April 15 oh noooooo
April 11, 2013 1:03 PM   Subscribe

I am an independent contractor. I did not pay taxes for 2011. I cannot afford to pay my taxes for 2012. I am scared.

I owe in the vicinity of $3000 total (from 2011 and 2012) to the IRS. I literally do not have it, otherwise I would happily pay. I do not have access to any lines of credit. The main problem is that my expenses are higher than my income and I need to get a handle on that, but what do I do right now? I did file last year, and intend to file again, but without enclosing payment. I want to demonstrate to the IRS in good faith that I am not trying to evade taxes. How is this sort of situation viewed by the IRS, and how do I resolve things? Could I be prosecuted? (If you know I need a lawyer, please advise. If you are just guessing that I do, that will not be helpful.)
posted by anonymous to Law & Government (22 answers total) 4 users marked this as a favorite
I suspect that the IRS would accept the offer of a payment plan. You might want to look into that.
posted by HuronBob at 1:04 PM on April 11, 2013 [10 favorites]

Yes, you can definitely get on a payment plan, but please, please hire an accountant or tax attorney to walk you through the procedures. They will know how to talk to the IRS in a way that you don't.
posted by roomthreeseventeen at 1:07 PM on April 11, 2013 [1 favorite]

If you go to the IRS and tell them that you owe them money and are willing to work out a payment plan, they will bend over backwards to help you.

If you wait for them to audit you, and they find out you owe money, IRS will make life a living hell for you.

So reach out to the IRS (they have contact numbers on irs.gov). They have the best customer service of any government agency that I have ever worked with.
posted by larthegreat at 1:07 PM on April 11, 2013 [15 favorites]

So you filed and didn't enclose payment last year but didn't get a letter from the IRS saying "hey now...."? Or is there some other situation? And I assume by saying your expenses are higher than your income you mean personal expenses and not business expenses, because if they're deductible business expenses you may be better off this year than you think? In general though the IRS is decent about payment plans and would prefer to have you in the system paying what you can than just in the weeds somewhere. I would file again this year and then compose yourself, figure out what you owe and what you can afford to pay and write or call the IRS (after tax time probably since they are nuts right now) and work something out. Getting it sorted sooner rather than later is a good idea because the penalties can add up to a lot and that won't make any of this any easier. It's a terrible feeling, I know, but you'll feel better getting started towards a repayment plan. Best of luck.
posted by jessamyn at 1:07 PM on April 11, 2013

I once owed a similar amount of money to the IRS for years and aside from sending letters to various long-outdated addresses no action was ever taken against me. However, I've known other people in similar situations who had their wages garnished (of course, they were working as employees). I think both of these outcomes are much more likely than any kind of criminal prosecution.

I don't think you need a lawyer. I think you should find an enrolled agent. This is a type of tax preparer who is certified to represent you to the IRS. I signed a tax power of attorney and my EA was able to file my unfiled back taxes and arrange for payment. (In my case, I was able to pay it all at once, but I believe that the EA mentioned that he would have been able to negotiate a payment plan with the IRS on my behalf if necessary.) It only cost me few hundred dollars, and I had years of back tax returns to file, so I do not think in your case hiring someone just to negotiate a payment plan would be very cost-prohibitive.

You could probably negotiate this by yourself directly with the IRS but for me, I was scared and intimidated to attempt that, and it was worth the peace of mind to be able to deal with someone who was representing my interests (but much more knowledgeably than I could have done).
posted by enn at 1:14 PM on April 11, 2013

I know the old reputation, but the IRS is nothing to be scared of. They're really really cool unless you're actively trying to deceive them.

You don't even need to *talk* to anyone to set up a payment plan! You fill out a form, let them know how much you can pay per month, and in a few weeks you'll get a letter with instructions. It's amazingly easy. Of all the people and organizations I've ever owed money to they are by far the easiest to deal with.
posted by drjimmy11 at 1:16 PM on April 11, 2013 [11 favorites]

I was in your shoes fifteen years ago and it worked out fine. I didn't fill out any forms or hire an accountant or really do anything special at all - I just sent in my tax return with a short cover letter explaining that I was broke, asking them to set up a payment plan. I got a letter a month later with a monthly dollar figure and a payoff schedule and a mailing address, and I sent 'em a check every month, and that was that. I had to repeat the process the next year, but eventually got caught up. It was really no big deal in the end.
posted by Mars Saxman at 1:18 PM on April 11, 2013 [1 favorite]

I think it was this that buried the old, terrifying IRS of lore.

Was also in a similar situation. Had been living abroad, technically an independent contractor, and didn't even file for a few years because I didn't think I was liable. Got a notice from the IRS, managed to scrape together enough dough to start sending them money, and within a year or so I was done with them. But the penalties did add up, so take heed of that. Didn't affect my credit score in the long run, either, FWIW.
posted by seemoreglass at 1:22 PM on April 11, 2013

Just set up an installment plan.

Yes, you can definitely get on a payment plan, but please, please hire an accountant or tax attorney to walk you through the procedures. They will know how to talk to the IRS in a way that you don't.

An accountant, sure, but if you're broke, sometimes that's a corner that just has to be cut. At least for now. But a tax attorney? You owe $3,000 in taxes, not $30,000, right? That is such a small amount to the IRS. Just call them and set up a payment plan and figure out what sort of penalties you owe.

And for next year, pay your estimated taxes in weekly installments. You can do that - really!

