When Scott got laid off near the end of 2013, we were in trouble. He made about 60% of our income. He was able to collect unemployment for 6 months, but it was less than a third of what he had been making. We had been making significant headway on our debt up until that point, but it was no longer an option. We had to get serious, again, about cutting expenses.
We had already changed over from cable TV to Nexflix and Hulu, Scott had traded in the coffee shop for a Keurig, we had limited our dining out to once a week and special occasions, we had both given up all our hobbies and my weekly shopping trips had completely stopped. But Scott still smoked, I still got a soda on my way home from work every night, we still had an excessive grocery budget and our cell phone bill was incredibly high.
All of that changed when he got laid off. Dining out completely stopped. Our grocery budget got chopped in half (we ate so much ramen, but I draw the line at SPAM), as did our cell phone bill. Quitting soda was difficult for me (food is pretty much my one and only vice), but not nearly as difficult as it was for Scott to give up cigarettes. He had tried to do it several times before, using every nicotine replacement available, but he was never able to stick with it. This time, he tried vaping to give him his nicotine fix without all the other carcinogens, and it worked. It took him a few months to get rid of the cigarettes completely, but he did. His monthly vaping expense was less than a quarter of what he normally spent on cigarettes.
All together, it saved us over $600 a month. After gutting our budget and cutting expenses, we were able to afford to pay IRS $100 a month. As long as no unexpected expenses came up that month. We only had $1,000-$1,200 in savings at the time (IRS typically will allow $1,000), so we didn’t have much to fall back on.
It would be 2014 before we got our heads out of my asses enough to start learning how owing IRS back taxes worked, which was nearly a decade too late, but better late than never I guess (this is also when I started spreadsheeting like a mad woman).
The interest rates IRS charges for unpaid taxes are low compared to other common debts (during the time we owed them money, it ranged between 3-6% annually; personal loans average over 10% and credit card debt is typically in the high teens to the mid twenties). But there are also penalties for not paying on time. 0.5% per month until it’s paid or a total of 25% has been charged, so, 50 months (this can go up to 1% for 25 months, if they send you an intent to levy and you don’t pay in full, within 10 days, which they did and we didn’t). By this point we owed them $71,000 and the majority of that debt was subject to the extra penalty. The $100 a month we were paying was less than a third of the interest that was accruing on it every month. We needed to get more serious about cutting expenses just to keep our heads above water.
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In 2015, we finally discovered that paying our current taxes (on the money we were earning that year) was the priority, even if we owed back taxes. If we had known this at the beginning, our story would be very different (and we would have ended up paying a lot less in interest and penalties). But instead of paying what we expected to owe, we were constantly trying to get caught up on what we already owed. We started alternating the monthly payments between new and old taxes. It made our old debt grow even faster, but not paying the current taxes would mean we would never be able to get off the fucking merry-go-round. We would be in debt to them forever. We had also discovered that they only had 10 years to collect what we owed, so that was yet another reason it was in our best interest to pay new taxes now.
In October of 2015, we paid off our car. In 2016, Scott’s newest venture (a business his former boss and he had worked on together) started to earn a small profit. The PMI insurance fell off of our mortgage. We paid off the last of our credit card debt. We continued cutting expenses wherever possible. We upped our grocery budget a bit, but otherwise, all of that money started going to IRS. By now, our outstanding debt had grown to over $87,000, but the $800 we were now paying every month was finally enough to start making it go down instead of continuing to grow.
In 2017, another IRS agent showed up at our door. We had contacted the previous agent when Scott was laid off, to explain the situation to her. She was about to retire, and told us that a new agent would be assigned to us. It took them 4 years to do it. We had assumed they were leaving us alone because we were making an effort. But maybe they just had more important things to do.
We went through the financial assessment process again, but this time, the agent gave us some forms to fill out and send to him, instead of us giving him amounts for him to fill out the forms. This is when we discovered that there is a line for new taxes in the assessment. They had never discussed this in the assessment in 2013. An article by a tax lawyer would later inform me that this is far from an anomaly.
Apparently, it’s not uncommon for an installment agreement to not take some legitimate expenses into consideration, because the IRS is trying to squeeze as much money out of you as quickly as possible. And then when you can’t make a payment, you’re in breech and have to start all over again. Having a breeched installment agreement on your record is a black mark that can make agents dealing with you later…less cooperative.
Our newest agent was actually quite nice, despite our lapsed agreement.
There were other legitimate expenses on the form that we were allowed that we had not been previously aware of; clothing, car maintenance, life insurance. All expenses we had no idea we were allowed to include. We had been so focused on cutting expenses without understanding our goals clearly. There were also other expenses, like pet care, that we were not allowed to include. When we were done filling everything out, the money “left over” was $646, but there were over $1,000 of expenses they didn’t have to allow: healthcare (they allot $98 a month, our insurance alone was over $450, plus I had an expensive prescription that there is currently no generic version of), pet expenses and…storage units (I KNOW! We’ll get into it, I promise, it just warrants a post all its own).
We sent in the paperwork, and waited for the agent to call us back. And waited. And waited. After a month, Scott called him and left a message saying we just wanted to make sure everything was in process since we hadn’t heard from him. He did it again a couple weeks later. And then a couple weeks after that. And again. Every 2 weeks, for 3 months. We never heard a word, but kept paying the $800.
In August, about 4 months after we submitted our paperwork, I missed a call from our bank while I was in a work meeting. It was incredibly odd for my bank to call me. It had never happened before. I logged into the online bank portal to see if there might be some fraudulent charges on our account, and both the checking and savings accounts were empty. I was 99 % sure I knew what had happened. A call to the bank confirmed my suspicions. IRS had seized all of the money in our accounts. I called Scott and told him to do whatever he had to do to get the agent on the phone immediately.
Scott called his office phone, again, and got his voicemail, again. Then he called his cell phone (when he had called the previous times, he always called the office phone and left a message, because they apparently record those phone calls, so there would be a record of the call, just in case…well, in case something like what ended up happening happened), and he finally got the agent.
He told Scott he had been trying to get a hold of us for months. Our kids kept answering the phone. The kids would tell us it was IRS on the phone. We would then tell the kids to go back and tell IRS to “Go fuck yourself.” And they would hang up.
We don’t have kids.
This was right around the time IRS phone scams had started happening. People from other countries would call unsuspecting Americans, tell them they owed the IRS money, and that they needed to go to the store, get a gift card for the amount owed and then read the card number to the “agent” over the phone to pay off their debt.
Even though Scott has been leaving his cell phone number on every voice mail he left, our agent had been calling the old house phone number they had on record (which we had gotten rid a three years earlier to save money). And whoever’s house he was getting was apparently well aware of the IRS scam.
Scott explained. The agent apologized and reversed the seizure immediately (our bank revoked our overdraft protection anyway even though it wasn’t our fault. Apparently, having your accounts frozen is kind of a red flag that you may not be trustworthy, financially speaking).
Our new installment agreement payment was $800, exactly what we had been paying. Phew.