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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11563
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Dear Mr. Lane, You have given me excellent answers in the

Customer Question

Dear Mr. Lane, You have given me excellent answers in the past. And the first question I have is how does one properly address a a lawyer and a JD. I guess I could call you Dr.??? This was not as you have guessed, my major question. I have a friend in
Calif who asked me to review
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Customer: replied 1 year ago.
a tax situation of a friend/former partner. The friend of a friend has an odd situation, at least to me. He has a tax debt going back to 1991 and some later years as well. With interest, this debt is 1.8 million dollars. Yet the claims he is unable to pay. The IRS acknowledged him as being in uncollectible status on 13 Mar 15 "Although you are currently in uncollectible status we will continue to charge penalties and interest until you pay the amount you owe in full." On Feb 25 2015 they rejected his Offer in Compromise as they determined he could pay the amount due in full. The crux of the disagreement is he claims he has no money, but he did created trusts that have per IRS 7.8 million dollars in real estate in them. There is no question he setup these trusts long ago. He says he does not control them. My question is why would the IRS give him uncollectible status if they say he has 7.8 millions dollars in assets. I thought if you had assets, they would not give you uncollectible status. The other question I have is how do I determine when statue of limitations applies. Is that going to show up clearly if I get him to request IRS Summary of Accounts/Transcripts going back to original date? If the IRS gives him uncollectible status, does that mean they are not going to levy him for a couple years. Or can they just go after the trusts he formed. He is not living off the trusts and is surviving off a pension, which is how he got his uncollectible status; There is obviously something I (or the IRS) do not understand here. His OIC was rejected. He is considered un-collectible. He is retired and on fixed income. He did form grantor trusts. He has discontinued using a tax lawyer that he apparently felt bled him for no exchange. Let me know if the IRS can go after the trusts even after giving him un-collectible status, how to figure out when statute of limitations expires, and any question I should be asking you but don't know what to ask. Can he, even though he does not "control" the trusts per him, liquidate the real estate in them to pay his tax debt. And if so, and if IRS can levy the trusts, should he do so and go for an abatement in penalties. Any advice appreciated. Dave
Expert:  Lane replied 1 year ago.

Hi,

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No the J.D. is the law degree. Yes, a doctoral degree in the law, but not a research degree such as a Ph.D, where the conventtion is to all the individual "Doctor."

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OK, we can take a good bit out of this by addressing the trusts first. The trusts are either revocable or IRRevocable.

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Irrevocable trusts are not OWNED by the grantor of the trust any more (this is the reason they are considered outside the estate for estate planning purposes). Only the trustee has the ability to liquidate, and only then if the trust instrument gives that kind of discretion.

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Revocable trusts, however, can be revoked at any time by the grantor (this is why they are called grantor trusts) and are still owned by the trust creator, grantor.

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For example ... interest earned on an account inside a grantor trust is reported on the grantor's 1040. Interest earned on an account in an IRREVOCABLE trust is reported on the TRUST'S income tax return, the 1041.

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If the trusts are irrevocable IRS cannot attach.

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And here are the main things that toll the 10 year statute of limitations:

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  • Filing an Offer in Compromise -- the statute of limitations does not run the entire time your Offer is under review, including any Appeals that you exercise.
  • Filing Certain Appeals -- the statute of limitations does not run the entire time an IRS Appeal is pending, in most cases.
  • Filing Bankruptcy -- the statute of limitations does not run the entire time you are under the protection of the bankruptcy courts or for the six months following the discharge or dismissal of the bankruptcy.
  • Filing a Lawsuit Against the IRS -- the statute of limitations does not run while litigation against the IRS is pending.

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He best option for finding our the what the expiration date, is asking IRS.

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And again, if the trusts are irrevocable, and he is not an income or any other beneficiary (the ony people that will benefit are the beneficiaries of the trust (many times children and grandchildren after the grantor's death.

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Lane

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(I see that you've requested a phone consult. I'll make an offer. Only accept if you want to discuss over the phone.)

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If this HAS helped, and you don’t have additional questions on this, your positive rating … (by clicking or touching the stars or smileys on your screen) … would be appreciated!That’s the only way I'll be credited a portion of what you've paid JustAnswer.

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Expert:  Lane replied 1 year ago.

Pasted below here is a piece done by the Tax Dept at GSU (one of my alma maters) - the best overview of the ten year statutory period and the items that can toll the period (stop the clock)

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This overview and the tax ACCOUNT transcript, together, should get you there:

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There are several situations when the statute of limitations for collection is suspended;... petitions (§ 6503(a)), bankruptcy (§ 6503(h)), offers in compromise (§ 6331(k)), situations when the tax lien is reduced to judgment, while certain installment agreements are pending, and when certain levies are prohibited (§ 6331). The taxpayer’s transcript will show the information from which the student can compute the correct statute of limitations.

