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Coming clean at high cost

Marketplace Staff Apr 13, 2007

Coming clean at high cost

Marketplace Staff Apr 13, 2007

TESS VIGELAND: Ever since governments started taxing citizens, citizens have tried to avoid paying.
They claim taxes are unconstitutional. Or that they shouldn’t have to support wars they don’t believe in.
But refusing to pay taxes is more expensive than ever these days.
A couple of weeks ago the IRS boosted the fine for filing a frivolous return from $500 to 5,000 (by the way, a frivolous return means failing to pay up).

Producer Trey Kay spoke with a woman who had a tough time turning over her earnings to Uncle Sam.

TREY KAY: Sharon worked as a freelance consultant in the publishing industry. Her income fluctuated wildly. So much that from month to month, she had a hard time covering her rent and living expenses in New York City. And she had an even harder time paying her taxes.

SHARON: I thought that all of the money was mine and I didn’t have any interest in giving it to the IRS nor did I think I should.

For years, she ignored her debt to Uncle Sam until the penalties ballooned. Eventually, the IRS played hardball.

SHARON: They had already put a lien on my property, which means that if I bought something or if I owned something, they have the right to take it.

In 2006, the IRS issued 629,813 liens on tax payers — 3.7 million had their wages garnished. Before things got any worse, Sharon decided to face her problem.

SHARON: So I went down and found out by chance that the statue of limitations on one of my tax debts amounting to $13,000 was the collection period and was going to be written off. So in effect, the IRS gave me a gift: absolved me of a debt of $13,000.

The “gift” came with strings because the IRS handed her another bill for $23,000. Sharon applied for an offer and compromise. That’s when the taxpayer negotiates with IRS on an amount that they can reasonably pay. Last year, almost 25 percent of the applications were accepted , including Sharon’s. She won’t be paying her full tax bill.

But she didn’t have the same luck when she negotiated on her state taxes.

SHARON: I went to the ATM machine and lo and behold, there was this negative $6,000 balance. I went inside the bank to find out what happened and they told me New York State had put a hold on my band account. I was getting paid the next day, so I had automatic deposit. I was freaked out that they were going to get my pay check. I was just jumping ahead to like how difficult life is if you don’t have access to a checking account. I mean it was just mayhem!

Sharon went to her payroll department to stop the automatic deposit.

SHARON: It was embarrassing, but as it turns out, not as embarrassing as I thought. As it turns out, that kind of information is private. Even if the payroll department knew about it, it’s considered private information. So the only person who was ashamed was me. I had to deal with my feeling that this was being done to me. However, of course, that this was being done to me because I had reneged. I had decided not to pay them. I am trying very hard, you know, to not make the same mistakes that I’ve made in the past.

That means keeping in close contact with her accountant and paying her taxes on time.

In New York, I’m Trey Kay for Marketplace Money

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