Yikes! The IRS wants to auction off our mom's house!
August 26, 2009 5:38 PM   Subscribe

Greetings all! My brother, two sisters, and I formed an LLC to administer the ownership of my mom's house when she died. Each of us is has a 25% partnership interest. The LLC was formed in 2005. Well, it turns out my brother has tax debts to the IRS dating back to 2002, and now the IRS wants to put mom's house on the auction block.

We received a summons last week stating that the IRS has filed suit against the LLC. The suit has three counts:

1. To set aside the "fraudulent conveyance" of my brother's one-fourth interest in the LLC.

2. To foreclose the federal tax liens upon the subject property incurred by the delinquent partner. What really frightens us here that the unpaid IRS balances owed by the delinquent partner far exceed the market value of the house. The summons states, "The unpaid balances of the assessment described above are secured by federal tax liens on all the property and rights to property of [the delinquent partner], and all the property and rights to property held in the name of any entity or individual, or purportedly owned or controlled by any entity or individual, as nominee, alter ego, and/or transferee of [the delinquent partner]. The US is entitled to foreclose its federal tax liens upon the property and rights described above and to rec. the proceeds from the sale of the property to be applied towards satisfaction of the outstanding and unpaid tax assessments against [the delinquent partner]."

3. In the alternative, for foreclosure upon [the delinquent partner's] interest in the LLC

Mom's house has been in the family for 70 years, and it's truly upsetting to think that it could be auctioned off to pay off the my brother's tax debts, even though we other three siblings are completely innocent. I called the US Attorney here, and he referred my to a US Attorney in DC. The DC US Atty was surprisingly kind and sympathetic, or so it seemed at least. He told me that if we could buy out my brother's one-fourth share and hand it over to the IRS, no foreclosure action would be taken. The one-forth share would be determined by the IRS, probably based on the property tax assessment. This seems like a reasonable solution, and we're greatly relieved that mom's house won't end up being auctioned off.

Any thoughts on this situation would be greatly appreciated. Should we go forward with the the buy-out of my brother's share? Does the IRS even have a leg to stand on when it threatens to foreclose on the house simply because my brother had tax debts unknown to us when we created the LLC?
posted by luciosilla to Law & Government (46 answers total) 3 users marked this as a favorite
 
Get a lawyer. You are in desparate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.
posted by The World Famous at 5:48 PM on August 26, 2009 [4 favorites]


Get a lawyer. You are in desperate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.
posted by crush-onastick at 5:53 PM on August 26, 2009 [2 favorites]


Get a lawyer. You are in desperate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.
posted by Doofus Magoo at 5:55 PM on August 26, 2009 [2 favorites]


Get a lawyer. You are in desperate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.
posted by nadawi at 6:05 PM on August 26, 2009 [2 favorites]


Get a lawyer. You are in desperate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.
posted by middleport at 6:05 PM on August 26, 2009 [2 favorites]


Get a TAX lawyer. No way around it.
posted by 6:1 at 6:13 PM on August 26, 2009 [1 favorite]


Thanks for the quick replies! Of course I've talked to a couple of tax lawyers, but they all want multi-thousand-dollar retainers before even looking at the summons. Just forking over the one-quarter share to the IRS and freeing mom's house from the threat of foreclosure seems more appealing than some protracted litigation.
posted by luciosilla at 6:18 PM on August 26, 2009


We're not suggesting that you engage in protracted litigation. That sort of decision is for you and your lawyer to discuss and decide upon. But the fact that you don't want to litigate does not eliminate or in any way reduce your need for counsel.
posted by The World Famous at 6:20 PM on August 26, 2009


PS: I'm new to Metafilter. Why is the precise same sentence
("Get a lawyer. You are in desperate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.") being posted under multiple usernames?
posted by luciosilla at 6:21 PM on August 26, 2009 [1 favorite]


You need to talk to a lawyer. But to the extent you all can pay off your brother's taxes by buying out his share of the LLC, the IRS would have their money and shouldn't care.
posted by Pants! at 6:24 PM on August 26, 2009


they all copied and pasted it again for emphasis because it is the best advice that could be given here. metafilter will not be able to help you like a lawyer would help you, and since you're talking about things you all hold to be greatly important AND the government's desire to take said things from you in legal wrangling, only a lawyer that you have consulted specificially for this case can really assist you.
posted by radiosilents at 6:24 PM on August 26, 2009 [6 favorites]


It's been posted several times because you sound like the kind of person who thinks he can somehow slide through something like this without legal counsel.

