DARRIN T. MISH: That would be me. I am Darrin T. Mish THE IRS Solution Attorney and I’m here today with Katrina Madewell my loyal and faithful co-host. How are you doing?
KATRINA MADEWELL: That’s me and we were both here a little bit later than normal but neither of us were late so that’s good. We didn’t, we didn’t share your dream last week. Can we talk about that or no?
DARRIN T. MISH: Sure you can share. I don’t remember it now.
KATRINA MADEWELL: You had that dream that you overslept and….
DARRIN T. MISH: Oh that’s right ok, so here’s the dream, last week for some, whatever reason I was obsessing all night…
KATRINA MADEWELL: I laughed cause I don’t dream.
DARRIN T. MISH: About this that it’s because I was in the new house and it’s a little farther away.
KATRINA MADEWELL: That’s yes…
DARRIN T. MISH: So I used to live I don’t know 30 miles from the studio, now I live like 50 miles from the studio and so last week I had the dream all night obsessively that I had somehow overslept and actually I woke up right about when the show was on and or actually it was after the show. Katrina had come to the studio by herself and she did THE IRS Solution Attorney show by herself and it was actually better then when I was there.
KATRINA MADEWELL: Which is actually a joke, cause I’m not the attorney and I would not be good answering those questions, now Pat can chime in and keep me company and keep the conversation going.
DARRIN T. MISH: It would certainly be more entertaining I think.
KATRINA MADEWELL: Perhaps yes it would be entertaining yes.
DARRIN T. MISH: And I think it would be no holds barred I don’t think there would be any, any of this play nice with the IRS kind of talk.
KATRINA MADEWELL: Well you know I’m not the attorney you are so I can say what I want within reason.
DARRIN T. MISH: You two actually have a complete and entirely complete First Amendment rights to free speech.
KATRINA MADEWELL: But attorneys once you are barred, you don’t get that option anymore right?
DARRIN T. MISH: Yeah there are definitely some restrictions.
KATRINA MADEWELL: They strip your freedom of speech.
DARRIN T. MISH: Some restrictions may apply.
KATRINA MADEWELL: So actually, we have a great show lined up today, I love it when I see topics like this because sometimes the IRS stuff can be a little bit boring so we try to keep it entertaining and in so you can enjoy your commute to work and listen to us and hopefully also get some valuable information, but today’s topic of the show is How to Plan Your Finances so that YOU can Benefit Rather Than Pay your Insurmountable Tax Debt.
DARRIN T. MISH: Yeah it’s important to know that this is actually, this whole show is based upon one of the chapters in my book The 7 Secrets the IRS Doesn’t Want you to Know and you can get that book for free by calling the office at 888-438-6474 that’s 888-get-mish.
KATRINA MADEWELL: Yeah 888-get-mish that’s all I remember.
DARRIN T. MISH: Or you can also buy that on Amazon.com, kindle etc. It’s not very expensive but it is a rather good book if you do have a tax problem it’s The 7 Secrets the IRS Doesn’t want You to know about by Darrin T. Mish the IRS Solution Attorney.
KATRINA MADEWELL: Yep you can get that completely anonymous like if you want to come pick it up or mail it to a P.O. Box?
DARRIN T. MISH: I’m going to be honest, if you called the office and asked for the book you are probably going to have to tell me your name at least so we can get it to you.
KATRINA MADEWELL: But I think once they meet you it will be ok telling you that.
DARRIN T. MISH: Yeah I mean it’s fine.
KATRINA MADEWELL: He’s likeable.
DARRIN T. MISH: Anyway so today we are going to talk about how to plan your personal finances so that you get more bang for your buck and you get some benefit rather than allowing the IRS to just take all that money, you understand what I am talking about there? You probably do.
KATRINA MADEWELL: I do but why don’t you explain it to the person listening because this might be the first time they are ever chiming in to listen to the IRS Solution Attorney show and if it’s your first time thank you for listening and if you are a regular we appreciate you coming back too.
DARRIN T. MISH: If it’s your first time I’m Darrin T. Mish and what I do is I help taxpayers who owe lots of money to the IRS and lots of money is kind of one of those subjective terms right? Every day at the office someone says, makes a comment like that I owe lots of money and I say well…
KATRINA MADEWELL: Yes. What’s a lot of money to you?
DARRIN T. MISH: What’s a lot of money to you? Because depending, even to me a lot of money changes definitions, right? If a plumber comes out to my house a lot of money is like 300-400 bucks, if you are talking about lots of tax debt it could be 3000-4000 bucks, or it could be 300,000-400,000 dollars it just kind of depends and it’s up to your definition as an individual what’s a lot of money and what’s a lot of tax debt. But here, for the purposes of this discussion today we’re probably talking about….
KATRINA MADEWELL: It’s all relative based on income so…
DARRIN T. MISH: Yeah for sure absolutely. In fact I was talking to a gentleman yesterday that his tax debt after an audit was about $125,000 and which is a lot of money I think, and we got to talking and his income is about a half a million so is that a lot of money yeah…
KATRINA MADEWELL: But then again it’s all relative so $125,000 to owe the IRS is a lot of money, $125,000 to buy a house would be lucky to get a trailer but you know it’s all relative.
DARRIN T. MISH: Not that there is anything wrong with a trailer.
KATRINA MADEWELL: No I’m just saying it’s you know what you can get for $125,000 is not that much.
