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If I have to borrow money from my life insurance policy to

If I have to borrow...
If I have to borrow money from my life insurance policy to pay the IRS, will I be forgiven for being late, or will I be able to pay less?
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Answered in 4 minutes by:
5/3/2010
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Verified

Hello JA Customer,

 

When you owe taxes to the IRS, you cannot avoid paying the penalties and/or interest associated with the late payment, and you cannot "pay less" just based on the fact that you had to borrow the money to pay what you owe.

 

The only way you can actually pay less than what you owe is to file an Offer in Compromise (OIC) with the IRS to try and settle your tax debt for a lesser amount. An OIC will not even be considered if you have enough assets and/or income to cover what you owe to the IRS or if they feel you have the ability to pay what you owe within the 10 years that they have to collect the taxes that are due.

 

 

Thank you JA Customer

 

 

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Customer reply replied 7 years ago

I do not make a great deal of money, I barely make ends meet at the end of the month. The income was a liquidation of Annuities, which I had inherited and because I was watching it lose money weekly, while I was drowning in debt, I liquidated it to pay off the large loan. I had no idea I would be hit with taxes, as I had deducted $4000 and had it paid to Fed gov from the amount I recieved for tax purpose. Apparently I had not deducted enough and now I owe $5,000 to the IRS, which like I said I don't have any money to pay other than the loan on my Life Ins. Policy.

 

If your answer remains the same please let me know.

 

Hello again JA Customer,

 

As I said earlier, your only possible way to get the amount of taxes reduced would be to submit an OIC. But with an OIC, the IRS looks at your total current financial picture, as well as your future likely earnings potential. If you own a home or a car or any other assets at all, if the value of those assets would pay off your tax debt, they would not reduce the amount of your tax bill.

 

Even if you had not such assets, the IRS has 10 years time in which to pursue collection of taxes. That being the case, as long as you are working and have an income, it is highly unlikely they would reduce a tax bill of only $5,000, as they would say you had the ability to pay this off within the 10 year period of time they have to collect a debt.

 

It is very difficult to have an OIC accepted. You must really have no assets at all and no income at all, and not likelihood of having any future income -- at least on a tax bill of $5,000. If you owed $200,000 to the IRS, then it's possible they may agree you could not pay this off in 10 years. But while a tax bill of $5,000 seems significant to you, in the eyes of the IRS this is small compared to some of the huge tax bills other taxpayers owe, and it is not likely they would reduce this amount at all.

 

I am truly sorry I could not give you a more favorable answer, but it is just highly unlikely they will reduce this debt.

 

 

Thank you JA Customer

 

 

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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Category: Tax
Satisfied Customers: 9,783
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Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad

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