And you damned well shouldn't try. YOU NEED A LAWYER, EVEN IF IT COSTS YOU SEVERAL THOUSAND DOLLARS.
posted by Chocolate Pickle at 6:25 PM on August 26, 2009 [4 favorites]


Look, even if you decide to buy out your brother's share, AT THE VERY LEAST you're going to want to have a lawyer look at the agreement that the IRS draws up. You need to tread very carefully here- you don't want the IRS to come back and say, "hey, it's not enough" and then take the whole house.

So, given that, why not go see a lawyer right now?
posted by unexpected at 6:28 PM on August 26, 2009


How about giving luciosilla some specific recommendations for how to retain a lawyer? Is it absolutely necessary to pay a multi-thousand-dollar retainer? That would worry me; I'd want to know if I could just work with a lawyer for an hour or two to evaluate the IRS representative's phone-based offer, give an idea of timelines, etc. After all, they're already probably going to have to scramble and maybe go into debt to buy out the brother's 1/4 share.
posted by amtho at 6:33 PM on August 26, 2009 [3 favorites]


Just forking over the one-quarter share to the IRS and freeing mom's house from the threat of foreclosure seems more appealing than some protracted litigation.

You may still need a lawyer, even to sort this part out. Is your brother amenable to that solution? What if you need to challenge the IRS's imposed valuation? Who is going to keep track of whether the IRS is going to live up to its (verbal, at this point, so it might not actually exist) side of the deal? Rightly, your brother should pay for the lawyering since he caused all this ruckus with his failure to disclose his liability. I know it probably sounds harsh, but you may end up needing to sue him just to protect yourselves. Again, a lawyer would know the answer to these questions.
posted by Devils Rancher at 6:40 PM on August 26, 2009


If it would worry you about paying a retainer to get a lawyer, bone up on how lawyers operate. This is how they operate, at least the ones whose services are worth considering.

Look, this is an expensive and dicey situation in which you find yourself, and any way you slice it, you will be shelling out money, either to the IRS, or to a lawyer.

Get a lawyer, get it done, and move on.
posted by dfriedman at 6:43 PM on August 26, 2009


By and large, lawyers ask for a retainer so that they can be sure that, once they have done their job, you don't run out on the bill. Typically, if the cost of services ends up being less than the retainer, you get the difference back. They are just trying to make sure they get paid for their work. Working for free as a lawyer is no more fun than working for free in any other field.

Every reputable and competent attorney I know requires a retainer at the outset of representation, and the size of that retainer is based on and correlated to an estimate of the overall costs of the representation.
posted by The World Famous at 7:02 PM on August 26, 2009 [2 favorites]


Oh, and another thing: the US Atty explicitly told me that if I'd been working with a lawyer, he wouldn't have talked to me. So, I'm of a mixed mind about the whole thing. On the one hand, it seems like the US Atty is offering us a chance to get out cleanly from the encumbrance of a possible foreclosure. On the other hand, perhaps a bit of a good-cop-bad-cop routine is being played out here: the IRS sends a blustering summons stating its intent to pierce the veil of the LLC, which it may well not be able to do, and take the house, while the US Atty is friendly and affable and says he'll see to it that there won't be any trouble as long as the one-quarter gets forked over quickly.

By the way, the minimum retainer amount I've been given by a tax lawyer is $5000. This is a significant percentage of the one-quarter share.
posted by luciosilla at 7:03 PM on August 26, 2009


getting a lawyer is not about you deciding to engage in protracted litigation, it is about you avoiding protracted litigation, both with the IRS and potentially your brother.

you are frightened and you do not understand the relevant laws in this case, the only people who do will be tax lawyers: the DC D.A. is *NOT YOUR LAWYER* and *NOT YOUR FRIEND* and you have no agreement with the IRS just because you talked to someone on the phone.

do you really want to negotiate a settlement based on laws you don't understand with people who are professional tax-attorneys for the IRS? again, you have no agreement with anybody based on your phone conversation.

find a lawyer who understands you are not interested in protracted litigation, someone who doesn't have an axe-to-grind against the IRS, and get them on retainer now.
posted by geos at 7:07 PM on August 26, 2009 [4 favorites]


But it's a lot smaller percentage of the 100% share, which is what you risk losing if this goes really badly.

