I owe almost $11,000 in taxes. What do I do??

Question

I just found out I owe roughly between $9,000 to $11,000 in state and federal income taxes for 2006 from a failed business venture. I checked this with an accountant, and I definitely owe the taxes. The company already filed it's return and my K-1, showing I had the income, so the IRS theoretically knows about it. I'm 24, have no assets or property, already have $2,000 in credit card debt, and have been unemployed for over seven months. I'm starting a job next month that will pay me $1,900 a month, so I was excited to get back on my feet. But I'm worried that paying off the IRS debt in installments will wreck me and ruin any chances I have to save up.

1) If I set up a payment arrangement, how much should I expect to pay per month, and for how long?
2)I haven't filed my return yet (got extension). How long b4 IRS comes after me?
3)What happens (realistically) if I ignore it? Could I claim Chapter 7 to erase it (making only $30,000 a year)?

I really need realistic advice here.Thanks!

Answer 1

1. You have to tell the irs how much per month you can pay them. You have to pay them until it is paid off. You could also try an offer in compromise instead of a payment arragement, that is where you pay less than 100% of what you owe the irs and the state.
2. what years retrun are you talking about?
3. It won't go away if you ignore it, the amount you the irs will just keep growing, and they could garnish your wages, levy your bank accounts, go after assets that you have. Bankruptcy will almost not make tax debts go away.

How did you end up owing both state and federal income taxes from a failed business venture, btw? Something doesn't seem quite right there. Usually you would have had to have income from the business to owe taxes, and in that case you should have had the income then to pay off the taxes that you. Please let me know how you owe taxes and I may be able to see if there is some mistake there. I am a CPA/Tax Preparer.

Answer 2

The debt will continue to accrue interest until it's paid off. The IRS will look at your financial situation to determine a payment plan.

It could be another year or even more before the IRS comes after you. But penalties for non-filing will keep adding up until you file. You'll still be charged with interest and penalties for non-payment, but at least one set of penalties will stop accruing. So don't wait for them - get your return filed.

If you just ignore it, eventually you'll hear from the IRS and things will be even worse for you. And no, bankrupcy doesn't erase tax debt.

If it's impossible for you to ever pay off the amount, there is something called an offer in compromise that might get the IRS to cut down the amount you owe. But not many of them get accepted.

If the money owed was from taxes withheld from employees and not sent in to the IRS, rather than taxes on profits, the IRS gets really unhappy about things like that so negotiating would be pretty tough.

Good luck with the new job, and with getting your tax problems resolved.

Answer 3

Contrary to the laborious post to the contrary IRS debt rarely disappears with a BK.

In addition the IRS does NOT need a court order to start garnishing your wages or taking money from your bank/savings account. One day you just notice they have taken funds from the account or put a hold on the account.

File the return then file for an OIC to perhaps cut the amount owed. The form can be found at http://www.irs.gov by typing in OIC or offer in compromise in the search box.

But with a "good job" it may not fly.

Answer 4

File Chapter 13 bankrupcy (read up on it). It is different then a Chapter 7 bankrupcy (the more common bankrupcy is Ch 7). It sounds like a chapter 7 will not help you, but a chapter 13 might.

A Chapter 13 can be filed if:

The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago; or
the debtor received a discharge under Chapter 13 more than two years ago.
You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, your creditor will go after the co-debtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments.
You have a tax debt. If a large part of your debt consists of federal taxes, what happens to your tax debts may determine which type of bankruptcy is best for you.





You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true:

The taxes are income taxes. Taxes other than income, such as payroll taxes, Trust Fund Recovery Penalty or fraud penalties, can never be eliminated in bankruptcy.

You did not commit fraud or willful evasion. You did not file a fraudulent tax return or otherwise willfully attempt to evade paying taxes, such as using a false Social Security number on your tax return.

You pass the three-year rule. The tax return was originally due at least three years before you file for bankruptcy.

You pass the two-year rule. You actually filed the tax return at least two years before filing the bankruptcy -- having the IRS file a substitute return for you doesn't count unless you agreed to and signed the substitute return.

You pass the 240-day rule. The income tax debt was assessed by the IRS at least 240 days before you file your bankruptcy petition, or has not yet been assessed.
If any of the following situations apply to you, you will have to add time to the three-year, two-year or 240-day rules for your debts to qualify for discharge in bankruptcy:

If you submitted an Offer in Compromise, the 240-day rule is delayed by the period of time from when the Offer is made until the IRS rejects it or you withdraw it, plus 30 days.
If you obtained a Taxpayer Assistance Order from an IRS Problems Resolution Officer preventing the IRS from collecting, the bankruptcy court may require that you add the time collection was suspended to the three-year, two-year and 240-day requirements.

If you filed a previous bankruptcy case, all three time periods stopped running while you were in the prior bankruptcy case. You must add the length of your case plus six months to all three.

Caution! A Chapter 7 bankruptcy will wipe out only your personal obligation to pay the debt. Any lien recorded before you file for bankruptcy remains.

After your bankruptcy, the IRS can seize any property you owned at the time the bankruptcy was filed. But this doesn't mean that after your bankruptcy case is over the IRS will come and grab your property. Post-bankruptcy, the IRS tends to seize only real estate and retirement accounts or pensions. And even then, IRS seizures generally take place only when a taxpayer has made no efforts to otherwise resolve the problem. Furthermore, IRS collectors must obtain approval from their supervisors before seizing a house or pension. The IRS is very concerned about negative publicity.

Answer 5

you need a tax attorney. they can help you get payment plans or negotiate the pay off for a settled lump sum
a failed business venture should have been a loss?
should at least partial deduction? i don't know your details but my dad showed a loss when his closed and it turned out to be a positive thing.
goodluck

Answer 6

Bend over and grab your ankles.