But just ask when you call.
posted by ablazingsaddle at 1:23 PM on April 11, 2013 [2 favorites]

I just recently filed my 2012 taxes with my 1099-MISC for my subcontractor income. I only owed about $1000 and my tax credits (along with my husband's) reduced it to owing $135.

I filed through Turbo Tax and when I got to the final payment, it gave me the option to ask for a payment plan through the IRS. I suggest going through your taxes with Turbo Tax and seeing what you really owe after right offs, etc. Then you should be able to just do the payment plan.

The payment plan option told me what I would owe right away and that the IRS would contact me. I could pay the whole thing in this case but this should be the option for you.
posted by Crystalinne at 1:36 PM on April 11, 2013

If you can scrape together the money, an accountant may be able to help you find deductions you didn't know about as an independent contractor.

If you can't, nthing that the IRS has very easy, albeit high interest payment plans. I found myself owing in the ballpark of what you owe a couple years ago with zero dollars in the bank, and I was able to pay them back within the year by temporarily aggressively scaling back my lifestyle. It sucked, but I imagine having them come after you for unpaid taxes would suck a lot more. You can do it!
posted by justjess at 1:37 PM on April 11, 2013 [1 favorite]

Yeah, in my experience, the IRS will be super friendly and accommodating once it's clear you're making a good faith effort to pay. Have an accountant help you set up a payment plan.
posted by brundlefly at 1:44 PM on April 11, 2013 [1 favorite]

Don't let this go another day!

Get with a good CPA and have her straighten this stuff out. Get on a payment plan and work like hell to get it paid.

When I was young and foolish I did some really dumb stuff with my withholding for a year. I ended up paying the taxes for 3 years after that. But it's all paid and done, and I don't have it hanging over my head.

The IRS is the only entity that is exempt from usary laws. So you don't want to owe them any longer than you have to, and you don't want to give them an excuse to penalize you.

posted by Ruthless Bunny at 2:30 PM on April 11, 2013

The people on the other end of the IRS phone are really professional, understanding, nice people. They will indeed bend over backward to help.

Be sure to keep detailed notes of conversations. The rep will give you their ID number, for lack of a better term; be sure to get it! Ask twice for it if you need.

You can get through this feeling as though they are your champions!

posted by jgirl at 2:51 PM on April 11, 2013

Just to get the anxiety you're experiencing out of the way:

Could I be prosecuted?

They are not going to prosecute you. You are not going to jail or to debtors' prison. They are not going to seize your assets. They are not going to be mean, or even judgmental, when you call them. They will happily help you make this right.

It took me three full-on panic attacks before I could make the call to them (and I owed three times what you do, and had owed for longer). The things above were the ones I stayed awake at night worrying about.

The call was simple. The person on the other end was pleasant. There was no guilt or shame involved. I'm now in the years-long process of paying them off, but it's not something I have to (actively) worry about anymore.

Call them!
posted by mudpuppie at 3:57 PM on April 11, 2013 [8 favorites]

I called the IRS about a penalty my husband got for not reporting something on the right form, long story short the customer service person was very friendly, down-to-earth and professional. I was nervous when making the call, but it wasn't bad at all!
posted by just asking at 5:37 PM on April 11, 2013

They can't help you if you don't tell them you need help. There was a time when the IRS was an entity to be feared, but those days are behind us. I'm joining the chorus here -- call them and tell them what's going on so that they can work out a solution for you. They don't have time to figure out what filing without a check means to you.

The sooner you call them, the sooner you'll be able to sleep without worrying. It's going to be ok.
posted by Houstonian at 6:23 PM on April 11, 2013

Call the IRS, they're actually nice and helpful. Frankly, I wish cell companies, my local cable company, etc. would all outsource their customer service to the IRS.
posted by Brian Puccio at 7:24 PM on April 11, 2013 [1 favorite]

Nthing the call to get an EA (folks who do taxes will often double as them). The EA's job is to advocate for you to the IRS, they're sort of like a defense lawyer.
posted by Hollywood Upstairs Medical College at 8:01 PM on April 11, 2013

Calm thyself.

The IRS is one the most accommodating creditors you'll ever deal with, as long as you actively seek a solution with them.

You'll be fine. Contact them; fill out the payment plan forms; and pay them back 45 bucks a month or whatever you can afford. You can even tell them that you'd like to start repayment at x-date in the future.

You'll be fine. It really isn't a big deal (unless you blow them off for a long time; even then, you'll be given many warnings of Bad Things To Come before they actually jump on you).
posted by nacho fries at 9:25 PM on April 11, 2013 [1 favorite]

I didn't pay taxes for a few years, I forget exactly how many. Some of those years I did some independent contracting and so had zero withdrawn from my paychecks. One year, the IRS busted me. They sent me a letter saying pay up. That was it - it wasn't even particularly scary or threatening. Just, "you owe money for the following years", something like that. I worked out a very reasonable payment plan. It's all behind me now - as this will eventually be for you - if that's any reassurance!
posted by latkes at 11:07 PM on April 11, 2013 [1 favorite]

The IRS has been very nice about payment plans for larger amounts than yours for a few of my family members. Also, despite what justjess said upthread, the IRS has WAY better interest rates than any credit card or personal loan. As long as you keep paying or keep communicating, they seem to be ok.
posted by monopas at 5:22 PM on April 12, 2013

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