I just got a bill from the irs for $2000 - What to do?

Question

In 2005 I got a loan and settled my credit cards for less than I actually owed them. The other day I got a bill from the irs saying that the difference between what I paid the credit card company and what I actually owed was considered taxable income and the taxes I owed added up to $2000.
I am flat broke living paycheck to paycheck and don't have and maybe never will have the money to pay this off. I could do the payment plan but I can't afford to have another payment each month to pay this off. The only thing I saw on the irs website is a offer in compromise but that takes a $150 fee to apply. What should I do? PLEASE HELP !!!

Answer 1

Dude...$2000 in under reported income is not a big deal. You should go in to your local IRS office and ask to be put on a payment plan....You get to select how much you can afford to pay per month.

Make sure you go in to your local office or else the process will take forever and they can explain all of your options to you...HOWEVER the worst thing you can do is ignore the notice. If you show you want to make good on the debt then they will help you!!!

I too under reported in 2005 and have been paying $50 a month since then...

GOOD LUCK the IRS is not full of the a$$ like everyone thinks

Answer 2

When you say flat broke, are you telling the truth?

If you added up everything you owned back in 2005 (retirement accounts, savings, clothing, cars, furniture) and everything you owed back in 2005 (credit cards, back utilities, car loans, etc), do the liabilities exceed the assets? Are you more than $2000 in the hole (actually less since the $2000 is probably $1500 of settlement + $500 in interest)?

If yes, call the IRS at 1-800-829-1040 and ask to talk someone about about your 1099-C. There is a form 982 that the IRS *might* accept if you are insolvent. If it is, you may be able to exclude some or all of the cancelled debt.

Answer 3

Unfortunately, the IRS is correct on this one. The difference between what you paid and what you actually owed is taxable income. After all, you received goods and/or services that you charged on the card, and some of them you didn't actually pay the card company for, so you got those goods and/or services for free. That's why the IRS considers it taxable income. I suggest you call the IRS by telephone and try to work out a payment plan that you can afford. If you show them that you want to pay them, they will probably try to help you. One tip: if they offer to put you in jail because you can't pay as much as they would like you to, as fast as they want, you might point out that if you are in jail, you won't be able to pay them, because you won't be making any significant money. Tell them you would much rather pay them, but you have to be able to afford the payments. Also, if you can agree on a payment plan, offer to let them automatically deduct if from your checking account. It will make them happier with you.

I am sorry I can't give you better news than this, and I truly wish you the best of luck.

Answer 4

The first thing to do is call them and see what options are available to you. Second is to talk with someone who does taxes, if you are not familiar with them. There could be some deductions you forgot to take. There is an advocate with the IRS who may be able to help you resolve this. I think this type of thing really stinks. You can ignore it and they will levy on your bank accounts and then put a lien on your assets if you don't work something out. By the way, I found out about a year or two ago that they will also count any discounts you get on credit cards, such as American Express is also taxable income. I happened to be in my local IRS office and overheard a conversation an agent had with someone.

Answer 5

Do not ignore this it only gets worse.

On the bill should be a number to call.
Do so at once. and set up an appointment to see an
agent, You think you are broke now, if they want they will just garnish your paycheck until they get their money.
If you talk to an agent explain your situation and see if there is an amount that they would be wiling to settle for. I would the borrow the money if you have to, it will be far less expensive than paying the penalty and interest that the IRS charges you if you ignore it.
DO NOT IGNORE THE IRS IT DOESN'T GO AWAY!

Answer 6

Like the others said, call the IRS. If you ignore this, it just gets worse. When the IRS garnishes your wages you have nothing left. They will also keep any tax refunds you have coming in the future until paid.

Answer 7

I had to pay 1600.00 and they gave me the option of what to pay and the due date....it is workable...if you don't pay it then they will take it when you file taxes again. I have mine coming right out of my checking ...I don't see and I can't use it...better that way. You can do as low as 25.00 I think...maybe lower. Did you get the payment plan papers? when you do fill if out for 10.00 a month and see what happens...don't forget interest accrues on that money owed.
good luck

Answer 8

1) Forget the Offer in Compromise. They are automatically rejected for amounts this "small".

2) Take your infomation to a CPA or EA in your area. Find one that has experience with "Form 982". Normally, forgiveness of debt is considered income but there is an exception. If you were insolvent at the time of the forgiveness of debt, it is not considered income for income tax purposes. Insolvent means that your debts exceeded your assests.

Answer 9

Well, it sounds like you need to ask family for a $150 loan for the "offer in compromise" fee.

Maybe you need a second job for 2008 to get the funds to pay back the IRS . . . just for 2008.

Never ignore a notice from the IRS -- it will just aggravate the situation and lead to bigger fines and penalties.

Answer 10

Hope that your 2007 tax return pays for it.