Sometimes, we just have to do what we have to do to get by.  I am sure a lot of you can relate to that.  So I wanted to share some information with you that I learned while going through that time.

If you are in a situation like I was… no money and you owe taxes… the IRS does have options.  The IRS can work out a payment plan for you if you request it.  If you absolutely cannot make payments (like me at that time), they have something called a “currently non-collectible status” or “currently uncollectible status”.  This puts your tax accounts into a hold status.  It stops all collection processes until you get back on your feet.  However, it does have some down sides that you should be aware of.  While in that status, the statute of limitations for collection of taxes is also put on hold.  But the most important thing (and they failed to tell me this at the time) is that they might place a lien against you for that tax amount.  They did not tell me that would happen until after I had agreed to being put in that status over the phone.  So I ended up with two federal tax liens. 

That was the beginning of my tax problems for, which ultimately led to me filing for and receiving the IRS Offer In Compromise (explained in other bogs).  My OIC caused those tax liens to be released, but they are still on my credit.  If you can avoid the tax liens… do so.  It’s extremely difficult, if not almost impossible, to tax liens removed.  And they make your credit look pretty bad.

I thought I would share this information in case someone else out there is struggling too and feels like there is no hope.  You might have to take some hits in some areas, but sometimes you just have to take a few steps back to go forward again.

According to the IRS, he will not have to pay that money back to the IRS unless he moves or sells the home.  Then he will have to pay the full $8,000 back.

I want to give some advice regarding divorce and the First Time Homebuyer Tax Credit.  If you are thinking of divorce, it is best for both of you to stay in the home until the divorce is final or you have transfered your rights and interest to the home over to your spouse.  Lucky for me, we were able to get the divorce done fairly quickly before the IRS came after me for having moved out of the house.  I do not know what triggers them to act on that or how long it takes them to demand the money, but if they did… it would have made things extremely complicated.  I do wish that I had stayed in the home because it really worried me. 

It also caused me to wait until the last minute to file our 2010 taxes.  I still have not filed because I have not transfered my interest to him yet.  I can’t remember what it’s called… maybe a Quitclaim Deed?  I have been too scared to file my taxes because of my new address and I am not trying to do anything to alert them of the move before he has full legal posession of the house.  I also want to send in a copy of the divorce and transfer documents with the tax return to avoid any issues in getting my 2010 refund.

A reader shared this link on one of my previous posts.  I found it to be extremely helpful.  It is the IRS rules and guidelines for divorce and repayment of the First Time Home Buyer Credit and also how moving or selling the house affects repayment.

http://www.irs.gov/newsroom/article/0,,id=206293,00.html

Hope this helps!  And remember, share your experiences with this too.  I’m sure others would find it very helpfull.

My soon to be ex-husband bought our first home this past April.  Only his name is on the mortgage, but we both got the full credit ($4,000 each for a total of $8,000).  We are now getting a divorce and I wasnt sure if I would have to pay my half of the credit back. 

After some research, I did find out that yes… whoever moves out of the home has to repay their portion (half) of the first time homebuyer tax credit.  However, I also found out that if I legally transfer my rights to the home to my ex within the divorce decree, then that transfers full responsibillity of the tax credit to my ex.  Meaning that he becomes responsible for repayment of the full $8k should he move out of the home, sell, or foreclose.  As long as I legally transfer all my rights regarding the property to my ex-husband, then I am off the hook.  But it has to be legal and included in the divorce decree.

I figured there is probably someone out there in the same awful situation and could use some advice.  I obtained that information from the IRS and also my divorce lawyer.

Our assigned advocate could see that I was clearly led around in circles and that processing times were not acceptable.  After getting the Taxpayer Advocate involved, it only took about 2 weeks for her to push the IRS to a completion date.  We finally ended up getting our tax refund (including the First Time Home Buyer Tax Credit) in September.  So it took them 5 months to process everything.  Had I not been on them the whole way catching mistakes myself, it would have taken much longer.

