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ShawnA, CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
Category: Tax
Satisfied Customers: 2884
Experience:  CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
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I'm disabled due to a stroke 3 years ago. My question is about

Customer Question

I'm disabled due to a stroke 3 years ago. My question is about the intersection of my IRS debt and my back SSDI.
I've been receiving monthly benefits from the group disability policy at my work for the last 3 years. Per the policy I filed for SSDI. If and when I am awarded SSDI, the disability carrier will reduce my monthly benefit by the amount of my SSDI check. They also plan to take my back SSDI pay as per the policy.
I also owe the IRS $13,000 because of early distributions I had to take from my 401K in order to take care of myself in the early days of my disability.
The thing I'm concerned about is this: I know the IRS can garnish 15% of the ongoing SSDI benefit and/or take up to 100% of the backpay. If the IRS takes their $13,000 out of my back pay, would I just end up owing $13,000 to the group disability carrier? If so, I'm concerned that they would just stop my check until they recouped their money.
I don't know whom I would rather owe, the IRS or the disability insurance carrier. Do you have any advice for me in this situation.
Submitted: 2 years ago.
Category: Tax
Expert:  ShawnA replied 2 years ago.
Hello. My specialty is focusing on YOUR Financial needs. Financial Planner/Business Owner for 20 years. Retired CPA
I will offer you a call. There is a solution. All you have to do is ask me and I can send the offer. Then all you need Sonia accept.
Customer: replied 2 years ago.
I'm not sure I understand. Are you saying it's easier to explain in a call or recruiting me as a client? I have no money to spend on this issue so can't really engage anyone.
Expert:  ShawnA replied 2 years ago.
I don't recruit clients. I simply supply answers and I can do that here but in a call additional facts always come out that effect the answer.
I have no desire to "recruit you as a client".
If you would like to do this via text that is done. I prefer a call because we can cover much more in a shorter time and you can hear the inflections in my voice.
I have found people thy call are often happier than those that text.
The choice is yours. We can chat here or arrange a call. I charge only 5 This is the minimum ha allows. For additional services the Range is 5-500.
Normally calls last 15-29 minutes so it's not the best use of my time but it is the best way I. can give an exacting answer.
Let me know what you would like
Expert:  ShawnA replied 2 years ago.
This is why I posted it as an information request. I also meant to post my last response as well in the same way. I hit the wrong button.
At any rate have you considered bankruptcy ? The IRS debt will be forgiven. Of course this depends on income and assets you have.
Customer: replied 2 years ago.
I was already in Bankrupcy when the stroke happened and still have two years left. The only property I own is in my Bankrupcy (after th stroke I looked into converting my chapter 23 into a chapter 7 but didn't since I inherited it from my mom recently I didn't want to do forfeit the property even though it's only worth about $15,000). So I kept it as protected property in the Bankrupcy.
Customer: replied 2 years ago.
Oops. Chapter 13 not 23 haha.
Expert:  ShawnA replied 2 years ago.
I got that. Lol
Customer: replied 2 years ago.
I own no other property. I have two cars, one of which is old and non functional (removed the tag when it quit working last year) and a 2000 Porsche Boxster worth that I pod $8,000 for about 4 years ago. No other assets. Zero in my 401K now so really nothing of value.
Customer: replied 2 years ago.
I've already filed a collection form with the IRS showing my expenses are about at my income.
Expert:  ShawnA replied 2 years ago.
I just re read your original question. Owe the IRS or disability ?
Completing the bankruptcy removes the IRS and allows you to collect freely.
What do you see as the downside to this strategy?
Customer: replied 2 years ago.
Why would it remove the IRS? The IRS debt occurred AFTER I filed the bankrupcy so I would think it had no bearing on it. If I filed bankrupcy after having an IRS debt, I could see that. I'm not allowed to file a second bankrupcy.
Expert:  ShawnA replied 2 years ago.
Was the bankruptcy finalized?
Customer: replied 2 years ago.
Finalized as in I'm out of bankrupcy? No. I still have 2 years to pay on it.
Customer: replied 2 years ago.
Just for some background - I did the bankrupcy in June 2012 and had the stroke in August 2012.
Customer: replied 2 years ago.
I spoke to the bankrupcy attorney after the stroke about converting the 13 to a 7. She said the IRS would probably try to sell the property (as well as the old house my mom grew up in), even though it's not worth much. As long as my dad is alive, I can't sell it. It would completely kill him... literally. So, we reduced the amount of my monthly payment a bit ($275) but that was all. So now I'm getting a benefit after taxes of $2973 from the long term disability carrier and I had a private policy covering another 10% of my salary which is an additional $493, though that's all going to pay my $570/month insurance premium.
