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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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My father is in a private nursing home for Alzheimers. My

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My father is in a private nursing home for Alzheimers. My mother lives in a condo I bought near where I live.
We had to put him in a private home because his income is too high for any Medicaid. He maxed out dozens of credit cards and took a second mortgage out on his home when his illness was pre-diagnosed. We were unable to file for bankruptcy due his income as well. The income is based on two pensions and dividends from investments and Social Security. Since we have transferred all of his stocks into retirement accounts that are protected from lawsuits.
I have been using that money, along with SS and the pensions to pay for my mothers living expenses and cost of the nursing home. Because we could not declare bankruptcy all of the creditors wrote off the bad debt making it income on my parents tax returns.

In a nutshell we can not afford to pay their tax debt. I worked out a payment with the IRS ans state to pay 200/month but this does not even cover the interest.

What would happen if I just stopped paying and filing. My mother does not have anything in her name and my fathers pensions and IRA's are protected from the IRS . .so I have been told.

Thank you.

Steve
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.

Greetings,

 

If you stopped filing and paying there will be collection activity at some future point in time on the unfiled returns. Also, the current installment agreement will be revoked and increased activity on that assessed balance may quickly result in liens and levies.

 

It is possible that the income from the pension, dividends and Social Security he is receiving can be levied.

It is even possible that the retirement accounts can be levied, despite what you have been told.

See http://www.irs.gov/irm/part5/irm_05-011-006.html#d0e254 for the IRS manual on the procedures to levy such accounts.

"These instructions cover money accumulated in a pension or retirement plan, as well as Individual Retirement Arrangements (IRAs). They do not deal with levying retirement income. See section IRM 5.11.6.1 above. Also see Delegation Order 5-3 (Rev-1) at IRM 1.2.44.4(23)c.

  • There are many employer and self-sponsored retirement vehicles that are not exempt from levy. These plans include, for example:
    • Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA

    • IRAs

    • Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans) "

  • Even though most creditors may not be able to collect against retirement accounts, the IRS can levy on those accounts in many cases (though other assets, if available will first be accessed).

     

    Although the current payment on the installment agreement is not even covering the interest if that agreement is continued to be paid and kept current until the expiration of the time limit to collect (generally ten years from the assessment) then any balance remaining at the time of expiration will not be collectible. These partial payment installment agreements allow the taxpayer to pay only what has been determined is proper for their financial situation each month even when the balance will not be paid in full.

     

    It is likely to be best in the long run, both in dollars and in time and aggravation, to continue with the installment agreement until the time for collection expires. You may wish at some point to confer and engage an experienced practitioner to present all the facts to ensure that is the best course given all of his facts.

     

    Defaulting on an agreed installment agreement (including not filing) almost always results in a nearly immediate action to collect by the IRS.

     

    At some point in the future, if his financial situation has degraded further it may even be possible to submit financial information to asses if less than $200 is required or if he is eligible at that time to be place on "currently not collectible" status.

     

    Not filing and paying will result in more action than continuing the installment payment agreement that may only partially pay the balance before expiration.

     

    Please ask if you need more information or discussion.

    Thank you.

     

     

    jgordosea, Enrolled Agent
    Category: Tax
    Satisfied Customers: 3095
    Experience: I've prepared all types of taxes since 1987.
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