You're in a situation where you're going to get the shaft no matter what you do. Just accept that. Right now the goal is not to avoid the shaft, because you can't. The goal is to minimize the size of the shaft, and for that you need to spend that $5000 for a lawyer.
posted by Chocolate Pickle at 7:08 PM on August 26, 2009


IANAL, but I know this much: The US Attorney is not your friend. He is not operating with your best interests in mind - you are not his client. The IRS is. Any offer he makes will be greatly to the benefit of his client, which you are not. Get that straight. Club together with your co-owners and come up with some money for a couple of consultations with attorneys qualified to do this kind of work, so that you can make an educated decision.
posted by rtha at 7:11 PM on August 26, 2009 [7 favorites]


If you need help finding a reputable lawyer in your area, you can send me a MeFiMail and I am happy to point you in the right direction in that regard.
posted by The World Famous at 7:16 PM on August 26, 2009 [2 favorites]


Does the retainer necessarily have to be as much as $5000? For just reviewing the information and making a recommendation? I understand now that the difference would be refunded, but that still seems extremely high for something that one would hope -- remember, I'm talking about an initial consultation -- would be just an hour or two of work. Can anyone comment on why a smaller sum wouldn't be realistic?

I understand this would vary by location, etc., but I'm interested in knowing whether I should expect to have to spend this much if I were to be in a similar position. It seems extremely high. I'd expect to pay a couple hundred dollars per hour, max, and some option for an inexpensive initial consultation.
posted by amtho at 7:16 PM on August 26, 2009 [1 favorite]


Does the retainer necessarily have to be as much as $5000? For just reviewing the information and making a recommendation?

That's a question best addressed to the attorney. Not all retainers are that much. It depends on a number of factors. Retainers are often negotiable.

I'd expect to pay a couple hundred dollars per hour, max

That also depends on many factors.
posted by The World Famous at 7:21 PM on August 26, 2009 [1 favorite]


I'd expect to pay a couple hundred dollars per hour, max

That's what a retainer is. It's not in addition to hourly billing: it's an estimate of some % of hourly billing that you have to pay in advance.
posted by Sidhedevil at 7:29 PM on August 26, 2009 [2 favorites]


IMHO you should, each of you, including the bad brother, call the IRS, ask for the highest person you can get that may know about your problem. Explain your situation. The IRS is not out to get you. Well, maybe your brother. But they will help you solve this. I would call back and get 2 or 3 different opinions. Then I would get on a conference call with all the siblings and compare notes.

My partner is a tax accountant with 30 years experience and he has told me he has only known one IRS employee that he did not like. They always do whatever they can to help the taxpayer.

MeFi mail me if you want the address of the tax message boards where my partner asks tough questions. I would ask him but he is just slammed with his regular customers because of the economy. He hasn't had a day off since last November! BTW he would charge you 500$ to fix this. Sorry to tease you like that.
posted by cda at 7:29 PM on August 26, 2009


WHOA! Hi luciosilla.

Lawyer, now. Yes.

TALK TO YOUR ACCOUNTANT AND GET A RECOMMENDATION FOR AN ATTORNEY. If you or your siblings don't have an accountant, then please ask a friend for their accountant's name, and then ask that accountant for a referral.

Via contrast, I found my accountant through my attorney. I was given the referral because I had some ancillary issues from a defunct LLC and the IRS. Over 2 years, still happy with the services of both.

With my accountant whispering advice in my ear, I was able to negotiate my IRS issues VERY successfully on my own. You, however, sound as though you need an attorney because the IRS will be negotiating not with you, or your brother, but with the LLC to avoid the court date. Yes?

IF YOU HAD AN ATTORNEY DRAW UP THE LLC AGREEMENT, START WITH THEM. If you did the LLC on your own, start with a trusted accountant.

