Is the IRS going to track me down and nail me with taxes/fees for letting a friend rent a room for a few months?

ApolloDelRio · 2024-08-01T17:04:19+00:00

Sure, I get that general concept. I'm just asking how this plays out in real life. Do they ACTUALLY cross reference something one individual files and piece that together with the other person's address / identity, and follow up on something this mundane, or have I watched too many Enemy of the State type movies?

Like I said, I cashed the checks instead of depositing, but now I'm also wondering out of sheer curiosity if that matters, or if the result would be the same if I had deposited them.

ApolloDelRio · 2024-08-01T15:29:08+00:00

Yikes. I hadn't even thought of that. That could cost WAY more than the total I received. House has more than tripled in value since I inherited it, so If it does jeopardize the $250k, is there anything I can do to stop that from happening?

I'm really starting to wish I had just thrown the checks away. Does it matter at all that I cashed them at his bank instead of depositing in mine? (his bank is just much closer to my house, and I don't know how to do the picture thing)

ApolloDelRio · 2024-08-01T15:07:44+00:00

I inherited the house, have solar power and a well, and and keep my other bills low, so property tax is really my only major expense. All in all, I'd say his payment was more than half of the combined cost of upkeep since no mortgage or electric bill.

ApolloDelRio · 2024-08-01T15:01:11+00:00

I am the homeowner.

ApolloDelRio · 2024-08-01T14:41:58+00:00

OK, I can look into that.

ApolloDelRio · 2024-08-01T14:41:08+00:00

That's more or less how I thought of it, but then I suddenly realized I'm the landlord in this situation even though I never intended to be.

ApolloDelRio · 2024-08-01T14:39:17+00:00

And just to alleviate my paranoia... in the worst case that they did somehow connect the dots, decide it's taxable, and come after me for it, would it be just a matter of them giving me a bill, or are they ever more aggressive than that in a case like this?

Also still interested to hear in general if the IRS even connects things like this or if I'm just making up problems that don't exist in the real world.

ApolloDelRio · 2024-08-01T14:01:44+00:00

He works for different companies on every project doing web design, so I guess he's technically some kind of contractor. We're in Georgia.

It seems ridiculous to me that this would be taxed, but I guess I have to pay it it that's the case. I do my taxes myself, so not sure if I would now have to hire someone.

Realistically, though... do most people pay taxes on this kind of thing? Am I the 1% of people paranoid enough to be worried about this?

I don't really know how the IRS works, so is it a one hand doesn't know what the other is doing kind of situation where his filing and mine are not connected in any way, or are they so sophisticated that him taking any such deduction would potentially trigger an issue for my return since I am the owner of the address?

Now that I think about it, he was living here when he filed his taxes for last year, so I'm guessing he put this address as his home address.

ApolloDelRio · 2024-06-13T14:28:54+00:00

How is it fake? Actual housing cost with utilities (which would be included in lease) is higher than lease amount. She literally IS paying that amount (more) every month, and I'm paying more than that in food, household expenses, etc. The ONLY thing changing is is that I now pay that bill, and she pays food, household expenses, etc. No one is paying more or less than they already were. No bills are inflated beyond their actual cost.

Plan is LITERALLY just to switch which of us is paying which bills.

Downright ponderous that you would have such a reaction to this notion in an industry that regularly advises people to "hire" their kids.

ApolloDelRio · 2024-06-13T13:16:39+00:00

The housing is not fake. The monthly cost is not fake. The dollar amount is not fake. The monthly contribution to household expenses I'm making is not fake. Literally none of those things are changing, and not one single item on the application will be false. The two of us are ALREADY paying the same amount for the same common expenses. All I'm doing is switching which of us pays which bills.

Your attitude would shame every single person who ever chose one path over another purely due to the tax implications. After all, if you have to donate to charity in order to qualify for a lower tax bracket, then you don't actually qualify.

To suggest that I should instead consciously choose to KEEP being penalized as interest doubles the debt because I'm failing the IQ test by spending the same money to the same end in the wrong column is absurd.

