the annual amounts of dancing income that these girls attempted to report after they were 'caught'. Instead of accepting the $75k or $100k numbers put forth by the dancers for annual incomes (this is New York remember), the IRS chose to disregard these numbers and formulate their own 'estimates' for annual incomes.

    Based in part on NY Post reports by dancers claiming to be earning $2k a night, based in part on IRS agents doing 'undercover research' in NY clubs, and based in part on a cash flow analysis of these girls' bank accounts / credit card accounts / rent payments / car purchase etc., the IRS 'estimated' that these girls had actually been earning $150k or $200k in annual income - and leveed back taxes and penalties according to these higher IRS 'estimates'. Because these girls had not accurately reported their previous years incomes, and because the only financial documentation these girls could present to refute the inaccuracy of the IRS 'estimates' regarding their incomes was cash based thus self-generated thus impossible to corroborate, the IRS tax court judge wound up slapping with an income tax bill for money that they didn't really earn (but couldn't prove that they didn't earn).

    In any cash based business, loss of credibility with the IRS opens Pandora's Box. In exactly the same way that dancers' who aren't provided with official documents reporting their income to the IRS allowed dancers to under-report their actual incomes if they so choose, that same lack of official documents makes it impossible to officially prove how much money they DIDN'T earn !

  18. #18
    Featured Member GnBeret's Avatar
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    Default Re: IRS debt?

    Quote Originally Posted by Emily View Post
    the IRS is the most evil debt collector there is!
    Not really... although there's little, if any doubt that the IRS is the most 'well-armed' (for lack of a better term) of all the creditors/debt collectors out there, assuming there's no indication of 'intent', i.e., purposeful evasion, they're also one of, if not the most reasonable when it comes to trying to work things out in a realistic manner with their debtors - at least those that aren't trying to dodge them or BS them.
    "That's your answer Old Man? I guess you're a Hard Case too...."
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    it's that you can always see it coming, but you can never stop it.
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  19. #19
    God/dess Emily's Avatar
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    Default Re: IRS debt?

    well, yeah, obviously any debt collector isn't going to be evil if you're trying to pay them back.

    well-armed, evil....semantics.

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    Member taxdomme's Avatar
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    Default Re: IRS debt?

    At the IRS conference I attended last summer in Vegas, they stated that they are now giving past due debts to PRIVATE COLLECTION AGENCIES. I was appalled at this as well as fearful for taxpayers. So, the answer would be, yes, it can affect your credit rating. Here is more if you are contacted by a private agency: http://www.irs.gov/businesses/small/...155136,00.html

    There is a lot of talk in the tax community about Offers of Compromise, but the IRS made it clear that those that would qualify are equivalent to those that qualify for those 0% financing loans.


    They will work with you at the IRS before sending it over to the agencies, but they do demand that you keep to your payment agreements.

    Know that you do have rights. Here are a couple of links to Taxpayer Rights and Advocacy. I will post a separate thread with these as well for ease of future reference.

    Taxpayer Rights
    http://www.irs.gov/advocate/article/0,,id=98206,00.html

    Taxpayer Advocate
    http://www.irs.gov/advocate/index.html
    The Tax Domme
    U.S. Only

    http://www.taxdomme.com

    I'm a Tax Preparer with a specialty in the Adult Entertainment Industry & a
    member/ advocate
    . My purpose is to keep you in compliance with the law, but to use the law to your advantage.





  21. #21
    AlexxaHex
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    Default Re: IRS debt?

    Thank you, Tax Domme.

  22. #22
    Veteran Member LilMissSophie's Avatar
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    Default Re: IRS debt?

    So does that mean--if I should happen to get audited, they could basically tell me I earned more than I actually did? I kept excellent records, but didn't know I had to file quarterly.

    p.s. I live rent free currently and haven't made any big purchases

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    Banned Melonie's Avatar
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    Default Re: IRS debt?

    So does that mean--if I should happen to get audited, they could basically tell me I earned more than I actually did? I kept excellent records
    well, that's exactly what the IRS did to the NY dancers. The IRS made its own estimate in regard to the typical dancer earnings potential of the club that these girls worked at, added in anecdotal evidence from a highly publicized customer credit card overcharge case and statements made to the NY Post by other dancers working at the same club that they averaged 2 grand a night. The IRS also looked at their cash flows and financial commitments and came to the conclusion that the amount of earnings being claimed by these dancers was too low to actually correspond to their lifestyle.

    Lacking any 'authoritative' records / reports in regard to their actual income i.e. 1099's / W2's etc., when the NY dancers presented their handwritten ledger book to the tax judge he immediately reached the conclusion that the handwritten ledger book was 'creative writing' rather than accurate financial data. As such the tax judge went a lot closer to the IRS 'estimate' than to the dancers' ledger book amounts when determining the NY dancers' back tax liability. To put this another way, if all that you can provide the IRS is self-generated financial records which lack any 'authoritative' corroboration i.e. 1099's / W2's / receipts, then nothing obligates the IRS to accept your self-generated accounting as actual fact. Thus the probability that the IRS will actually believe your self-generated accounting, versus the IRS considering your self-generated accounting to be a self-serving pack of lies, hinges entirely on your credibility. As discussed earlier, that level of credibility hinges on the IRS' general impression of your general tax compliance. Failing to make quarterly estimated tax payments as required by law constitutes one 'strike' against your credibility.

    The fact that you live rent free actually works against you in terms of IRS credibility. The suspicious IRS conclusion would be that some form of rent payment is taking place, thus some form of taxable income isn't being reported. A couple of different NY girls got nailed on this because their 'sugar daddy' was covering the rent. The IRS ruled that the girls were providing 'valuable services' to the 'sugar daddy' in exchange for the rent payment and other 'gifts' ... that the amount of money spent by the 'sugar daddy' on rent and other 'gifts' was in fact a payment for services rendered ... and that this amount of money spent by 'sugar daddy' was to be considered as taxable income for the girls involved.

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    Veteran Member LilMissSophie's Avatar
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    Default Re: IRS debt?

    Oh. I still live with my parents, I kick in money for food and stuff but there isn't an actual rent agreement. That is really awful about the estimated income. All I have is a record of my earnings--100&#37; honest and I claimed all of it, even the last .55. I earned 25k this year, but I have no idea what the other girls earned, if it's significantly less and they said I earned more, I guess it's just one of those things you have to sit back and take.

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