Income Tax Lien situation -- WWYD

[Jean in Newcastle]

Btw, Lanny, I mentioned up in the thread that they came into this trouble only recently because they missed a couple of payments because the change of collector agency. So perhaps, theret's only debts back then, but not lien. But it turns into a lien because of the missed payments. 

 

The fact that they were dealing with a collection agency at all means that they were already in financial trouble.  Things don't get sent to a collections agency unless they weren't being paid normally to begin with.  That should have been their wake up call to make some serious financial changes.  But instead, they missed payments to the collection agency making things go from bad to worse.  I'm not pointing this out in order to figuratively kick them while they're down (though obviously they don't know me or care about my opinion).  I'm saying it because unless someone really realizes the bad choices they've made, they can't consciously make good choices.  I am very glad to hear that they are going to go to the tax office today.  Hopefully they will start to turn things around now. 

 

Edited to fix a bad homophone. 

Edited April 14, 2016 by Jean in Newcastle

[Tsuga]

She said her mortgage is fixed rate with the rate comparable to her neighbors. I didn't probe further -- whether she got a loan from a bank or from her landlord. If it's from her landlord, it makes sense. Especially if it's been difficult for the landlord to sell the house. If it's from the bank .. I don't know. May be her lien case just came up v. recently after the mortgage paper has been approved ? She said that they weren't in trouble before because they're on payment plan (not clear what payment plan ... current tax or back tax), but because of the change of the collector agency, they missed the payments and suddenly got a lien notice. 

 

But if they already have the mortgage what does it mean to "close" in that case?

 

Like, they will lose the house?

 

They have a mortgage now and they need another one to buy the rest of the house or something?

 

Sorry to be obtuse and I don't mean to give you the third degree as I realize you are just trying to help.

[Ummto4]

But if they already have the mortgage what does it mean to "close" in that case?

 

Like, they will lose the house?

 

They have a mortgage now and they need another one to buy the rest of the house or something?

 

Sorry to be obtuse and I don't mean to give you the third degree as I realize you are just trying to help.

 

NO, they don't have mortgage, but I asked her about what her mortgage agreement is like. She said that the numbers look normal, which I also think is weird because  of the lien. So what I'm saying is that may be the lending approval and all those financial paper were finalized prior to their recent lien notice, and the  agreement still holds till closing. I don't know whether this is a possible scenario. I'm only guessing. Another possibility is they don't go through bank, and it's more of agreement between them and the owner/landlord. Because as you say, if their credit is messed up, they will have a hard time getting a normal mortgage, right ? But what happens right now is they do have their financial paper lined up and the numbers look normal. The only thing stand in the way of closing is the lien. 

[StephanieZ]

General rule of thumb . . . If someone is willing to not pay the tax agencies . . . they are a very bad credit risk. I mean, who are you more afraid of stiffing? The government that can *put you in jail* and/or seize your assets, your bank that has fleets of lawyers and money to go after you . . . or your friends/acquaintances . . . 

 

Personally, I'd honor a debt to a family member or friend no matter what (and before any other debt). BUT, then again, I wouldn't stiff the government either . . . because I pay my bills. Period.

 

17k for state taxes is VERY high. For instance, in WV, the state tax rate is 3 to 6.5%. Googling a bit told me that that's about typical for state income taxes. So, to get to 17k in state income taxes, you're likely talking 350k or more of income . . . Whoa, baby. If they earn that much in a couple years, it's certainly enough not to be looking for money from friends OR stiffing the government. If they're not earning 6 figure incomes, then that tax bill is not from just 2 years of state taxes, IMHO.

 

I'd stay way out of it. There are a handful of people I'd lend money to. But, I'd never lend money to anyone in the particular circumstance you describe. "No, sorry, can't do it." repeat . . . If they don't take no easily, they aren't actually your friends at all. IMHO.

 

Oh, also, from what I've heard from my CPA friend who does a lot of "tax problem" accounting, states (and Feds?) can and do place liens even if the person is on a payment plan. The payment plan is not the ideal for the government . . . They want actual cash paid now. Typically there is some time that if you pay the taxes off in a short period (months?) there is no lien placed, but for a 2-5 year payment plan, you can bet there'll be liens placed in many cases, even if the payment plan is being followed. I've known a county that'd garnish accounts and place liens at the drop of a hat. 

[BlsdMama]

Everything aside - if the debt is old and they have very minimal income, yes, in many states, the state will settle for an amount less than the whole.  But the catch to that is this:  You have to have money.  So, let's say the dollar amount owed is $17k.  Fine.  Now, let's say they are willing to settle for $8k.  Great.  Gotta have it.