Good Luck.

PS - I was scared shitless of the IRS. But when it came down to actually dealing with them directly, it wasn't all bad. The good advice helped. In your case, it sounds as though proper representation can help. Get that.

Furthermore, if your brother relinquishes all claims to your mother's estate, worse case - it seems like that will cover it. But you need a lawyer to effect this. It sounds as though your mother is still alive? Then maybe sell the house back to her and dissolve the LLC. If your mother has passed, then you need a lawyer to negotiate the terms of your brother's share of a buy-out, which will then go towards your brother's debt with the IRS.

Lastly, you want a capable & responsible party to respond to the IRS lawsuit ASAP. The sooner you respond through the proper channels, the better you will do in any negotiation. Don't let this get to court.
posted by jbenben at 7:33 PM on August 26, 2009


Just in case I wasn't totally clear....

The LLC needs an attorney to protect the house (you and your sister's 75%.) Your brother owes taxes, which CAN be negotiated with the IRS - but that is a separate matter.

Your issue is the house. Deal with that accordingly.
posted by jbenben at 7:40 PM on August 26, 2009


The US Attorney wouldn't speak to you if you were represented because it's a violation of legal ethics to do so. They're not playing any games with you; it's just one of the rules lawyers have to operate by.
posted by katemonster at 7:55 PM on August 26, 2009 [3 favorites]


To further clarify katemonster, if you had counsel the US Attorney would communicate with your counsel. Legally, this is the same thing as communicating directly with you. That's all. It is definitely not some TV drama thing where if you lawyer up they suddenly get all nasty. In fact, they will probably be happier not having to explain everything and you will reach an agreement more quickly.
posted by dhartung at 8:13 PM on August 26, 2009 [4 favorites]


Strongly seconding what dhartung just said. Anyone dealing with legal issues is much more comfortable dealing with another attorney, since he or she will know what is relevant and what is not.

The 5-fold repetition of the first responder's comment is quite remarkable, but quite understandable. It is the soundest advice; a hundred people knew it when reading the post, though only six responded right away.
posted by megatherium at 8:26 PM on August 26, 2009


call the IRS, ask for the highest person you can get

At this point, it would be much better to deal with the Taxpayer Advocate Service rather than going through the regular channels, because this has already gone through the regular channels. Nobody you can get on the phone at the IRS can counteract an order of the US Attorney's office.
posted by Sidhedevil at 8:53 PM on August 26, 2009


But really, you need a lawyer. Accusations of trust fraud are not something to mess with, and not something a lay person can sort out.
posted by Sidhedevil at 8:53 PM on August 26, 2009


You have to have lawyer. There is no way around that. There is no way, without competent counsel's guidance, that you, on your own, can resolve this issue in such a way as to guarantee that the IRS won't come calling again. Furthermore, your family will all need to insure that any other dealings that they have with your brother won't imperil there own assets...perhaps a shared boat or who knows what. And a professional will be nice to keep any decision-making and subsequent action on a professional, business-deal basis.

(Frankly, I think it's kind of crappy that whoever set up the LLC didn't do a bit of due diligence to determine whether any of the parties to the LLC were bringing any baggage with them.)

Definitely get a referral rather than cold-calling, if you can. I imagine "we three wish to remove the brother from the LLC in a way that satisfies the IRS but enables the LLC to keep the house" is a simpler problem than "fight to protect all of our shares [including the brother's] from this IRS action," which may be what attorneys are hearing when quoting retainers.
posted by maxwelton at 10:20 PM on August 26, 2009


PS: I'm new to Metafilter. Why is the precise same sentence
("Get a lawyer. You are in desperate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.") being posted under multiple usernames?


Its because MULTIPLE people believe this to be the best advice.
posted by hal_c_on at 10:27 PM on August 26, 2009


cda: IMHO you should, each of you, including the bad brother, call the IRS, ask for the highest person you can get that may know about your problem. Explain your situation. The IRS is not out to get you. Well, maybe your brother. But they will help you solve this. I would call back and get 2 or 3 different opinions. Then I would get on a conference call with all the siblings and compare notes.