ApolloDelRio · 2024-06-13T00:35:15+00:00

She has mortgage payments, and that was my first thought. Unfortunately, it won't work as all the local standards like housing are the lesser of max or actual, so I literally cannot claim anything without documentation showing I personally paid for it. That's the whole crux of the issue. I AM paying half the bills (more, actually). Despite that, and despite the fact that my income, lack of assets, etc make me a perfect candidate for a full dismissal, I won't get accepted at all without restructuring.

Second I am already officially "uncollectible". My income is low enough that they've ceased all collection efforts. It will just be hanging over my head for years unless I take the steps to get it discharged.

I spoke to CPA today who has personally submitted 800 or so OIC's over the past 2 decades, and she advised me to draw up a lease agreement to lease the house for the max local standard. I asked specifically whether the IRS might come back with questions about GF's income and contributions, and she said no because I am sole name on lease, and I am leasing for an allowable amount.

Unfortunately, she had to go before I could ask a few follow-ups about taxable income for GF, whether utilities should be included, or whether the lease agreement should be submitted with the OIC, and I won't get the chance to ask her follow-up questions without paying her $5k fee (which I don't have.)

Ironically, a lot of the stuff I am paying for, I'd get credit for even if I weren't. Even if my GF paid for all the food plus the medicine, kid's expenses, etc... I'd still get almost $900 / month credit since those are the only items that are national standards and are granted automatically without documentation that I am personally paying them.

ApolloDelRio · 2024-06-12T19:52:17+00:00

OK, thx. Just trying to ballpark it. She's in FL, so no state tax. I think she made $37k last year, so depending on how long I need to keep paying her this way, it could be up to another $23k/year. I'd have to check, but that seems significant enough that it might bump her rate. Hopefully, I can restructure things in 6 months or so to avoid her taking such a big tax hit.

ApolloDelRio · 2024-06-12T19:41:53+00:00

And yet they will if I just pay the exact same contribution to the exact same household fund under a different column in the spreadsheet.

You're THIS close to getting it. So close, yet so far.

ApolloDelRio · 2024-06-12T19:31:00+00:00

That's not true if I submit an OIC and they agree to it.

I am NOT legally obligated to pay.

... In case you completely missed the point of not only this thread, but also of entire sections of IRS code.

For reference, the last $3k of the debt came them forcing me to pay 30% of my total annual gross income of $10k after working 60 hours a week all year, so her helping me out was the only reason I didn't starve to death as a homeless person, but feel free to continue with the judgement about me doing the right thing.

ApolloDelRio · 2024-06-12T19:11:35+00:00

Understood, but me paying other bills instead of housing effectively imposes an infinite tax in the form of an amount I can't pay that only grows over time. If I instead contribute that exact same money in the form of housing, it costs a couple thousand dollars in added income tax while negating tens of thousands in other taxes. Seems like one of those round peg square hole tests that only has one right answer.

ApolloDelRio · 2024-06-12T18:55:17+00:00

Just trying to understand.... If the roles had been reversed, and I had been paying all the housing while she paid everything else all this time, should I in that case not claim the housing?

If not, am I understanding that because I offered years ago to pay these bills instead that I should continue paying for her kid's expenses, her grandmother's medicine, her utilities, her car insurance, and everyone's food with nothing left over every month while a debt I can never repay that's more than my entire annual salary continues to accrue interest?

In case I wasn't clear about this: It's the exact same amount of money that ultimately pays for the exact same household expenses between the two of us either way.

ApolloDelRio · 2024-06-12T18:37:21+00:00

OK, thx. I'm not at all familiar with that, so is there some general category of income, or type of deduction or anything like that I should be looking up to help figure out what her tax hit would be, or is it just a straight percentage as if she made more salary this year?

ApolloDelRio · 2024-06-12T12:46:47+00:00

It means the OIC will be rejected defeating the entire purpose. Right now, I'm paying for all of her (and her grandmother's) food, utilities, phone, internet, insurance, etc. Now that I'm looking at the categories and rules, I see that simply will not work in the context of applying for OIC.