I want to let you all know that we did apply for the Injured Spouse application as well.  Even though one of us owed previous tax debt, the injured spouse application protected our first time homebuyer credit from being applied to that back tax.  There are no rules pertaining to the allocation of the first time home buyer credit so by filing the injured spouse form, you can allocate the full $8,000 to the spouse that does not owe the back taxes.  Suprisingly, we DID get the full amount.

Hope this information helps!

I just wanted to tell you that… sure enough… they are falsely dating my documents again. I sent our tax return via Express Mail with delivery confirmation and signature required. My delivery confirmation shows it was delivered and signed by the IRS on 4/7/2010. I just got off the phone with them and they are trying to tell me that it was delivered 4/28/10. That is a whole THREE weeks later!!! Of course, the lady I spoke with wasn’t helpful at all. She just kept telling me there is nothing I can do about it. BS!!! She then told me to write a complaint to the office that received my return.

This is ridiculous. That is the IRS for you, trying to be sneaky and buy themselves more time to delay. For anyone who doesn’t know, these dates are very important if you want anything done in a timely manner.  The IRS employees have time frames to abide by.  I am being told I have to wait 8 weeks from the date they “received” it for them to process it.  So they conveniently tack on an extra 3 weeks saying my return didn’t arrive when it really did.

So, here we go.  Yet another reason why you have to stay on top of the IRS at all times.  And had I not called and questioned them repeatedly about my refund status, I never would have known they put the wrong delivery date in.  Don’t trust the IRS people!!

My husband and I finally decided to break down and send in our tax return with the First Time Home Buyer Tax Credit, despite our concerns of possibly losing $4k because of my old tax debt.  We just really needed the money now, so much that $4k is better then waiting until next year for $8k.  Ugh.

I still had no 100% firm answer from the IRS on whether or not they would take half of the credit and apply it towards my back taxes.  But the general consensus was that we get to designate where the credit goes, not the IRS.  It’s hard to accept that the IRS would ever let you decide something like that when you owe them money.

So we filed our taxes by mail this month.  I sent it certified, which I recommend everyone do.  I have had times where the IRS would actually input a later date then when it was really delivered.  Thank goodness I had delivery confirmation.  I had to send that in to them and they updated my account.  If I hadn’t had that, it would have been seriously delayed in processing.  And trust me, if you are filing an injured spouse form, have an offer in compromise, or are applying for the First Time Homebuyer Credit, they will take their sweet time. 

Anyway, it was delivered 4/7/2010.  I called yesterday to see if there were any updates, but they told me it’s too soon for them to even see it.  I was told it would take something like 8 weeks to process.  I can almost gaurantee it will probably take longer because I have so much going on with it.  Which is really irritating.  I will keep you all posted though when I hear something.  I will be calling and checking in periodically.  Which I also recommend anyone in a similar situation do. 

Last year we filed the Injured Spouse form.  There were all kinds of issues.  A lot of back and forth, send this, send that, nonsense.  And I tell you, me calling and hounding them was way more productive then waiting for mail correspondence.  I would find out important things that had to be done by phone, then get the notice about it needing to be done in the mail, two weeks later.

Oh, and be SURE to include a copy of your HUD-1 settlement statement from your home purchase WITH your tax return AT THE TIME YOU MAIL IT.  I believe they initially didn’t require that before they revised the tax credit.  If you send it separate from your return, it could delay things.  And I also do not believe you can file electronically if applying for that credit. So be prepared, because filing by mail takes way longer then what you might be used to when filing electronically.

We have bought our home and are finally moved in.  So even though I have to deal with all this IRS nonsense… I couldn’t be happier!

 The tax debt I owed on was acquired prior to myself being married and was a very long time ago.  So my husband is considered an “injured spouse” in IRS terms and none of his refund is ever taken to pay my tax debts.  So we know with certainty that his income tax refund will go to him and not be used to pay my old tax debts even though we file jointly (we did this last year too).

