Last Friday, I spent about 90 minutes on the phone with the United States Internal Revenue Service, much of the time on hold. I really didn’t expect that it would take that long seeing as the tax season is just getting started, and I doubt that there could be that many questions yet. Part of the problem is the fact that I am a “special situation”, although I think they might have changed names for that division.
You see, I owe some back taxes. And I really don’t mean some. It is a long story, and one that I am not quite ready to share. Let’s just say that some poor decisions on my part and the financial crisis of 2008 combined to lead to the fact that I owe enough for 2010 to qualify as a special situation. So in order to keep the IRS at bay, I have about 2 months to come up with just over $1000 per day. That will get my balance to the point where I would no longer be so special.
Problem Solving Skills
I like to tackle problems with solutions and come up with several options. In this case, I devised a plan A, as well as a plan B, C, and D. I wasn’t exactly expecting the short time frame, but was happy to have some time nonetheless. Plan A was to use the Lending Club and Prosper to come up with $60,00. I could easily put together the remainder in order to qualify for a payment plan. Well wouldn’t you know that the Lending Club lends to 42 states, but Indiana is one of the eight.
So I went to Prosper figuring a combination of plan A and plan B could get the job done. The process was fairly easy and quick, and I learned my credit score was 737. I am sure that isn’t the best, but I do have a high level of debt of which much is mortgage debt. It turns out that 737 is not high enough to qualify for the $25,000 maximum, but I could get $15,000 instead. I decided to go with it in case there are problems with some of the other plans that I have.
If you want, you can check out my Prosper listing. It is already 4% funded which I think is cool. Plus, I will have enough material for another post in a few weeks when I can review the entire process.
Moving on to Implement Plan B
Actually, plan D is probably going to move into the second spot. My wife suggested it, but I really wanted to avoid it which is why I was really hoping for plan A to work. I am sure that it will work without a hitch, and would be a win-win for both of us. The problem is swallowing my pride and going to ask my mom if I can borrow some money.
You see, my mom got an inheritance from her aunt almost 2 years ago. It has been sitting in a savings account earning less than 1% interest. We sat down to review all of her finances in November 2010 when my dad got suddenly severe with Alzheimer’s following shoulder surgery. He was in the nursing home for almost 2 months. I learned a lot about financial planning for medical costs at that time. Again more posts someday.
Anyway, she knows that some day when my dad (who is back at home) passes, she will need some added income for her budget since she will lose his pension. She needs more income from money just sitting around, and I could use a loan. Paying a reasonable 10% interest rate amortized over 5 years would accomplish both purposes. I am sure that she will help me out. The problem lies on me having to ask.
I am a very independent person, rarely asking anyone for help. It is a characteristic that has helped me get far and yet simultaneously holds me back. I am working to figure out how to balance those two extremes and using my drive to keep pushing while asking for help when necessary in order to create win-win type situations.
So I plan to put together my personal financial statement and a sample budget for my mom and sit down in the next few weeks to explain my dilemma. It is not something to which I am looking forward, and it will be very painful for me. But ultimately it will be the easiest and quickest solution given the time frame.
Plans C and D on Back Burner
That means I will be putting plans C and D on the back burner. Plan C involved using some personal collateral and going out to get a bank loan. I figured that I could probably come up with $35,000 in this manner and get the rest when taking some money from the 529 accounts (only earnings are taxed not the original deposits) and the Health Savings Account.
Having to sell a kidney is on the back burner as well (LOL)!
Liquidity Problems
My problem is the fact that I have been a life long saver and underestimated the amount of liquidity needed to raise 6 kids. Next week, I will actually have 5 teenagers at the same time for several months. I have more than enough in my retirement accounts where I have been saving for over a decade and in real estate equity with rental houses to knock out my tax liability for 2010 and 2011. I started implementing two of the three branches of my retirement plan without paying close enough attention to the third.
Now it is effectively impossible to get at those funds. Obviously, I was a little naive thinking that it would be easier to access that money when needed. The good thing is that I do tend to learn from my mistakes and by making so many will have plenty of wisdom as I come over the crest of that mid-life hill.
So there you have another piece of my complex life to mull over. Advice? Don’t strain your liquidity by putting everything into retirement accounts and real estate because one day, credit may be cut off. Also, don’t let financial issues drag you down. I think I have kept a much better attitude with this problem than others I have dealt with in the past. There are much more important things in life so I will be keeping an upbeat attitude and let you all know how it turns out. Finally, if you want to borrow from the Lending Club, move out of Indiana.
If you want to loan to me via Prosper or just be nosy, feel free. Also feel free to comment or share your tax stories. I already got the lecture from the IRS dude, so you can spare me that.
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