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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12443
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Here is my question my fiance those about 11,000 dollars

Customer Question

hi Here is my question my fiance those about 11,000 dollars to the IRS in back taxes that we were unaware of until just recently we contacted the IRS and we settled upon an agreement and we are currently paying them $50 per month we made two payments so
far well here's the question our family relatives just recently passed away and left a swollen insurance policy under $20,000 to my fiance is the IRS going to automatically take that eleven thousand dollars out of that 20,000 dollar life insurance policy check
and being that we have already made a payment arrangement will that still stands and they will not take the money out of the life insurance payment Check
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
If this was DESTH BENEFIT from a Life insurance policy, there will be no reporting at all to IRS.
Life insurance benefits are tax free and there is no 1099-R or other reporting to IRS.
They have no way to be aware of it. And insurance companies are not part of the federal payments system where everything from tax refunds to student loans, to social security can be attached to satisfy tax debt.
There are two things to be aware of.
(1) If there were a distribution from a life policy because of a lapse of the policy THEN there could be a 1099-R and there would be an awareness by IRS HOWEVER....
(2) They would gave to go to court and actually get a lien, levy or garnishment to attach dollars for a tax debt from a PRIVATE account such as life insurance, brokerage accounts or bank accounts.
By again, HERE, it seems that this is the payout of a death benefit ... which is a completely tax free, non-tax reportable, event.
Just be sure to keep up with that payment plan so that they will NOT get a lien, levy or garnishment ... and be aware that even WITH a current payment plan, they CAN attach things that are a part of the FEDERAL payments system, such as federal and state tax refunds, social security payments, etc.
let me know if you have questions ...