IRS Resolutions, Loan Modifications, and Bankruptcy
By Steven A. Leahy
My office helps businesses and families resolve their financial problems. We focus on IRS problems, but we also help with foreclosure defense and bankruptcy. Resolving all of these problems has a similar approach.
We begin by gathering information about each new client. Everyone is unique, and has a unique financial situation. Our investigation employs a three step process. First, we inventory all the client’s assets. Next we register all their income. Finally, we catalog all their expenses.
First, we inventory all our client’s assets – Do they own a home, a car, stocks, bonds, or other financial instruments? Do they own a summer cottage, a boat, motorcycle or other large assets? We include bank and financial institution accounts, IRAs, ERISA, pensions, annuities, insurance policies and profit sharing plans. We list home furnishings, utility and landlord deposits, clothing, jewelry, computers, and audio/visual equipment. We catalog collections (stamps, coins, etc.), antiques, intellectual property (patents, copyrights, etc.), business equipment, and interests in partnerships, corporations or other business entities.
The second step is to register all their income, from whatever source. Common income sources include: wages, business profits, interest & rental income, annuities, retirements, pensions, etc.
Finally, we catalog their expenses. This is the critical step. Often the expenses used by creditor institutions are not real expenses, because IRS standards are substituted for actual expenses. This is true for IRS resolutions, but it may also be true for determining disposable income in Chapter 13 bankruptcy, and loan modifications. For example, the IRS has standards for housing and utilities, apparel and services (including shoes and clothing, laundry and dry cleaning, and shoe repair), food, housing supplies & personal care products. There are also standards for transportation expenses, including ownership, maintenance and public transportation expenses.
In addition to the IRS standard expenses, our clients often have additional expenses, not accounted for in the IRS list. These expenses are often disallowed by the IRS, another element that will add to an artificially high disposable income number.
If our client’s actual expenses are higher than the IRS standards and/or they have unclassified expenses, as is often the case, the “game is afoot.” Determining what you can actually pay, not what these false numbers dictate, takes time and effort. Each and every expense must be documented, reviewed and verified. Convincing the court, bank or IRS that they should use our numbers, rather than theirs is more an art than a science, but will make the difference between success and failure.
Subtracting expenses from income reveals your disposable income – the higher your expenses, the lower your disposable income, and vise-versa. Disposable income is the determinative variable. For example, an IRS installment agreement, offer-in-compromise or currently not collectible status, or your monthly trustee payment under chapter 13, are each decided based on disposable income.
Remember, defining disposable income is the critical factor. NEVER speak with the IRS or any creditor without conducting a full investigation. A disposable income number that is too high will ensure failure and more problems in the future. It’s that important. So, if you are experiencing financial problems, you should work with a local law firm that will fight to have your actual expenses considered. Better, you should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. I want to help! Call NOW to set up your FREE Consultation.