DARRIN T. MISH: Absolutely. So, in our discussion between he and I the gentleman that was earning a half a million dollars and owed $125,000, it went a completely different direction then really what we are going to talk about today which is if you owe a lot of money to the IRS say $20,000 or more and you have you know relatively modest means so I would say under $100,000 of household income if you have a family of 4 for example. Then you are going to want to plan a little bit for resolving the tax problem here’s what I mean, there are certain categories, so when the IRS, if you owe over $50,000 the IRS is probably going to want to go through and get a financial statement from you and they use a couple of different forms, one is the 433A and one is the 433F and the difference really is…
KATRINA MADEWELL: One’s pass and one’s fail. I’m just kidding, it’s never that simple with the IRS.
DARRIN T. MISH: The real difference is if you are dealing with the call center you are going to use the 433F and I hate the form because the form itself doesn’t lead, doesn’t show you the answer, the conclusion it’s just kind of mimics the computer screen that the call center people have but the 433A is a general use for offers and compromises which is where you make a deal to settle for less or revenue officers which is the field level person who comes out and says hello I’m from the IRS and I’m here to help.
KATRINA MADEWELL: The men in black that carry the gold guns that’s them.
DARRIN T. MISH: No, no, no we are confused, the revenue officer carries basically a plastic badge, no gun. It’s the revenue, it’s CID agents carry gold badge and guns and probably shouldn’t talk to those folks.
KATRINA MADEWELL: I just mix them up I think everybody that comes through your office is going to be that person but it’s not true.
DARRIN T. MISH: Yeah there’s actually a huge difference between the two. But anyway so it’s a 433A or a 433F and when the IRS is looking at your financial statement what they are basically trying to do is they are trying to determine what your disposable income is so disposable income in this instance is actually what we call a term of art, it means something special. What it means is the difference between your gross income, that’s everything that comes in in a month, minus your allowable expenses and allowable is the key word there right so what in the world is an allowable expense?
KATRINA MADEWELL: Well according to our math calculations in the past it’s not that much.
DARRIN T. MISH: Well an allowable expense is a, there’s a variety of them but they boil down to things like food, clothing, miscellaneous items would be one category, housing, utilities would be another category, taxes are certainly another category, transportation, healthcare, I mean it’s just like the kind of normal stuff that one needs to survive right so the purpose of this show today is to throw out some ideas about things that are allowable expenses that you might not think about and that are certainly moral, ethical, legal ways to spend your money in ways different then just forking over all that cash to the IRS.
KATRINA MADEWELL: We talk about planning like if somebody comes in and they have a tax bill, it’s really about planning and knowing the rules and knowing what you can do and can’t do and I tell people that all the time like when it’s your specialty area of practice whatever that is. For me it’s real estate, for you it’s going head to head with the IRS and dealing with these tax problems but there’s no way for somebody like Pat George to play either one of those games with us and win because we do it every day, it would be unfair no more than it would be for us to try to compete with him in the radio space because he would beat us hands down, every day.
DARRIN T. MISH: Yeah I’m not going to try and do traffic and weather because it is just not going to work out.
KATRINA MADEWELL: But that is what I am saying.
DARRIN T. MISH: Not compare to Pat George.
KATRINA MADEWELL: It’s like paying, even in monopoly right if you’ve never played that game before and I play it every day for the last 23 years you are not going to win that game playing against me if I played it every day you are just not.
DARRIN T. MISH: Exactly.
PAT GEORGE: How many houses do you have and hotels?
KATRINA MADEWELL: How many houses and hotels I know all the names of the streets how’s that? No, just kidding. No, but seriously that’s the thing is when you know the rules of the game in and out it’s a lot easier to play the game and you are going to play it to win.
DARRIN T. MISH: Yeah so let me try and give you an example, when taxpayer files an Offer in Compromise which is the program that they use to make a deal to settle for less which is what everybody really wants to talk about when they owe a lot of money to the IRS whether it’s appropriate or not they will talk about it for sure.
KATRINA MADEWELL: Right.
DARRIN T. MISH: And one of the things that they do is, I’ve gone over this equation many times, it’s monthly disposable income times 12 plus assets equals the amount of the offer so an example would be if your monthly disposable income was down as low as a $100, $100×12 is $1200, let’s assume for just a moment there’s no assets at all, you could settle the case for $1200 I mean a pretty good darn deal.
KATRINA MADEWELL: How does asset change that number?
DARRIN T. MISH: Well ok take the same equation $100 in disposable income $100×12 let’s say you had $50,000 equity in your house. Well now it’s $51,200 is your minimum accepted offer.
KATRINA MADEWELL: So they look at equity to?
DARRIN T. MISH: Absolutely.
KATRINA MADEWELL: Interesting point.
DARRIN T. MISH: Now…
KATRINA MADEWELL: So if you own a house that is free and clear it might not work out for you so well.
DARRIN T. MISH: Yeah it’s probably not going to work out for you very well and that’s an interesting point because a lot of these tax resolution companies have toll free numbers that advertise on the radio and what not. They are basically offer and compromise mills and we have met person after person over the years who have been signed up for an offer and compromise even though they had you know $100,000-$200,000 equity in their house and I’m here to tell you it just doesn’t work like that I mean the whole bottom line is the IRS is trying to look at what you have so they can determine whether or not your somebody that they should make a deal with.
KATRINA MADEWELL: Right. And here’s the thing if you have the IRS debt you are probably not going to get a loan so I guess a better topic when we come back might be at what point could you actually sell the house without the IRS Lien being attached.
DARRIN T. MISH: Sure we can definitely talk about that.
KATRINA MADEWELL: We will leave that up to you and come back we will dive into this how to plan your finance so that you can benefit rather than the IRS. You are listening to the IRS Solution Attorney show with Mr. Darrin T. Mish, I’m your co-host Katrina Madewell thanks for listening to Moneytalk 1010 we will be back in a minute, just take a real quick break, stick around don’t change the channel Pat’s got news traffic and weather. Back in a minute.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney I am THE IRS Solution attorney Darrin T. Mish.