My partner is a tax accountant with 30 years experience and he has told me he has only known one IRS employee that he did not like. They always do whatever they can to help the taxpayer.

MeFi mail me if you want the address of the tax message boards where my partner asks tough questions. I would ask him but he is just slammed with his regular customers because of the economy. He hasn't had a day off since last November! BTW he would charge you 500$ to fix this. Sorry to tease you like that.


I actually think this is a bad idea, for several reasons:

(1) The IRS legally can't talk to anyone but your brother about his tax debt. They can indeed be very friendly and helpful, but I've had to call them about complicated LLC stuff before, too, and often their recommendation is what you've seen here: to get a lawyer. That's because this technically isn't a tax issue - nobody really disagrees about the amount owed, apparently - but a business issue having to do with how much you who are pointedly not the taxpayer owe and how much your brother needs to pony up.

(2) The IRS has already decided that this case is too large and complicated for them to arbitrate, apparently, as they've passed it on to the US Attorney's office. Any further contact with them will likely lead to them telling you to contact the US Attorney.

The purpose of an LLC is to Limit Liability for your Company; this may well be a liability that's limited against, but you can't know that unless you get in touch with somebody who knows the law.
posted by koeselitz at 2:16 AM on August 27, 2009


Saying that you want to fix this yourself is like saying that you want to roof your own house when you don't know where to buy shingles or nails and don't know how to use a hammer, much less a nailgun. Some jobs are best left to a professional.

I can understand not wanting to pony up several thousand dollars, but I think you should ask yourself whether saving that money is worth the risk of what you could lose in a worst-case scenario.

Or, to put it more simply:

Get a lawyer. You are in desparate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.
posted by double block and bleed at 3:46 AM on August 27, 2009


You seem to think that the only role for a lawyer is litigation. This is not true. A lawyer can help you negotiate, and help you review any settlement offer from the US attorney and/or the IRS and ensure that your interests are protected.

It's all well and good to say that well, you can just buy out his interest and solve the problem. But you would need reassurance (which you can only get from a lawyer representing YOUR interests) that this in fact legally foreclosed any future legal action against you and your siblings. Given that they are already alleging a fraudulent conveyance you need to be very careful.

Any finally, to reiterate what others have said: it's a rule of professional ethics that an attorney may not speak to a represented party without his or her lawyer. This is to protect your interests, not because it's like on TV where the cops think that if you "lawyer up" you must be guilty and they go after you full bore.
posted by miss tea at 5:57 AM on August 27, 2009 [1 favorite]


PS: I'm new to Metafilter. Why is the precise same sentence... being posted under multiple usernames?

This is not something that happens frequently, at all. Often people will just favorite rather than repeating. But in your case it's so blindingly obviously 100% necessary for you to get a lawyer that people felt compelled to repeat it.

Get a lawyer. You are in desparate need of a lawyer for this. I'll say it one more time: Get a lawyer for this.
posted by Perplexity at 6:36 AM on August 27, 2009 [2 favorites]


As pretty much everyone has said, please get a lawyer. A $5k retainer when you're talking about protecting the interests of 4 people and the value of an entire house is completely reasonable and well worth it. It works out to $1250 a sibling, and while that is not a small amount, relative to the cost you could incur, it is a drop in the bucket. It would be nice if your sibling with the tax problem paid for the whole retainer, but it looks like he is not in a position to do so. You need a professional who is an expert in tax law to help you negotiate this situation and protect your interests. So, please retain a lawyer & good luck!
posted by katemcd at 6:43 AM on August 27, 2009


[A few comments removed. Further discussion of the decidedly-unusual repeated-answers thing upthread can take place in this Metatalk thread if you're so inclined.]
posted by cortex (staff) at 8:00 AM on August 27, 2009


The US Atty wouldn't talk to you if you had a lawyer because he's supposed to only talk to your lawyer (and not you) if you have a lawyer. It's not because he's your buddy offering you a great deal or something.

Get a lawyer who specializes in "tax controversy".

On the retainer: Signing a retention agreement (and generally, paying a retainer that'll go with the agreement) is necessary before a lawyer will do work for you, unless you can get someone to do it pro bono. The retainer agreement should specify that they'll give back to you the unused portion of the retainer if you don't use it up. That is, it should say that if you give them $2k as retainer, and they only work, say, 3 hours at, say $200/hour (and don't incur copying, legal research fees, etc.), they'll give you back the $1,400 that didn't get used.