My issue here is that my husband is buying our first house this year.  It’s going to be in his name only, not mine.  So he will be be getting the first time home buyer tax credit.  If he files taxes separate, he only gets $4k for the credit.  If he files jointly with me, then he gets the full $8k credit.  Which makes it seem like me being added to the taxes involves doubling the credit… which would make it seem like 50% of the credit is considered mine.  My concern is that the IRS will take that additional $4k (50%) as if it were my half and apply it to my old tax debt. 

We really need the money now.  Being that we have to borrow against it in order to get our house.  But at this point feel like if we file for it on our 2009 taxes that we are taking a huge risk of losing 50% of the credit to the IRS.  We can always wait until 2010 tax filing to claim the credit in full, but that will make things hard on us as we would have to come up with the money to pay back the loans for our purchase expenses. 

Does anyone out there have any firm information on this situation?  It would be greatly appreciated.

Thank goodness because I swear, once you get under the belly of the IRS… the fees and interest make it impossible to get out from under them.  It’s like the student loan that you can never escape.

This couldn’t have happened at a better time.  With my husband and I buying our first home, I never could have been on the deed with those tax liens.  That really would have bothered me.

Please know, I do believe in paying your taxes.  It makes the world go ’round.  I have been paying my taxes on time and in full for many years.  One bad year a long time ago can screw everything up for you and it can seem like there is no way out.  So, I am grateful for the immense help I just received from the IRS.

Now I am waiting for the letter of lien release.  Then the final step will be to get the liens updated on my credit to show released.  I’m not sure just yet if they can be removed completely, but I will work on that.

I am going to share something very personal and, quite frankly, embarassing with you.  Simply because I know how it is when you feel lost and the only thing that would make you feel better is to talk with someone who has gone through what you are.  I want people to know that you really can, as they say, “settle your tax debt for pennies on the dollar”.

I got myself into some tax trouble with the IRS many years ago.  I was self employed and working a job making pretty good money.  I was really bad about making estimated tax payments and when I filed my taxes I owed way more then I expected.  Shortly after that, I had to quit that job because of medical and personal reasons and I was never able to pay all the money back.  The next couple of years I had to add to that tax debt from the smaller amount of income I had made.  When it was all said and done, with all the penalties and fees, I ended up with about $30,000 in tax debt and two IRS tax liens. 

The IRS then tried to attach my debt to my husband in error (we were not married when I accumulated the debt) and put a tax lien on him.  I explained this in a previous blog and what we had to go through to get it removed.

While I owed my tax debt, I was able to have the IRS place me into a “currently noncollectable” status.  If you are not making enough money to make ends meet then they will put you in this status and stop the collection process.  However, when I first did this I was not aware that it automatically means they will place a lien against you.  Needless to say I was extremely mad about that, but it was too late.

I kept saying for years that I needed to file an IRS Offer In Compromise and try to settle my tax debt, but I kept putting it off thinking I needed a lawyer to file and that I couldn’t afford it.  Finally I realized I would never be able to afford a lawyer (I was quoted $1,500 here in Ohio) and decided to try to file the Offer In Compromise myself.

The application and information for the Offer In Compromise is on the IRS website here…

http://www.irs.gov/businesses/small/article/0,,id=104593,00.html

At first, the application and process looked a bit scary.  I was afraid that if I did it myself I would mess up and be denied and it would be all my fault.  But after looking into it, many times, I realized it’s all common sense really.  It was a lot of work for me because of the line of work I am in.  But I took it slow and carefully and finally managed to put the whole thing together and send it in. 

When choosing your settlement options, be realistic.  If you make some money and they know it… offer to pay something.  Do not offer to pay $0 unless you truly are in a bad financial situation.  I have very little money, but offered to pay $100 lump sum, to be paid within 5 months.  It’s not much, but I at least showed some effort.

Also note that there is an application fee.  This fee can be waived if you can prove you are below their income guideline.  I was able to get this fee waived.

What the Offer In Compromise does is allows you to attempt to settle your tax debt for a lesser amount with the IRS.  You can choose from payment plans or lump sum payments.  It’s based off of your current income/assets, your past income, your current life situation/health, and the likelyhood of them collecting on your debts in the future.  You must be current on your taxes for the present year and promise to file on time and pay your taxes from that point on for 5 years.