KATRINA MADEWELL: And I am your co-host Katrina Madewell thank you for sticking with us and before the first segment we were chatting a little about what happens when you get yourself into a pickle and you owe that money and we kind of left off right before the break where if you, you were talking about the offer and compromise…
DARRIN T. MISH: Right and…
KATRINA MADEWELL: Which is where you agree to settle for less.
DARRIN T. MISH: And the reason why I bring that up is because the monthly disposable income figure you know plays so heavily in that calculation right so…
KATRINA MADEWELL: Now my question was what happens if you have equity or you have assets, you have equity in your home, you owe something or you have assets that the IRS deems, I don’t know, saleable I guess.
DARRIN T. MISH: Well first let’s talk about how the IRS calculates equity in real property ok? So what we typically do is we will just take, I know you are going to shudder right now… we just typically take the Zillow estimate, or the zestimate, of the value of the house and we do that unless it just looks completely wacky and completely off and…
KATRINA MADEWELL: I’m choking on the z word sorry.
DARRIN T. MISH: Well for some, for a lot of housing tracks, it’s pretty close and for a lot of run off properties it’s nowhere near in the ballpark but so we kind of use that number unless it looks ridiculous and then the IRS actually calculates the quick sale value so we use Zillow for fair market value and then we use, the quick sale value is 80% of the fair market value and then you subtract what the taxpayer actually owes on the property. So in a lot of cases that wipes out the equity right, especially if it’s a higher price property then that 20% discount is going to knock out most of the value and we are not going to have a problem. If the true fair market value just really looks too high or higher than I would like then I will use the assessed value but now we know the assessed value from the property appraisers particularly in Florida is way low usually.
KATRINA MADEWELL: Well it’s usually at least 80% of the value if not less.
DARRIN T. MISH: Yeah so it’s usually way low but we will start there if we have to because one of the cardinal rules in my practice is you don’t, you don’t leave assets off. Now we can have a good faith disagreement about the value of assets right but we don’t ever omit assets cause that would be, that would be lying that would be bad.
KATRINA MADEWELL: Taboo.
DARRIN T. MISH: So that’s how you calculate the equity so if the equity is non-existent after that calculation then we don’t have a problem. If there’s still equity after that and the strategy is well we are going to get a home equity line of credit or we are going to get a mortgage or we are going to sell the house to pay off the offer for example, that gets a little bit more complicated because if there’s a tax lien in place filed in the county that the property is located well that’s going to frustrate that to some extent, it’s not going to make it impossible, it’s just going to complicate things.
KATRINA MADEWELL: Well that was my question is you know if you think, if someone went in and they said oh I think I am going to do an offer and compromise in the mills like you say and that is just not possible doing what you do, in that particular case where we are looking at hey they got some equity at what point during the process does the IRS actually file a Lien that comes up that would stop them from making the sale on the house.
DARRIN T. MISH: To their credit, the IRS is not normally going to file a tax lien during the investigation of the offer unless the lien has already been filed right so in 90% of the cases the lien has already been filed and it’s not up to the offer specialist or offer examiner to file.
KATRINA MADEWELL: How can someone check like what notices would there be could they find it?
DARRIN T. MISH: Well, in Florida it’s really easy. In Florida you just go to your county clerk’s office, you look at the official records. Not the court records those are different in most counties. The court records are like the criminal and family and stuff like that but it’s the official records, it’s the place where the deeds are recorded, the mortgages that kind of thing, the IRS files a tax lien against you there, now it’s important to think about this that if you’ve lived in a different county then the county you live in now it might not be filed in your current county it might be filed in that old county. We have a unique situation down here in Florida in that almost no one that lives here is from here right, almost everyone…
KATRINA MADEWELL: I’m the white elephant here in the room.
DARRIN T. MISH: For sure and so are my kids right I mean they are from Florida but a lot of people come down here from different states and I can’t speak to how to find the official records in those other states because it’s, it literally every state has its own method.
KATRINA MADEWELL: So ,I mean if it’s a public record it’s going to appear on your credit report see you could get a free credit report by annualcreditreport.com and that’s, everybody is entitled to one of those per year.
DARRIN T. MISH: And there supposed, the IRS is supposed to send you a notice of the filing of the Federal tax lien but…
KATRINA MADEWELL: My guess is they have a stack of mail from the IRS that they haven’t opened and that’s probably in there.
DARRIN T. MISH: Well, that’s pretty common, another thing that happens the IRS sends it to your last known address, if you owe the IRS a whole bunch of money or you are going to be keeping them up to date on your last address particularly if you haven’t filed a tax returns in 10 years? Probably not.
KATRINA MADEWELL: Like my caller we had a couple of weeks ago they were running from the IRS.
DARRIN T. MISH: Yeah that was a classic call.
KATRINA MADEWELL: I’m sure you hear that pretty regularly anyway through people that come in.
DARRIN T. MISH: Absolutely classic, loved that call. So let’s get back to how to plan your finances so let me give you an example. When we are looking at your gross income minus your allowable expenses one of the strategy’s is well let’s maximize your allowable expenses right? So there’s a few categories like food, clothing and miscellaneous that’s just a maximum number, number of people in your household that equals a number that comes off a chart. The second line is housing and utilities. Literally every county in this country has a chart, has a number for how much housing is allowed in that county and it’s important to know that counties differ quite dramatically sometimes, I would say that here in the Tampa Bay area, Hillsborough and Pinellas counties are really, really close but then you get out into more of the hinterlands like Pasco and Bolt county, no offense to folks that live out there I happen to live in the hinterlands, it’s a lot cheaper to live in many cases, particularly Pasco county where you have just this huge amount of mobile homes,which you know are cheaper to live in than single family homes. So there is a wide variety and differences between housing costs between counties even across the country so…
KATRINA MADEWELL: So the allowable housing is less in Pasco?