It may be that someone will do this case pro bono. It sounds like it's a sympathetic situation that they might want to boast about working on, and that *might* not take a ton of their time. Lawyers are under an ethical obligation to work on a certain amount of pro bono matters, so it may be you'll find someone who just hasn't been asked recently. Doesn't hurt to describe the situation and just ask if there's a possibility of pro bono representation.

On selecting a lawyer: be careful who you choose. Interview a few, and try not to take into consideration the costs too much from the outset. Getting someone who says they'll charge little or do it pro bono but who isn't good at communicating with you or otherwise smells fishy won't do you any favors. Asking what lawyers think of each other could be a way to get insight - generally lawyers will speak in positive terms about each other, even if they're in competition, or if they think someone is really bad they'll say something only moderately positive or at worst moderately negative - so if you have a lawyer who speaks in really negative terms about another lawyer, I'd question the professionalism of the speaker and the one being spoken about. Jbenben suggested starting with the lawyer who drafted the LLC agreement. I'd agree in the sense that that lawyer might know a specialist in tax controversy who can represent you on this matter - but not that that lawyer would *necessarily* be best suited to represent you. Lawyers tend to be specialized, so going for an appropriately specialized attorney will be helpful. If nothing else, it will take them less time (your money) to decide on the best course of action.
posted by lorrer at 8:47 AM on August 27, 2009 [2 favorites]


Since nobody's linked this here yet, I will link NDC's (How To) Get a Lawyer page on the MeFi wiki, which was created in response to the metatalk thread about the repeated responses at the start of this thread. It's a bit threadbare for now, but it seems like a good idea.

(Mods, if this is poor taste, nuke it, but I seriously think the info on that page might be useful to the OP, even if some of it has already been mentioned here).
posted by Alterscape at 9:14 AM on August 27, 2009


Um…is it completely out of the question for your brother to just, you know, pay his taxes?
posted by dinger at 9:26 AM on August 27, 2009 [3 favorites]


IAAL, obviously, see handle, IANYL.

I think you guys may have out-clevered yourselves with your LLC to take title to mom's house, and this is only one reason why. (other reasons include the possibility that you may have rendered title to the property unmarketable, but that's another issue for another time. If you had a competent real lawyer to put this together, then I withdraw this observation.) The IRS' lien extends to all property, real and personal, of any sort, of the delinquent taxpayer, but it's usually only applied to real property. The future interest of the house probably qualifies...but maybe it doesn't. If I were betting, I'd bet in favor of the IRS, but who knows? A Really Good Tax Litigator probably knows the answer, or where to find the answer, or how to convince the Tax Court or whoever of the merits of the position. When I read the original post, the LLC thing just screamed fraudulent conveyance. It'd be my first play if I were the IRS' lawyer.

An alternative is for your brother to see if the IRS will still consider a payoff over time of his tax debt. They'll probably keep the lien on the house, which means forget about selling it until the lien is released, but that would take the immediate heat off. By "payoff over time," I emphatically do not mean one of those 25 cents on the dollar deals. Forget that-- you guys put mom's house in jeopardy, and what you're experiencing are the consequences.

Oh-- if you've really been sued by the IRS, i.e., been served with the complaint, and not just threatened with suit, you don't have much time to act. I don't do Tax Court litigation, but I suspect it works like other courts, where defendant's failure to answer by a certain date results in a default judgment being taken. Mom's house will be seized and sold, end of story, unless the taxes aren't paid off.

This last paragraph is addressed to the people who, in another thread, thought lawyers were greedy bastards who didn't deserve those high fees they demanded. What we have here is a classic case of people who got themselves in serious trouble, trouble that's reverberating beyond their original acts, and who need sophisticated, specialized help to avoid disaster, particularly a disaster of their own making.
posted by missouri_lawyer at 11:26 AM on August 28, 2009 [2 favorites]


I meant to say a "competent real estate lawyer" in the first para.
posted by missouri_lawyer at 11:28 AM on August 28, 2009


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