I hadn’t made much money in several years.  So little that I wasn’t required to file estimated tax payments.  I had also been in a car accident that caused neck problems and suffer from anxiety disorder.   So I had to send in all my medical records and income verification.  The key here is to show you have a reasonable explanation for having the tax debt, that you can’t pay it now, and that you also have a likelyhood of not being able to pay the debt within the statute of limitations time frame.

Be sure to send your application certified mail with delivery confirmation!  They do have timelines they have to follow for processing your application initially and they tried to screw me around and drag it out.  They tried to claim they received my documents a month later!  Because I had that delivery confirmation, it saved me from having to wait longer.  It does take time though.  Also, never send original documents!  Send copies!

Be sure to call the IRS occassionally and make sure everything is going as it should.  Be sure to ask them how long they will take to get through each step.  Make notes of the dates they give and your conversations.  Also note the dates of every call, date you mailed something, and date you received something from them.  It may come in handy (it did for me).  They asked me many times for the dates that this or that happened.

I sent my Offer In Compromise application in to the IRS and got delivery confirmation on April 20th, 2009.  Tack your package with the delivery confirmation, wait a couple days after delivery, then call the IRS to confirm they received it.  If they say no, tell them about the delivery confirmation.  They have a screening process to make sure you meet their requirements for the OIC.   

I then got a package from them dated May 12th, 2009 requesting additional information.  Some of the things they requested I had already sent so rather then argue the matter, I sent them again with an explanation that I had sent them before as well.  I gathered everything else and sent it too.  It went out to them May 20th, 2009 and it was confirmed May 22nd.  From this point it was a waiting game.  They do not give you any time frames after this point.  However, I kept calling anyway to check the status.  It’s best to be proactive.  I made it past this screening which took 4 weeks, give or take.

The next step was to assign my application to a case worker (whatever they’re called).  It seemed like forever before I was assigned one.  This happened about the 3rd week of August 2009.  When I called the IRS, they told me the name and phone number of the case worker and I was able to call her directly.  She explained to me that she had to review everything and gave me a timeframe.  We spoke many times over the next week about my life, my income, and the application.  About two weeks later, she finally told me that she was going to recommend the application be approved, but I had to send in a revised application because I made one mistake on it.  So note, if you mess up, you have an opportunity to correct it and they will help you.  I sent the revised application via fax to her September 31, 2009

So the next step was for her manager to make the final decision and sign off on the application.  My case worker gave me a timeframe for this as well.  I called back a week later and was told it was officially approved.  I received my Offer In Compromise settlement approval letter on September 10th.  Now all I have to do is pay the $100 lump sum I offered within 5 months of the date on my approval letter.

I was told that I will get a letter of lien release in the mail.  Then it’s off to battle the credit bureaus to get that updated!

So to recap…

4/20/09 – Offer In Compromise application delivery confirmed.
5/12/09 – Received request for additional information.
5/22/09 – Requested info sent back and delivery confirmed.
5/2009 (end of month) – Passed initial screening.
8/2009 (mid month) – Assigned to case worker.
9/2009 (first week or so) – Approved by case worker and sent to manager for approval.
9/10/09 – Received OIC approval letter!!!  Woot woot!

Sooo… the whole process took about 5 months.  Not bad.  I thought it would take a year or more.

My initial tax balance was about $30,000 and I settled for $100!

I can’t adequately explain how happy I am.  I cried when I knew it was approved.  I feel like a dump truck has been lifted off my shoulders!  So those lawyers you see on tv are not lying about settling for pennies of the dollar.  Granted, it’s different for everyone.  You have to prove to them it’s worth it to approve you.  And I want to say, do not think you HAVE to have a lawyer to file for you.  You can do it yourself if you go slowly and carefully.  Take your time.  Double check everything 5 times before you send it!  You should do ok.

Good luck to anyone going through this!!  If you are, please share your experiences here!