DARRIN T. MISH: Oh for sure, I will give you an example here, I will pull it up in a minute. The next one would be a car payment right? Most people that I meet with if they owe money to the IRS, the last thing they are thinking about is maybe it will help me go buy a new car.
KATRINA MADEWELL: Yeah no that wouldn’t be on the top of my list I can tell you.
DARRIN T. MISH: But I am here to tell you that it’s completely allowable and it’s, it can very often help, I’ve seen, I mean many, many people over the years drive a $2000 clunker just barely making it because they can’t barely keep the thing on the road which then affects their work right?
KATRINA MADEWELL: Right.
DARRIN T. MISH: Because they can’t always get to work and things like that and they are driving the clunker because number one they don’t think they can get the credit to buy a new car or a newer car and they also think that the IRS is just going to take the car and that the IRS is going to say no you can’t have that car payment, you got to go ahead and pay us instead well…
KATRINA MADEWELL: Cars are easy to qualify for, houses not so much.
DARRIN T. MISH: Yeah and I think it has to do with the fact that there are wheels on the car and it’s pretty easy to repo a car and legally it’s a lot harder to repo the house.
KATRINA MADEWELL: Yeah it’s not actually repo, it’s foreclose, unless you are a mobile home but that’s ok.
DARRIN T. MISH: I know but I was just kind of using the vernacular there so you know that’s why.
KATRINA MADEWELL: People say that all the time and it bewilders me that’s why I just…
DARRIN T. MISH: Oh repo?
KATRINA MADEWELL: Yeah they say that.
DARRIN T. MISH: Yeah it’s yeah…
KATRINA MADEWELL: Unless it has wheels and an axle you are not exactly going to repo it I’m just saying.
DARRIN T. MISH: And the repo guys have really generous laws for them to go ahead and recover the property it’s really not that hard they can come onto private property, they can do all kinds of things.
KATRINA MADEWELL: That whole thing is nutty there’s some TV shows about that but anyway.
DARRIN T. MISH: Yeah.
KATRINA MADEWELL: So…
DARRIN T. MISH: They are kind of entertaining but it’s about a different segment of society generally.
KATRINA MADEWELL: So you got your numbers pulled up or should we dive into one of our facts.
DARRIN T. MISH: Ok so let’s talk about Hillsborough County fill example for the housing and utilities allowance we will look at a family of 4 because I think that’s really relatable, Hillsborough County the maximum housing and utilities…so this is your mortgage or your rent, your homeowner’s insurance, your property taxes, your electric bill, your phone bill, your internet, your cable all this stuff $2,017 a month that is the maximum housing allowance for Hillsborough County. Pinnellas would be $1956.00 so kind of close not too bad. Pasco County $1823.00 so there’s a fairly significant difference there, $200 a month between you know there’s, is there really much difference between Wesley Chapel and New Tampa? If you are living off of Bruce B. Downs, you know, there’s really no difference.
KATRINA MADEWELL: No but when you talk about Pasco it could be the difference between New Port Richey and Wesley Chapel I mean it’s just different.
DARRIN T. MISH: Oh totally or you know Loxahatchee or Trilby or….
KATRINA MADEWELL: It’s a pretty big area.
DARRIN T. MISH: Yeah and it’s really diverse but anyway so that’s an example. Now getting back to the car payment, you are actually allowed to have a car payment of up to $471.00 a month, now that’s not a, it’s not a tiny car payment now what’s interesting is I’ve been doing this kind of work for 16 or 18 years and for the very first time this year the maximum car payment actually went down and so did housing.
KATRINA MADEWELL: By how much?
DARRIN T. MISH: The allowables actually went down. The max allowable car payment used to be $517.00 a month and it went down to $471.00 that makes no sense, that makes absolutely no sense.
KATRINA MADEWELL: Considering well I guess maybe look at the rates I don’t know that’s the only thing that is lower everything else is higher.
DARRIN T. MISH: Well it’s all part of a, a broad vast government conspiracy to make inflation numbers look better really what they’ve done is taken these cooked inflation numbers and they’ve said well we are going to go ahead and apply these fake numbers to this situation too and that’s why these maximum amounts is….
KATRINA MADEWELL: Well, we don’t have negative interest rates yet so I guess we are ok in that respect.
DARRIN T. MISH: What was also interesting is you know it hasn’t been, gas is like maybe $2.00 a gallon right and it hasn’t been all that long since it was $4.00 a gallon.
KATRINA MADEWELL: I know I remember.
DARRIN T. MISH: Well the operating…
KATRINA MADEWELL: That’s why I bought my Prius.
DARRIN T. MISH: The operating costs for, that’s a separate category, that’s different from your car payment and it used to be $240.00 a month and now it’s $220.00 a month. Now what’s interesting is when gas was 4 bucks a gallon they didn’t raise that to some more reasonable number and gas was $4.00 a gallon for years, 3 or 4 years in a row.
KATRINA MADEWELL: I can remember filling up the F150 and it was over a $100.00, like the pump would shut off it literally wouldn’t even allow you to put that much gas in your car. You remember that…
DARRIN T. MISH: That’s just sad when an F150 costs $100 to fill the tank.
PAT GEORGE: That’s what it costs now.
KATRINA MADEWELL: Yeah Pat you know that’s what you have. See I go to the gas tank and it’s like $15-16 dollars and then I get 400+ miles.
DARRIN T. MISH: Alright, electric car girl.