 

That's not the only problem.

 

Now the lien is paid and it's updated on the credit report.  First the credit report will take a nosedive, because even in paid status, it brings the date forward, resulting in a point loss.

 

MOREOVER, the bank is going to require the last three months of bank statements and look for inconsistencies. If you loan them $8k (let's just use that for a ballpark) then it comes into their checking and out of their checking, they need to know if that money is a gift or a loan.  It's a loan.  Now all of a sudden that comes into play.  Let's say they say it's a gift, even when it's not.  Then YOU have to sign a paper saying it's a gift.  Once that happens you will have zero court recourse to go get that money if they don't willingly pay it back.

 

This is all kinds of messed up.

 

My best guess? The husband doesn't want to work because his wages will be garnished.

 

Doesn't matter how old this problem is - it's a problem.

 

And when you buy a house and it becomes yours rather than the landlord's all the repairs also become yours.  If they couldn't make the payments (and they couldn't because the lien would be on there long before a few years passed - they do liens before collections and do states even do third party collections?  That I don't know.)  then the fact is they will not be paying both you and house repairs and inevitable things that come up.

 

This is a nightmare.  The only thing I can think is that it really is ages old and they've been hit with interest and penalties, especially considering they have children as deductions?  

 

Crazy.

[lewber]

There's a chance they didn't even file state returns at all and the state created artificially large numbers. Add penalties and interest, and it adds up fast. Especially when the state is basically having to make up dollar amounts because nothing was filed.

State tax agencies are usually OK to deal with, but you have to provide them with actual numbers and do the right thing. Penalties can be reduced, interest usually can not. The penalties are what adds up so fast. So $17,000 could really be $3,000. That's how those tax law firms advertise their incredible tax reductions.

[SparklyUnicorn]

Some people are so weird about tax stuff.  I know someone who just didn't file tax returns.  Because...meh he didn't want to.  He literally just ignored it.  After several years they basically just garnished his wages.  They took so much from his wages that he had a tough time managing to live off that amount.  It was a nightmare.  There was literally no rhyme or reason to why he didn't deal with the taxes.  He just didn't want to.  And he's generally not a stupid person. 

 

So really there are all kinds in the world I guess. 

[SparklyUnicorn]

Although to the state taxes not being high.  I often pay more or about the same in state taxes than federal.  So state taxes aren't necessarily low. 

 

 

[gardenmom5]

 

 

 

This is all kinds of messed up.

 

My best guess? The husband doesn't want to work because his wages will be garnished.

 

Doesn't matter how old this problem is - it's a problem.

 

 

 

:iagree: with the bolded.

​

and it needs to be *their* problem.  in asking for money from other people - they're trying to make it someone else's problem.  until they have to face the fact it is *their* problem and it is a result of their own choices - nothing will change.

anyone lending them money is only putting off the day of reckoning (re: enabling dysfunctional behavior), and will likely kiss any money *given* to them goodbye.

[StephanieZ]

Although to the state taxes not being high.  I often pay more or about the same in state taxes than federal.  So state taxes aren't necessarily low. 

 

This happens in low to moderate income families with lots of Federal deductions because many states are less "progressive" than the federal tax code is. Fact is, lower income families often pay no Federal taxes at all. The states mostly like to get you for taxes even if you are lower income. 

[QueenCat]

This happens in low to moderate income families with lots of Federal deductions because many states are less "progressive" than the federal tax code is. Fact is, lower income families often pay no Federal taxes at all. The states mostly like to get you for taxes even if you are lower income. 

 

 

:iagree: So true............. but states, especially smaller ones, would really struggle if they gave out the same kind of breaks that the feds do.......

[G5052]

Some people are so weird about tax stuff.  I know someone who just didn't file tax returns.  Because...meh he didn't want to.  He literally just ignored it.  After several years they basically just garnished his wages.  They took so much from his wages that he had a tough time managing to live off that amount.  It was a nightmare.  There was literally no rhyme or reason to why he didn't deal with the taxes.  He just didn't want to.  And he's generally not a stupid person. 

 

So really there are all kinds in the world I guess. 

 

My sibling did this. College degree and plenty of income, but their situation got complicated, they felt overwhelmed, and just didn't do it for awhile. They are also the executor of a relative's estate and let that get into a huge tax mess as well. Multiple times I warned them about letting all of this go too long.

 

Last I heard, they had hired a tax attorney because it really blew up. If you hit middle age and your financial affairs are a mess, nothing is likely going to change.