IRS Tax Debt and Financial Disclosure – Do You Like Ramen Noodles?
How much!? When you have an IRS tax debt, the IRS will do what is called a Financial Disclosure examination. The IRS takes a fine toothed comb over your income and lifestyle spending. Why does the IRS do this? IRS-hitmen uses that information to determine how much money they can take from you to pay your debt.
Loosing your shirt…How much can the IRS take from you? Grab a pen and paper and I’ll give you the formula. The IRS takes your total income that you bring in, plus any other liquid assets you have. They then subtract all of your basic living expenses. Anything that’s left over they expect you to give to them each month if you setup an installment agreement with them.
The bare minimum…What are basic living expenses? Let me tell you, they’re not what you were hoping for. Basic living expenses include: rent or mortgage payment, electricity and water, car payments for a single means, groceries, and medical expenses.
Nothing is safe…Expenses that are not considered basic: credit card bills, the IRS expects you to pay them and not your credit card companies first. Any car payments that are not for a dominant means, the IRS expects you to sell any additional vehicles or they’ll seize them and sell them for you. Any kind of investment accounts that you put money into. Private school tuition, your kids will just have to suffer in public schools. “Luxury” spending; which includes vacations, clothes that aren’t considered necessary (if you don’t shop at Wal-Mart you do now).
Remember how I said that rent and mortgage count as basic expenses. Well if your rent or mortgage is above the minimum national standard, the IRS expects you to move to fit into the budget they assign you.
How can you avoid this? How can you keep the IRS from making you live in what you think of as poverty? If you can provide to pay off your tax debt in a lump sum; that would be your best bet. Unfortunately that’s probably not an option for you. If you go into into an installment payment plan you will have to disclose that information. If you apply for an offer in compromise you have to disclose that information. If you want help in avoiding that complete financial disclosure go ahead and contact me.
Now you have the smoking gun… Use it!