KATRINA MADEWELL: Alright you are listening to the IRS Solution Attorney show trying to keep it fun and real. We do have some great tips we are going to talk about some facts when we come back after the break we are going to dive into the meat and potatoes of the show where how you can plan your finances so that you can pay the IRS less money and do it all legally. You are listening to the IRS Solution Attorney show with Mr. Darrin T. Mish, I’m your co-host Katrina Madewell. Stick around and we will be back in just a moment.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney show I am THE IRS Solution Attorney Darrin T. Mish.
KATRINA MADEWELL: I’m your co-host Katrina Madewell. Nice try Pat.
DARRIN T. MISH: Today we are talking about how to plan your finances so that you benefit rather than the IRS in paying back their exorbitant taxes, penalties, and interest.
KATRINA MADEWELL: We were talking about the break and one of the first things we want to talk about is the IRS has actually been cracking down on investors who attempt to use passive real estate losses to offset the income, you want to talk about that yet or no?
DARRIN T. MISH: Let’s go back to some more examples about how to, how you as a taxpayer can benefit from you know…
KATRINA MADEWELL: Saving money.
DARRIN T. MISH: Actually increasing your personal expenses so that you have less money to pay the IRS.
KATRINA MADEWELL: Ok.
DARRIN T. MISH: Before the break we were talking about you could actually go out and buy a new car, that could be a strategy because if you had, let’s say you didn’t, you are driving an old clunker and then you all of a sudden you buy a new car with a $471.00 a month car payment that’s $471.00 a month less that you have the ability to pay back to the IRS. So another category that comes up quite often is health care, health insurance. Health insurance is an example of an expense that can be in an unlimited amount as long as you are paying it. So there is no maximum standard because we all know that health care is going up you know, I think mine is going up between 40-60% this year…
KATRINA MADEWELL: Goes up and the coverage goes down.
DARRIN T. MISH: I’ve had a number of people over the years come into the office and we’re trying to get them ready to do an offer and compromise, and the strategy there is get the monthly disposable income as low as possible so that when we go through that multiplier that the amount of the offer actually goes down right? So the difference between having a thousand dollars a month in disposable income and a hundred dollars a month in disposable income is huge. So the minimum offer if you had a thousand dollars in disposable income it would be $12,000, if you had a hundred dollars it would be $1200 so every dollar that I can make that disposable income figure go down, I’m saving the taxpayer twelve bucks. So this comes up quite a bit; I’m talking to a husband and wife in this particular case that I’m thinking about and we are going through their expenses and there’s nothing for health insurance and I said gee what’s going on here and they said well we don’t have health care it’s too expensive and we are just kind of, we are healthy and we are just kind of hoping that everything works out. I’m like well if you were to go out and get health insurance now we could settle your case for this much lower and I really like the idea of you using that money for your, you and your families benefit rather than just forking it over to the IRS. You know there’s some discussion about that and they really liked the idea. So they went out and got the health care and lo and behold the wife, in that case, came down with some serious illness I can’t remember but it was along the lines of cancer….
KATRINA MADEWELL: Right after that?
DARRIN T. MISH: Not, it wasn’t like cause and effect.
KATRINA MADEWELL: I mean enough.
DARRIN T. MISH: But yeah it was close, it was within a few months and the health insurance is what actually saved her life.
KATRINA MADEWELL: Wow.
DARRIN T. MISH: And so that’s just one of those things that kind of get, I get goose bumps just telling that story and it’s happened twice actually. Again there is no cause and effect it’s just, when people are in their middle ages that’s when you are going to start to see these serious things come up and it’s just really, especially if you have a tax problem it’s just really a too big of a risk to go ahead and you know try to fly without it. So health care is one of those things and….
KATRINA MADEWELL: Everything happens for a reason too, so I think like the timing that stuff happens I really believe that it’s meant to be.
DARRIN T. MISH: I like to think in those couple of cases that you know it did happen for a reason and the reason was they had to have the tax problem so that they could come see me so I can tell them to get health insurance so they could get their life saved you know but it’s kind of eerie in a good way…
KATRINA MADEWELL: Yes.
DARRIN T. MISH: That that happened and I’m sure glad that they did get that.
KATRINA MADEWELL: But I bet they were glad they got it. So not only is the IRS problem fixed but they have the health insurance to deal with the issue.
DARRIN T. MISH: Absolutely, so the other thing would be life insurance you know the rule of thumb I think in the life insurance industry is that the breadwinner should have at least 10 times the earnings in coverage for their family and really 10 times earnings is not enough if you have young kids I don’t think that’s enough but that’s one of the standard rule in the industry and so you are entitled to have term life insurance not the whole life but the term life insurance and we often have people go ahead and go out and get term life insurance so they can have some protection to cover their family and in the case that they die.
KATRINA MADEWELL: And it’s pretty cheap. I mean even if you get enough to pay off your house and cover some basic living expenses for a while it’s going to be enough to figure stuff out.
DARRIN T. MISH: Assuming you are not retirement age or in bad health yeah its ridiculously inexpensive and it’s just one of those things that I would rather have you as a taxpayer client have that 100 bucks a month or 150 bucks a month going towards that protection than trying to give that to the IRS it just makes no sense to me that you know you should even forgo those things.
KATRINA MADEWELL: Right even if you change your mind later I mean it’s still better to use that money wisely.
DARRIN T. MISH: And that might happen to some people who have offers they might change their mind and their priorities may change they might you know get out of the car payment and get into something cheaper I don’t know; I don’t advise on that…
KATRINA MADEWELL: But the options there that’s good.
