Tax Penalty Abatement: Worth a Try

Image by blmurch via Flickr

Now that the IRS is no longer breathing down my neck (in other words, I'm in a payment plan) I'm beginning to wonder if they would consider abating the penalties they have assessed over the past several years.

According to a post at Financial Web, the IRS accepts 7 excuses for penalty abatement.  Now we're talking. Ever since my college days of talking professors into accepting late papers, I've been the excuse queen.

And I'm not just making empty excuses. I have shown a good-faith effort attempt to pay the debt, and we had extenuating circumstances at the time. (Number 6 on the list:

6. Lack of funds, but only when the taxpayer can demonstrate the exercise of ordinary business care and prudence

The interest and penalties can really add up (one might even say "compound") over time. In the same way that that bargain you put on your credit card can end up costing three times as much, the interest and penalties can dwarf the actual tax owed.

This is yet another example where sticking my head in the sand has done nothing for me.

So, first order of business, 2009 taxes.  Then, the abatement process. Wish me luck.

A Case of Mistaken Identify

Straight from the "Keys in the Freezer" department, we have for you today a case of mistaken identity. Alert readers will recall I've been trying to provide documentation of my income and expenses to the Internal Revenue Service via FORM 433-F for weeks now.

It took me awhile to get it together. After all, we had our wedding anniversary, Mr. Poorhouse's birthday, Little Poorhouse's birthday, Halloween. Whew.

I try to instill a sense of thankfulness and manners in my kids. So Little Poorhouse spent two whole afternoons writing thank you notes for his many birthday presents.

In the meantime, I got the 433-F done, and sent it to the address given me. And the IRS lost it.

So Friday morning, on my way to work, I grabbed the manilla envelope off the front hall table, stopped by the post office and sent it to the new address the IRS agent had given me. Good for me. Another thing checked off.

Today, on my lunch break, I opened the manilla envelope with Little Poorhouse's thank yous so that I could put them in the mail.

Imagine my surprise and horror to discover in the envelope--my 433-F and all it's documentation. Which means--wait for it--that I sent Little Poorhouse's thank you notes to the IRS. Certified Mail. Return Receipt Requested.

This story isn't over yet. See this post for the next installment. 

The Dreaded IRS Form 433F--The Saga Continues

This post has been included in Tax Carnival #43 at Don't Mess with Taxes. For lots more tax cheer, head on over after you've rounded up all you can here.

Photo by Scot Campbell

About six weeks ago, in response to a request from the IRS, I started documenting my income and expenses on Form 433-F or Collection Information Statement. Unfortunately, lots of stuff happens around here in October and I didn't get it done until yesterday, so I had to start over.

The back story on this project is that I couldn't pay my federal taxes, and I tried to work out a payment agreement. The problem is the IRS thinks I can pay more than I think I can pay. So they reasonably asked me to document what I have and what I spend. The process is similar to applying for a mortgage--in other words, involved. And it was the same information requested in my interviews with the debt counseling folks. (I describe my differing results: greater success and not so much success) in earlier posts.)

I learned something in filling out the form that I will pass along to folks in a similar situation. First, the IRS reps will try to get you to answer the questions on the phone about your income and expenses and assets. Don't do it. It's too complicated. Request that they send you the form, take your time, and document everything accurately.

Second, you don't have to know exactly what your expenses are. After looking up the IRS's own national standards, I discovered I was UNDERestimating our expenses. The rules allow you to claim national and regional standards for some items.

So, I don't know how this will all turn out, but for now, I'm glad that I got this piece done and hopeful I didn't forget to put anything in the packet.

Incidentally, you can tell the frugality bug has hit me because I was annoyed that it cost over $4 to send the package. Wow. $4. When did postage go up so much?

Note:  To find out what happened next, see this post.

Crunching the Numbers--How to Decide Whether to Take a New Job

I just went through this exercise, so I thought it might help someone else.

I got a new job offer at a little over 10 percent more than my current salary. In economics, we learned "more is better". So far, so good.

Does that mean that if my current employer offers me more than a 10 percent raise to stay, I should?

The answer, as in many things, is "It depends."

I made myself a little spreadsheet. Down the side of the first column I listed income:

Base Salary
Commission (if any)
Bonus
Education Benefit
Any other cash benefit (in my case a subsidy to buy life insurance)
401K Match


Then I listed deductions

Current personal 401K contribution
Current personal 401K contribution percentFamily Medical Coverage
Family Dental Coverage

For my purposes, I didn't include taxes, but you could.

The second column includes the data for all those fields from my current job. The third column includes the data for my job offer.

So then I calculated the net income before taxes (all the income less pretax deductions like medical and 401K contribution.) So far, so good.

Then I figured my commuting expenses. I took the government milage reimbursement rate (currently 58.5 cents per mile, according to the IRS) times the number of miles roundrip, times the approximate number of commuting days. If you commute every day, like I do, that is approximately 220. If you telecommute a couple of days a week, like I will in my new job, you can prorate the amount by the number of days you'll be driving in.

(Note: although I drive a hybrid, and I'm pretty sure my costs are lower than the IRS rate, I went with it anyway.)

I subtracted my current commuting costs from my current net income in column two, and my projected commuting costs from my projected net income in column three.

Then I compared the bottom line between Column 2 (current adjusted income) with Column 3 (prospective adjusted income). Again, I didn't figure in taxes, but you could. (You could also calculate the value of the vacation days and compare the existing job to the new one.)

In my case, I discovered that I'd be better off at the new job even with a 15 percent CUT is salary. When people say to take the benefits into account when evaluating a new job, they aren't kidding.

Of course, in this post I haven't said anything about whether the new job is a good fit for you (or me). Let's assume it is for now.

Tomorrow: a word on salary negotiation.

It's the Tax Man, Oh-oh The Tax Ma-an

Image via Wikipedia Or woman as the case may be. I had my conversation with the IRS. The woman I talked to was the model of efficiency and impatience.

It looks like I have bought some time anyway. I need to submit documentation of income and expenses for the past three months. I also need to apply for a loan (presumably to pay for the back taxes) and submit the rejection letter. I only need to do this if I can't come up with the minimum monthly payment the IRS suggests, which has gone up 50% since I talked to them in July. The difference is I have now filed my 2007 return, and owe, well, more.

Sigh. I love paperwork. Wonder what this loan rejection will do to my credit rating?

I guess I'm in good company with New York Congressman Charles Rangel, except that he chairs the U.S. House of Representatives Ways and Means Committee. (Plus he owes less and probably has the money to pay it...)

Money Talks video on what to do if you can't afford to pay your taxes

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• The Tax Man Goeth

One Step Forward, Two Steps Back--Now It's the IRS

Image via Wikipedia The other shoe fell today. I got 4, that's right F-O-U-R, registered letters from the IRS. Something has gone wrong with the payment plan I set up to pay off my back taxes from two years ago. Actually, two somethings have gone wrong:

1. They returned the payment plan application I sent in months ago because I left a blank on the form (at the instruction of the phone rep, I might add).

2. They are threatening to levy my wages (been there done that) because I couldn't afford to pay my 2007 taxes either (which I just filed). I actually got a refund on my 2006 taxes, which, together with my economic stimulus check, were immediately gobbled up by the previous year's outstanding balance. Such is the life of the self employed. Apparently, when you agree to a payment plan, you also agree to pay any current taxes as they become due. But I don't have the money to do that. The back story on all this is below.

I did open the letters right away, and I did call them right away, but nobody's home, so I'll have to try again in the morning. Wish me luck.