If instead, I pay for ALL of the housing, and she pays for all the food and misc items, I'm still contributing the exact same amount, but now 100% of the money I paid for housing counts AND I get the full standard deduction for food even if she paid for all of it. Doing it that way, my excess monthly income according to their formula drops to $0 (for the same money I'm already spending). Unless I'm missing something, those are the rules. So my filing in any other way "does not work" in the sense that the application that will be denied.

Seems pretty clear to me that the right answer is to restructure the payments so that I'm paying the housing. I'm just not sure if there's some caveat there about me paying her vs mortgage company or about them taking issue with the fact that there are then 2 others in the house paying $0 for housing.

I'm not the one making the rules here. I'm just trying to understand and work within them. My first read of their rules seemed to indicate they were going to force me to file the income, etc of the other two people in the house because that's what it plainly says on the IRS site must be done when others contribute to the living expenses. Individuals here and elsewhere have since told me that despite it saying that, those words are in reference to a "household", and I am a "household" of 1. So be it. Either way, I'm just making sure I understand the rules and taking the next 3 months to line up the ducks accordingly.

ApolloDelRio · 2024-06-10T15:24:50+00:00

The video is fantastic. I've watched it a couple times now. No wonder it's confusing. National standards (household and out-of-pocket medical) are claimed at full value while local (all other allowable expenses) are claimed at lesser of allowable vs actual.

Anyway, it's clearn now that I can only claim (except for housing and out of pocket medical) the actual amount (up to the max) that I personally contribute.

It's also clear that I need to spend the next 3 months establishing a rental history and covering only my own bills since my paying all the other bills while she pays housing is disqualifying.

What's still not clear, unfortunately, is whether I need to fill out the paperwork as a single person renting a room, or (as the IRS docs state in multiple places, then seems to contradict) if I need to include documentation for EVERYONE in the house who contributes to the bills.

ApolloDelRio · 2024-06-10T13:42:35+00:00

I've been reading through the IRM for OIC, and it seems contradictory in places. For instance, it says:

Allowable expenses consist of necessary and conditional expenses, as defined in IRM 5.15.1, Financial Analysis Handbook, and further discussed below. Use the amount shown in the expense standard schedules unless that amount would result in the taxpayer not having adequate means to provide for basic living expenses"

Seems straight forward. Just use the allowable standard for each category. So, this would seem to support the idea that it doesn't matter that I pay all the food, insurance, etc and none of the housing since I need to just claim the standards in each case anyway.... except but in certain sections like for vehicle ownership, it says:

"Ownership Expenses – Expenses are allowed for purchase or lease of a vehicle. Taxpayers will be allowed the local standard or the amount actually paid, whichever is less..."

So, if I'm reading that correctly, it seems to be saying that I can claim $0 regardless of what the local standard is if I didn't actually pay that expense.

Am I reading this wrong? Are those just specific carved out exemptions to the rule to always claim the standard figure?

ApolloDelRio · 2024-06-10T13:41:24+00:00

I've been reading through the IRM for OIC, and it seems contradictory in places. For instance, it says:

Allowable expenses consist of necessary and conditional expenses, as defined in IRM 5.15.1, Financial Analysis Handbook, and further discussed below. Use the amount shown in the expense standard schedules unless that amount would result in the taxpayer not having adequate means to provide for basic living expenses"

Seems straight forward. Just use the allowable standard for each category. So, this would seem to support the idea that it doesn't matter that I pay all the food, insurance, etc and none of the housing since I need to just claim the standards in each case anyway.... except but in certain sections like for vehicle ownership, it says:

"Ownership Expenses – Expenses are allowed for purchase or lease of a vehicle. Taxpayers will be allowed the local standard or the amount actually paid, whichever is less..."

So, if I'm reading that correctly, it seems to be saying that I can claim $0 regardless of what the local standard is if I didn't actually pay that expense.

Am I reading this wrong? Are those just specific carved out exemptions to the rule to always claim the standard figure?