DARRIN T. MISH: But the options are definitely there and that’s what we are talking about here when we are talking about how to plan your finances so that you benefit rather than the IRS. Because if you don’t know these things and you just call from a notice that you get from the IRS and you just call the toll free number and you start giving them your financials form that 433F form that we talked about in the first segment. They are not going to tell you these things and quite often after just a regular sort of average income earner gives their finances to the IRS in the context of that telephone call the IRS is going to come back with some crazy monthly figure you know $1800 a month, $3,000 a month, $800 a month just some number that’s bigger Than the taxpayer actually wants to fork over. It’s funny almost without fail when I ask somebody gee like kind of what did you have in mind for an installment agreement payment you know monthly payment on your tax debt it’s always $300, it’s been $300 for 20 years.
KATRINA MADEWELL: Just some random answer they always give you?
DARRIN T. MISH: I think $300 is like the amount of money that we as a society can envision paying without it hurting too bad, I think that’s the figure. $300. Now I’m here to tell you that you are probably not going to get a $300 monthly payment on a $200,000 tax debt, it’s probably not going to happen, I’ve had it happen but you know the facts and stars have to align perfectly for that to work out.
KATRINA MADEWELL: That old saying plan to fail, fail to plan?
DARRIN T. MISH: Yeah I think that in this context, in the IRS problem context, if you don’t get some advice, if you don’t do any planning it’s probably not going to work out. Now there might be one of those golden BB situations out there where you know the stars line up perfectly and the person didn’t plan, didn’t get any advice and everything worked out fine, I’m sure that that does happen and it probably happens a lot in small cases $5000 you know things like that. You don’t need a whole lot of planning cause it’s just not that big of deal but when you get into $50,000 or $500,000 then you need some help from someone who’s been there done that.
KATRINA MADEWELL: Right. You want to hop on into the 6th year rule for repayment of tax liability? It’s probably right on time?
DARRIN T. MISH: Yeah there’s a rule, this is relatively new this has been out for the last couple of years, the IRS will basically allow a taxpayer to have expenses higher than those allowables, as long as the tax debt will be full paid with the 6 years. So let me give you an example; the family of four max housing allowance for Hillsborough county was $2017.00 as I recall and let’s say, I mean there’s plenty of people you know there’s plenty of people out there where that is more like $3,000…
KATRINA MADEWELL: Right.
DARRIN T. MISH: Or $4,000 and that’s going to be allowable provided that the $100,000 tax debt that this, you know this theoretical taxpayer owes, as long as that can be paid off within 6 years the IRS is going to give them some slack and let them do that because 6 years is considered a reasonable repayment period. Now that’s not going to apply if there’s less than 6 years left` on the statute of limitations.
KATRINA MADEWELL: Same as cash with the IRS just kidding.
DARRIN T. MISH: It’s not though, it’s not because the interest rate right now is only 3% which sounds really reasonable and nice, right? Except for its compounded daily so it’s more like 29%.
KATRINA MADEWELL: Oh, ouch, yeah.
DARRIN T. MISH: So it’s definitely not the same as cash.
KATRINA MADEWELL: You have to run those numbers to understand how that works it’s pretty complex and very scary.
DARRIN T. MISH: I think Einstein had a quote about compound interest that said something about you had to be a genius to understand how it worked or something like that. We will have to look that up.
KATRINA MADEWELL: So our train wreck is going to take a little bit more time and, we’ve got a little bit before we take a break when we do there is something that is unlimited amount, but before we jump into that let’s take a couple of questions that we have from our listeners, sound good Darrin?
DARRIN T. MISH: Sure.
KATRINA MADEWELL: So one of the first ones is from Scott he wants to know how can I recognize an abusive tax avoidance transaction?
DARRIN T. MISH: Well, Scott, let me give you an example…
KATRINA MADEWELL: You might explain that.
DARRIN T. MISH: Yeah, let me give you an example of an abusive tax avoidance scheme that I actually participated in, this has been a number of years ago when I was younger and a little more naive and a little less wise. An abusive tax scheme is basically any kind of situation where you are getting more benefit, it’s kind of hard to explain, it’s basically where you are getting more benefit than you are putting into it. Let me give you an example of my situation, there is a, there was some sort of handicapped sort of disabled, disability access act for communications and this was before the internet was really a big deal and so I basically bought a, I bought into a system where for $5000 I got a $10,000 tax credit. Now that is too good to be true right…
KATRINA MADEWELL: Yes sounds like it.
DARRIN T. MISH: How can $5000 morph into $10,000 and I did it for one year and low and behold they cracked down on the promoters of the scheme and I eventually got a letter and I knew this letter was coming, it was coming from South Dakota, and so when I got the letter I opened it and I called the person on the phone and I started negotiating with them and they thought I was negotiating on behalf of a client and about 10 minutes into the conversation I’m like no, no, I’m the client here so what can we do? We ended up working it out so I only had to pay the tax I didn’t have to pay the penalties or interest so I thought that was pretty good. But basically an abusive tax avoidance transaction is something that is too good to be true. So the classic examples are what I just told you or you know the people that are…
KATRINA MADEWELL: So somebody literally says hey give me 5 grand, I’m going to give you a tax credit for 10?
DARRIN T. MISH: Yeah, that is what I participated in years ago in the early 90’s or probably late 90’s and but another tax, abusive tax avoidance transaction would be the tax protesters, sells kids and shows you how to avoid and say taxes are illegal…
KATRINA MADEWELL: Taxes are not real you shouldn’t be paying them.
DARRIN T. MISH: Unconstitutional and never ratified on the constitution and things like that. And I’m not denigrating those folks ok I believe that they believe what they are saying is true and I have no coral with them just that we have a different approach about how to solve the problem, I just work within the system they just want to work without the system they want to work outside of the system…
KATRINA MADEWELL: Right.
