Circumventing Federal and State wage garnishment until the end of the year as a 1099

[arrabiata]

California

Okay, here's the deal. I have been out of the country for a few years and I owe a substantial amount in back taxes (probably close to 100K altogether) Have 3 years of back filing for Federal and State taxes as well. Tax liens are in place. I would like to clear up my problems this year, but I am virtually pennyless and need to get a couple of months of paychecks under my belt to have survival cash and pay for tax attorney representation. Just started a new job where I am an employee, but will leave to be a legitimate 1099 elsewhere in a couple of weeks to 1 month

Questions:

1) How soon is the IRS made aware of my 1099 income. Do employers file immediately before paying 1099 employees or can they wait until the end of the year which gives me some time to cash some checks without getting killed by the garnishments while I'm virtually penniless?

2) If I don't have a bank account, and an employer cuts me a business check, and I cash the check at employer's bank, is there any way for IRS to stop bank from cashing check?

3) Must the IRS notify my employer before beginning any garnishment? Right now I am working as an employee. Will I get through the first or second pay cycle (two weeks), before garnishment begins? Is there usually a few weeks of lag time? Will I be notified and then have a pay cycle to figure things out?

4) Will moving to Florida or another state as a 1099 employee likely help me because certain states don't have the same reporting guidelines or may not generally followed? Even with Fed and State taxes?

I know I really screwed up and want to go completely legit but need to buy myself a little time and some income to make this even possible. Have $20 to my name. Clever or helpful suggestions?

Very gratefulWhat is the name of your state (only U.S. law)?

 

[irsos]

California

Okay, here's the deal. I have been out of the country for a few years and I owe a substantial amount in back taxes (probably close to 100K altogether) Have 3 years of back filing for Federal and State taxes as well. Tax liens are in place. I would like to clear up my problems this year, but I am virtually pennyless and need to get a couple of months of paychecks under my belt to have survival cash and pay for tax attorney representation. Just started a new job where I am an employee, but will leave to be a legitimate 1099 elsewhere in a couple of weeks to 1 month

Questions:

1) How soon is the IRS made aware of my 1099 income. Do employers file immediately before paying 1099 employees or can they wait until the end of the year which gives me some time to cash some checks without getting killed by the garnishments while I'm virtually penniless?
*******************************************

Not until the Summer of 2010


2) If I don't have a bank account, and an employer cuts me a business check, and I cash the check at employer's bank, is there any way for IRS to stop bank from cashing check?
*******************************************
No

3) Must the IRS notify my employer before beginning any garnishment? Right now I am working as an employee. Will I get through the first or second pay cycle (two weeks), before garnishment begins? Is there usually a few weeks of lag time? Will I be notified and then have a pay cycle to figure things out?
*******************************************
The employer will be notified but unless you have worked for this employer before, and a levy had previously been served on them, you will not be levied.


4) Will moving to Florida or another state as a 1099 employee likely help me because certain states don't have the same reporting guidelines or may not generally followed? Even with Fed and State taxes?
*******************************************

The state does not matter.

You will have many many months before the IRS is even aware you are working in the US again and then there will be plenty of notice before any adverse action is taken. You do not need a tax attorney but you do need someone with experience in IRS collections and delinquent return preparation.

 

[arrabiata]

Thanks for the great information. I have just begun to work this week so the IRS will know I am back and earning dollars because I must register as an employee with this company and they will file forms and pay taxes quickly.

If I legitimately change my status to 1099 with this same company in 6 weeks am i pretty much screwed after IRS has been notified? Will I need to work for a different company in order to be temporarily under the radar again? Or can the company simply terminate my employment and IRS won't know that I'm now a 1099 until the end of the year?

thank you so much for your help. I have to get this sorted out. getting too old for this nonsense.

 

[arrabiata]

Since I owe the state as well, I am assuming that they will be aware of my employment status immediately since I will not be a 1099 for at least 6 weeks.

How soon does the State of California generally contact employers about garnishments?

Do state tax agencies notify the IRS to look out for the same problem taxpayers? i think it was after i filed late state taxes a few years ago that the IRS suddenly knew of my problem.

Thanks so much.

 

[LdiJ]

The state may be aware of your employment status quickly, but the IRS will not.

Going 1099 is not necessarily your best move. You won't have any taxes withheld from that pay and that will just get you deeper into the hole.

If you have the kind of income that would allow you to pay the 100k within a reasonable amount of time then being a W2 employee with a payment plan may be your better option.

If not, you may want to consider a chapter 13 bankruptcy to allow for payments with still have reasonable money left for living expenses.

 

[irsos]

The state may be aware of your employment status quickly, but the IRS will not.

Going 1099 is not necessarily your best move. You won't have any taxes withheld from that pay and that will just get you deeper into the hole.

If you have the kind of income that would allow you to pay the 100k within a reasonable amount of time then being a W2 employee with a payment plan may be your better option.

If not, you may want to consider a chapter 13 bankruptcy to allow for payments with still have reasonable money left for living expenses.

An installment agreement with the IRS allows pretty much the same payments as a Ch 13.