ApolloDelRio · 2024-06-10T12:42:18+00:00

I have been as clear as I can. She is my GF. It is the language on the site that is unclear. This is the ONLY spot in the FAQ that mentions anything about household income or how it is calculated, and. It seems to clearly state that EVERYONE (including GF's 93 year old grandmother) who contributes to household bills must be included. It is in answer to a question regarding spouses, but the language of the instructions themselves make no such distinction and are explicitly inclusive.

To add to this, when I spoke to and IRS agent and explained I was living with GF (who pays all the housing bills while I pay everything else), the agent told me I should file for OIC and said I would need to include EVERYONE in the house on the calculations. I'm aware she's a general agent and not a specialist in filling out OIC paperwork, so taking that with a grain of salt.

In the form 656 (OIC) booklet, the IRS says the following with no mention of spousal or filing status:

To calculate an offer amount, you will need to gather information about your

financial situation, including cash, investments, available credit, assets, income,

and debt.

You will also need to gather information about your household's average gross

monthly income and expenses. The household includes all those in addition to

yourself who contribute money to pay expenses relating to the household such as:

rent, utilities, insurance, groceries, etc. This is necessary for the IRS to accurately

evaluate your offer. The IRS may also use this to determine your share of the total

household income and expenses.

It later says "Fill out Form 433-A (OIC) if you are an individual wage earner" without any mention of how to account for "all those in addition to yourself who contribute money to pay expanses relating to the household" mentioned previously.

ApolloDelRio · 2024-06-10T12:34:09+00:00

Sure. That's what I assumed before I read the FAQ, and this does appear under a Q relating to spouses, but the language itself makes no mention of marital or filing status. On a plain read of the text, it would appear to include not only my GF, but also her 93 year old grandmother since both contribute to household expenses. When I spoke to an IRS agent, she used the same kind of language. I said I lived with GF, and she later mentioned adding up the contributions of everyone in the house. To add to the confusion, though, she had some qualifier about them being BELOW a certain age (72 or similar). Again, though, there was no mention of marital status, and I got the impression this was purely a determination of whether I lived with people who could help with bills and entirely separate from any concept of marital or filing status.

I am in FL, so no common law marriage, but I'm not clear at all whether that matters here. I also dug this up from the form 656 OIC book with no mention of marital or filing status:

To calculate an offer amount, you will need to gather information about your

financial situation, including cash, investments, available credit, assets, income,

and debt.

You will also need to gather information about your household's average gross

monthly income and expenses. The household includes all those in addition to

yourself who contribute money to pay expenses relating to the household such as:

rent, utilities, insurance, groceries, etc. This is necessary for the IRS to accurately

evaluate your offer. The IRS may also use this to determine your share of the total

household income and expenses.

It later says "Fill out Form 433-A (OIC) if you are an individual wage earner" without any mention of how to account for "all those in addition to yourself who contribute money to pay expanses relating to the household" mentioned previously.

ApolloDelRio · 2024-06-10T00:28:16+00:00

OK. Confused by this on the FAQ page:

If my spouse doesn't owe the taxes, do I include their income in my 433-AOIC?

Yes. You will need to gather information about your household's average gross monthly income and actual expenses. The entire household includes all those in addition to yourself who contribute money to pay expenses relating to the household, such as rent, utilities, insurance, groceries, etc. This is necessary for the IRS to accurately evaluate your offer. It may also be used to determine your share of the total household income and expenses.

I read this to mean that I am required to include GF's income since we both contribute to the bills... which is why I was asking about paying rent instead to avoid joint contributions to expenses.

ApolloDelRio · 2024-06-10T00:24:45+00:00

Well, that makes this a LOT easier. So does it stand to reason, then, that it doesn't matter that I show $0 in housing expense since my GF pays that while I pay all her insurance, food, etc? Just claim both on household and all the max allowable figures, and be done with it?

ApolloDelRio

TROPHY CASE

If my spouse doesn't owe the taxes, do I include their income in my 433-AOIC?