DARRIN T. MISH: I’ve never seen anybody work outside of the system…
KATRINA MADEWELL: That didn’t land in jail.
DARRIN T. MISH: Permanently, that didn’t lose a lot you know so those are examples.
KATRINA MADEWELL: We also have another question from Steve and I love this because I think the people listening are, can tell that I’m the real estate person and you are definitely the IRS tax guy but this one is; are the proceeds I received from a reversed mortgage taxable to me? So let me explain what a reverse mortgage is first then you can jump in so a reverse mortgage is where certain equity positions you have to be a certain age and they keep modifying that age and I think the last time is like 62 years old, you can do what they call a reverse mortgage. Those are actually Federally insured by FHA. It’s where you either don’t make a payment at all or the bank actually gives you a monthly payment. Which I think is Steve’s scenario. So instead of you making say a $1200 a month payment the bank will send you a $1200.00 a month payment and it works exactly like a regular amortization, except the balance goes up instead of down and you don’t, a lot of people think, oh you give your house to the bank you don’t your heirs still have it, they can still sell it all this stuff but you are receiving money from the bank and there’s interest attached to it.
DARRIN T. MISH: Yeah the short answer is no those payments are not considered to be taxable, they are not taxable so that’s…
KATRINA MADEWELL: That taxes income.
DARRIN T. MISH: Yeah there not taxes income and…
KATRINA MADEWELL: Can you write off the interest, though?
DARRIN T. MISH: No you can’t unless you actually pay it.
KATRINA MADEWELL: No you are paying it.
DARRIN T. MISH: If you actually pay it.
KATRINA MADEWELL: They are still giving you money but it’s in your equity.
DARRIN T. MISH: If you actually pay it then you can write off the interest.
KATRINA MADEWELL: But that’s debatable if you actually pay it, is that debatable?
DARRIN T. MISH: Well here’s what it says on the IRS website it says it’s not deductible until you actually pay it, usually when you pay off the loan in full.
KATRINA MADEWELL: Alright, well you are listening to the IRS Solution Attorney Show. When we come back Mr. Mish is going to tell you all about something that has unlimited amounts, you do have that right or did you already talk about it?
DARRIN T. MISH: We already talked about that that was actually the healthcare it was available in an unlimited amount.
KATRINA MADEWELL: We did? Healthcare was it? Dang, I thought it was another zinger well we have a long train wreck so stick around we will be back in a minute.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney show, I am THE IRS Solution Attorney Darrin T. Mish.
KATRINA MADEWELL: I am your co-host Katrina Madewell. It’s funny in the studio because sometimes Darrin looks at me and I look at him like alright who is going to start who’s coming back first. Sometimes we talk simultaneously it’s not very often.
DARRIN T. MISH: No and I don’t know how…
KATRINA MADEWELL: We are able to gauge each other.
DARRIN T. MISH: I don’t know how we are able to communicate that who’s going to bring us back but…
KATRINA MADEWELL: Just tell eye contact, body language all that stuff. So news stories, we don’t talk about them a lot because we usually run out of time jibber jabbing about some other stuff and we want to answer a listener questions first…
DARRIN T. MISH: Absolutely.
KATRINA MADEWELL: But this is a pretty good one that is on our headline story is that the judge actually orders the Florida tribe members must pay taxes to the IRS so that, locally we have the Seminole Indians in South Florida the Miccosukee.
DARRIN T. MISH: Yeah, so let me recap that, what happened I think is, there was a particular Miccosukee Indian tribe member who, actually probably went to tax court to assert that they didn’t have to pay income taxes on the gambling income that they got from the tribes so each member of the tribe, now the next time you are feeling sorry for Indian’s at least in Florida just hear, just remember this each member of the tribe gets on average between $120,000-$160,000 annually for doing nothing.
PAT GEORGE: Just being alive. It’s like $1800 a month or something.
DARRIN T. MISH: Yeah no offense to my Native American friends but that’s a lot of money for doing nothing.
KATRINA MADEWELL: Where does the money come from?
DARRIN T. MISH: They get it from the bingo, it’s not really bingo, but it’s Casino revenues from the couple of Casino’s that are here in Florida, they have the monopoly here on Casino gambling other than that I guess you can do that at dog tracks and parimutuel to but anyway the Indian’s have a big corner of the market…
KATRINA MADEWELL: Oh yeah.
PAT GEORGE: If there’s 7 people in the family, all seven get that right?
DARRIN T. MISH: Yeah, yeah so…
KATRINA MADEWELL: Is that like a Social Security check or I don’t understand where that comes from?
DARRIN T. MISH: No it’s actually profit sharing from the casino winnings…
KATRINA MADEWELL: Oh I see.
PAT GEORGE: I think we need to do a show on ancestry because I think I’ve got Seminole in me.
DARRIN T. MISH: Yeah, you think maybe you got a little Seminole? There’s a few tribes around the country, a lot of tribes actually, that have gained concessions in their states so you just have to pick which tribe you think would be the most profitable. But, anyway let me just talk about this story real quick what happened is that particular tribe member lost that case and a Federal judge basically said no, that income is taxable so that particular tribe member is probably not real popular right now because he impacted a lot of other people by taking that case to court. And that’s one of the things you have to think about, what are the ramifications if we lose?
KATRINA MADEWELL: Right.
DARRIN T. MISH: You know does it impact just us or everybody? And in that case it could be impacting every member of the Miccosukee tribe.
KATRINA MADEWELL: That’s a pretty bold thing too for the judge to do I don’t know if I would want to be the judge on that case but anyway.
DARRIN T. MISH: Well there’s no doubt it’s going to end up going…
KATRINA MADEWELL: The train is getting angry.