 

[LdiJ]

An installment agreement with the IRS allows pretty much the same payments as a Ch 13.

I disagree. The IRS has the authority to set installment payments quite high in some circumstances. A bankruptcy court controls the amount of the installment payments under bankruptcy law, not IRS policy, proceedure or regs.

 

[efflandt]

Wouldn't filing exempt on a W-9 when you know you owe back taxes be considered fraud? Or are you planning on allowing them to withhold the default from your 1099 income?

 

[irsos]

I disagree. The IRS has the authority to set installment payments quite high in some circumstances. A bankruptcy court controls the amount of the installment payments under bankruptcy law, not IRS policy, proceedure or regs.

The guidelines for installment agreements are very predictable. When the bankrupcty code was rewritten, it was tailored on the department of labor standards for allowable expenses used by the IRS to establish installment agreements.

 

[davew128]

Wouldn't filing exempt on a W-9 when you know you owe back taxes be considered fraud? Or are you planning on allowing them to withhold the default from your 1099 income?

I'm not sure what you're referring to, because there is nothing on a W-9 that refers to anything regarding withholding and being exempt. All a W-9 does is state you're not subject to backup withholding, and in this instance it would be a true statement.

 

[arrabiata]

Thanks for the extremely helpful information. I am fairly uninformed in this area but I believe I read that in order to even enter into an installment agreement I have to file my back taxes, agree to pay off the debt over 4-5 years, pay all my current taxes, and provide serious documentation if the debt is over 100K which it just may be...

I want to clear this whole mess up but even before entering into any kind of agreement I want to be able to file properly/professionally ($$), and have some dollars available to offer a cash payoff which looks like a better deal than having to pay the whole thing.

I'm thinking that If I can start making some real dollars, the temporary savings by filing as a 1099 and not paying immediate taxes will allow me to accrue a 30-40k savings that I can offer in exchange for complete debt settlement, including the taxes owed in my 1099 year.

If they say no, at least I have some savings backing me up which will be impossible to create if I'm paying present taxes and paying 2-3K a month in installment payments.

Wouldn't having a chunk of cash give me more negotiating leverage?

 

[irsos]

Thanks for the extremely helpful information. I am fairly uninformed in this area but I believe I read that in order to even enter into an installment agreement I have to file my back taxes, agree to pay off the debt over 4-5 years, pay all my current taxes, and provide serious documentation if the debt is over 100K which it just may be...

I want to clear this whole mess up but even before entering into any kind of agreement I want to be able to file properly/professionally ($$), and have some dollars available to offer a cash payoff which looks like a better deal than having to pay the whole thing.

I'm thinking that If I can start making some real dollars, the temporary savings by filing as a 1099 and not paying immediate taxes will allow me to accrue a 30-40k savings that I can offer in exchange for complete debt settlement, including the taxes owed in my 1099 year.

If they say no, at least I have some savings backing me up which will be impossible to create if I'm paying present taxes and paying 2-3K a month in installment payments.

Wouldn't having a chunk of cash give me more negotiating leverage?

Your thinking is seriously flawed and unrealistic. You need the help of a tax professional with experience in IRS collections.

 

[arrabiata]

I don't doubt a word of it. That's how I got into this trouble to begin with. The only thing I know for certain is that I need to put 10K away before doing anything just so I can sleep at night. Have to live and be able to pay a professional.

1099 will get me there faster.

Willing to bet the government also becomes far more open to negotiating past taxes due next year as the economic crisis worsens and every incoming dollar becomes more precious.

I know, it's a gamble. But I'm already so far in, another 6 months delinqquency doesn't look like it will make much of a difference.

Appreciate the thoughtful suggestions. This forum is golden.

 

[irsos]

I don't doubt a word of it. That's how I got into this trouble to begin with. The only thing I know for certain is that I need to put 10K away before doing anything just so I can sleep at night. Have to live and be able to pay a professional.

1099 will get me there faster.

Willing to bet the government also becomes far more open to negotiating past taxes due next year as the economic crisis worsens and every incoming dollar becomes more precious.

I know, it's a gamble. But I'm already so far in, another 6 months delinqquency doesn't look like it will make much of a difference.

Appreciate the thoughtful suggestions. This forum is golden.

I do want to add one thing, a chunk of cash will not help. The starting point of negotiations will be the cash on hand. That will be the floor of any deal.

 

[arrabiata]

By chunk of cash, I meant cash on hand. The idea is to accumulate some so I have something to offer.

Just spoke to two friends who both negotiated settlements with the IRS for less than 30 cents on the dollar owed. One of them did not have the money and simply borrowed cash for a 20 grand pay off.

Anyway, I'm trying to understand why it would be better to pay off 100K in a structured 4-5 year settlement rather than hold off on paying any taxes for a year, get some $$, and then simply pay 50 grand to settle the entire 140K or so tax liability. Having cash in hand has to help the negotiating position. And if it doesn't, then I have cash in hand to spend on business investments that can generate income. I realize that this is a complex matter. Just curious where my thinking is so off base.