  • If the taxpayer files a valid and timely Tax Court petition, Code § 6503(a) provides that the IRS cannot assess or collect any unpaid tax until the Tax Court decision becomes final and for 60 days thereafter.
  • Section 6503(h) suspends the period for collection for the period the individual is in bankruptcy plus 6 months thereafter. The student can determine this period from the dates on the transcript and/or the PACER information. If a taxpayer files a bankruptcy petition after a notice of deficiency is mailed but before the 90-day period (150 days if taxpayer is out of the country) expires, the 90-day period is suspended from the date the bankruptcy petition is filed until the taxpayer is discharged or dismissed, plus 60 days.
  • The statute is suspended for any period that an offer in compromise is pending plus 30 days thereafter and, if an appeal of such rejection is filed within such 30 days, during the period that such appeal is pending. The pending date begins the date the Service accepts the offer for processing. Section 6331 (k)(1).
  • Under Code § 7403, the United States can bring an action in United States District Court to reduce the tax claim to judgment thereby extending the original statute date.
  • In general, if a taxpayer submits an installment agreement, the statute of limitations is suspended while the agreement is pending and for a period of 30 days following rejection or termination. There are exceptions to this general rule. Prior to the effective date of The American Jobs Creation Act of 2004, Code § 6159 provided for installment agreements only for “satisfying the liability.” The law changed the words to “make payment on” and inserted “full or partial.” This appears to have created two types of installment agreements. There is a full-pay installment agreement that must be paid over no more than 3 years and for which there is no waiver of the S/L or no extension of the CSED. See IRM 5.14.2

The newly created installment agreement is the Partial Payment Installment (PPIA) Agreement (i.e. installment agreements that do not provide for full payment of the liabilities.) IRM 5.14.2.1(9) limits the extension of the waivers to 5 years plus 1 year. The use of the waiver is limited by policy to those in I.R.M. § 5.14.2.2.3.

I.R.M. § 5.14.2.2.3 states that generally a waiver should not be secured on PPIAs. There are examples where these waivers are suggested such as where an asset will come into the taxpayer’s possession

  • Under Code § 6331(i)(5), the statute of limitations is suspended when levies are prohibited and Code § 6331(k)(2) prohibits levies while an installment agreement is pending and for 30 days following rejection or termination.

Prior to collecting the tax, a statutory Notice and Demand for payment must be mailed by the IRS to the taxpayer. Section 6303 of the IRC sets forth that the Secretary shall, as soon as practicable, and within sixty days, after the making of an assessment of a tax pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount of tax owed and demanding payment thereof. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person’s last known address. It is important for the student attorney to make sure the IRS has complied with the notice and demand requirements. However, the failure of the IRS to send timely notice and demand after the assessment of the tax will not render the assessment void. The assessment will remain valid but IRS will be barred from utilizing its lien and levy collection powers. Blackston v. U.S., 778 F.Supp. 244 (D.Md.1991); see also Brewer v. U.S., 764 F.Supp. 309 (S.D.N.Y.1991) (stating that in order to place a lien against property, the IRS must make valid assessment of taxes, provide notice of deficiency to taxpayer, and provide notice and demand for payment of assessed tax).

Customer: replied 1 year ago.
This is helpful. I do need to check out trusts exact status. There are also LLCs involved somehow or another. There is one point unanswered Why would the IRS give un-collectible status and then say then refuse an OIC because he has assets that he says he does not have? That is what threw me here. Dave
Expert:  Lane replied 1 year ago.

NCS is handed out MUCH more casually that an OIC ... I've seen cases where they reject an OIC and after several back and forth communications, they offer the NCS (very possibly because it looks like the person's getting close on the OIC) - OIC's can take forever

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Many times an offer is made on the OIC that's outside the RCP (reasonable Collection Potential) .. essentially the minimum amount they'll take over a period of UP to 2 years,

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Basically, the net realizable value of assets plus excess monthly income after subtracting monthly expenses. ... You them multiply this by 12 or 24 to get to a number (offering more won't help)

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But getting To that numbe,r and getting them to accept what you've submitted, can take moths or even years if you play the game and don't start out within guidelines (using the correct tables, using the correct discounts to value such as the 20% on the primary residence, etc., etc) OR if they challenge the factual nature of the backup sent.

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For example, he may have simply given up when they looked at the land (rather than providing to them that these were irrevocable)

Expert:  Lane replied 1 year ago.

On the realizable assets piece, first total upthe value of all of your assets including bank accounts, real estate, vehicles, and retirement plans.

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(Nothing for furnishings, etc. but luxury items, like artwork, and expensive jewelry, are included. Also list interest in any business not publicly traded and items of value held in a safe deposit box. ... primary residence too (minus that 20% discount)

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Then there's the disposable income and payment period ...it's kind of a sliding scale ... Here's a great example written by Nolo.com:

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Darlene calculates that she has $150 per month in remaining
income after deducting her monthly living expenses from her monthly
income.

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She decides on the five-month payment option so she
multiplies $150 by 12 which is $1,800. She must add this amount to her
net asset value of $10,000 (based on the equity in her home). Thus, her
minimum offer is $11,800 which she enters in Section 8 of the form.

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If Darlene decides she cannot pay the IRS within five months, she
would multiply her $150 monthly available cash amount by 24 instead
which equals $3,600.

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She would then add this to her net asset value $10,000
for a minimum offer of $13,600. She has to pay $1,800 more under this
plan but has an additional 19 months to pay the IRS than under the
lump sum method.

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But again, it's the substantiation piece and the continual request for more backup and documentation that many times has the taxpayer simply throw up their hands ... and then ask for (or sometimes the agent will offer) the NCS

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Hope this helps

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lane

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If this HAS helped, and you don’t have additional questions on this, your positive rating … (by clicking or touching the stars or smileys on your screen) … would be appreciated!That’s the only way I'll be credited a portion of what you've paid JustAnswer.

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