DARRIN T. MISH: So we have a couple of trains today. This is the segment of the show where we talk about the IRS train wreck of the week which is you know the story about how somebody came in with a big IRS problem and ultimately we resolved it and they ended up smelling like a rose and today…
KATRINA MADEWELL: I like to say they were a hot mess and they left all better.
DARRIN T. MISH: Today, the story is a little bit complicated but it’s really, really good outcome. So in this particular case you have to understand a little bit about what happens when a corporation owes payroll taxes, ok? When a corporation owes payroll taxes it’s very serious, it’s much more serious than income taxes and we rarely ever talk about payroll taxes on the show because it’s really complicated. But basically what happens is the corporate veil is pierced and the IRS can access usually about 65% of the payroll tax against individual people. Now quite often that is just one person right? It’s the one guy that owns the share in this really small corporation and, and ultimately that guy is responsible for the payment. But it doesn’t have to be limited to one person and in this case it was actually 2 people, it was 2 partners in a printing company and they ultimately were assessed…I think it was around $150,000 in what’s called the trust fund recovery penalty tax and…
KATRINA MADEWELL: That’s payroll taxes?
DARRIN T. MISH: That’s payroll taxes and we call it a penalty it’s really just tax, it’s like I said complicated. So what happened is, I ended up representing both of these partners and ultimately I got, the first partner we got him all settled it was all, it was all over, he did pay some money but it wasn’t as much as the IRS said he owed and his case was over. Now, what’s supposed to happen when one partner pays and the other partner doesn’t pay is since it is a joint and several liability the second person who didn’t pay still gets off the hook because it’s all one debt…
KATRINA MADEWELL: Right.
DARRIN T. MISH: Does that make sense?
KATRINA MADEWELL: Yeah, because the IRS doesn’t care who pays it they just want, whoever, wherever they can get it right?
DARRIN T. MISH: Right and it’s interesting because the interest streams actually run separately and that’s kind of complicated, but they have to each pay separate interest but let’s just ignore that for a minute, ok? So, what happened in this case was I settled it for one gentleman, I filed something relatively rare in my practice it’s an offer and compromise based on doubt as to liability, what we asserted in that case was we didn’t do all that Math that we talked about in the first, second and third segment of the show. What I argued was no, no, no he doesn’t owe the money because of the way you guys calculated it, it wrong it was too high and therefore he doesn’t owe all that money. In that first case, we ended up getting that last, it was a $150,000 and I think we got it all but, we basically got it knocked down to a $100,000. What happened is in the second case the IRS wasn’t making that proper adjustment and they kept coming after that second client for a couple more years…
KATRINA MADEWELL: Meaning the partner that didn’t pay anything?
DARRIN T. MISH: The partner that didn’t pay anything, they kept coming after him for a couple more years and we were trying and trying and the client quite frankly kept shooting himself in the foot and kept being a difficult person to represent basically. But ultimately I filed an offer and compromise based on his doubt as to liability and that case as well since I represented both individuals I was able to provide the IRS with all that proof that the first gentleman had paid what he needed to pay and that really this case should be zeroed out and I got something that I’ve never gotten before, I settled the case for zero dollars so that last $49,000 the IRS once they got around to looking at my offer which took them about a year they, I got a phone call and the guy says, yeah, I looked at all of this and I agree.
KATRINA MADEWELL: You are right.
DARRIN T. MISH: I zeroed it out, I released the lien it’s over.
KATRINA MADEWELL: How fast can you send me the letter? That’s what I would have said.
DARRIN T. MISH: Well he had already sent it which was pretty cool in my, so I was able to tell the client that it was a first that we settled a case in an offer and compromise for zero dollars.
PAT GEORGE: And so when’s your client going to take you to Burn’s?
DARRIN T. MISH: Well my client doesn’t live in Florida and he and I have a 7-year history and you know I think he is happy but I don’t think he is super happy with me. And that’s ok cause you know some people’s expectations are a little bit hard to manage. But zero dollars on 49 grand is a pretty good deal.
KATRINA MADEWELL: I think so.
DARRIN T. MISH: Especially when I had the case for like 7 years and never asked for an additional fee.
KATRINA MADEWELL: Well you know you may have people that just are bitter about the whole thing that they owe the money period, so you are just going to be the fall guy.
DARRIN T. MISH: Yeah I’m a firm believer in doing the right thing and doing nice things for people, you don’t always get payback by those particular people but you always get paid back in a positive way.
KATRINA MADEWELL: It always comes around.
DARRIN T. MISH: Yeah so I’m happy for him still, we don’t get along super, super great but that’s ok. You know not everybody is going to like you no matter how great you are.
KATRINA MADEWELL: That’s true, that’s true I think it’s a good point to a good story you are right we don’t talk about those corporate or payroll taxes very much at all.
PAT GEORGE: Well, we like you and we are glad that you are on our side.
DARRIN T. MISH: Thanks, Pat. You know payroll taxes are complicated we should probably do a show or two on that…
KATRINA MADEWELL: Yes.
DARRIN T. MISH: But, it just it’s not going to be great radio, you know.
KATRINA MADEWELL: If you have an idea let us know. We are all ears. If you want us to talk about your story or you have a question you can either ask that question @darrin_mish on Twitter or you can call 888-get-mish.
DARRIN T. MISH: That’s 888-438-6474 visit the website at getirshelp.com, you can download the podcast from ITunes or you can download the app from the ITunes and Android store.
KATRINA MADEWELL: Darrin Mish is everywhere but he will be here every Thursday morning at 9 a.m. we appreciate your timing in for the show.
DARRIN T. MISH: And for today we’re out.