Expert:  ShawnA replied 2 years ago.
What about claiming insolvency ?
Customer: replied 2 years ago.
Oops - I meant she said the COURT would try to sell the property to recoup some of the discharged amount.
Expert:  ShawnA replied 2 years ago.
My suggestion is to claim insolvency with the IRS and at least postpone the payments I'm not sure of what else you can do.
Customer: replied 2 years ago.
I think that's what I'm doing. I'm currently trying (or more specifically, my roommate, who was a legal assistant for many years (back when that was something!) is speaking to the IRS with my power of attorney to get them to put me in "Currently Not Collectible" status, but from my understanding, that just postpones the debt and interest/penalties keep accruing. I'm not opposed to them taking 15% of my ongoing monthly SSDI (actually, wouldn't mind giving them what they want out of the back pay, but I think that would leave me on the hook with the disability insurance company).
Expert:  ShawnA replied 2 years ago.
I don't think so. You can use the disability money as you see for. Hopefully the settlement works out.
I wish you well. I can't think of anything else.
If this answers your question I'll let you eaten me.
If you'd like me to opt out I will also be happy to do that
Customer: replied 2 years ago.
Yeah, I'm not sure what else I could do either, that was the reason for my question. So far, no one has been able to tell me if the IRS took their amount out of back pay how that would impact the disability. And, I don't know whom to ask - my disability attorney (who knows EVERYTHING about disability since she helped draft some of the laws) said talk to a CPA. So far, no one had an answer other than just to postpone the problem.
Customer: replied 2 years ago.
If this answers your question I'll let you eaten meWas that a mistake - didn't get it.
Customer: replied 2 years ago.
From the looks of my disability policy, though, the insurance company wants ALL of the back SSDI and if I spend it, they'll sue for it. They may also sue for the amount the IRS takes as essentially if I'm awarded SSDI, they have effectively overpaid me by $1300/month for 3 years and want that back.
Expert:  ShawnA replied 2 years ago.
I don't know the details of your disability policy. There may well be a coordination of benefits clause.
Customer: replied 2 years ago.
Anyway, unfortunately, this still hasn't answered my question so I guess I have to move on.(By the way, on the policy, the only clause I see that applies is:
Recovery of Overpayment
We have the right to recover any amount that We determine to be an overpayment. This includes
any prior or current overpayment from any past, current or new payable claim under the Policy. An
overpayment occurs if We determine that:
• The total amount paid by Us on Your claim is more than the total amount then due to
You under the Policy; or
• Payment made by Us should have been made under another plan.
If such overpayment occurs, You have an obligation to reimburse Us in full within 60 days of
Our Written notice to You.
If We do not receive reimbursement in full within 60 days, We may, at Our sole discretion, use any
available legal means to collect the overpayment, including but not limited to one or both of the
• Taking legal action;
• Stopping or reducing any future payments under the Policy, including the Minimum
Weekly Benefit or any Additional Benefit or Additional Provision benefits, which
might otherwise be payable to You or any other Claimant or payee.
You must immediately disclose to Us the amount of any retroactive payment You may
LTD Certificate Page !35 Greater Georgia Life Insurance Company
receive from any of the Deductible Sources of Income. We have the right to obtain any information
We may require relating to Your eligibility, application or receipt of Deductible Sources of Income.
You must provide Us with Your Signed authorization to obtain such information upon Our request.
Expert:  ShawnA replied 2 years ago.
who paid for this? You or the company?
Customer: replied 2 years ago.
Paid for what? For the answer? Me personally. Didn't know what you meant by "the company" either. So I didn't understand your last communication at all.
Customer: replied 2 years ago.
Oh! You're talking about who paid for the policy. My work paid for it.
Expert:  ShawnA replied 2 years ago.
Who paid for the disability policy? Greater Georgia.
Expert:  ShawnA replied 2 years ago.
ok. from a taxation point of view since the company paid for it all benefits received are taxable.
HOWEVER I don't see where there is a reduction of benefits due to SS disability from what you posted.
Expert:  ShawnA replied 2 years ago.
is there a way for you to scan and email me the policy?
Customer: replied 2 years ago.
There DEFINITELY is. I could post the whole policy but I thought we had already stipulated that. The facts stated in my original question were true. The insurer WILL offset the benefit and they WILL take the back money. Ivevhd 3 years to discuss this with them. The only thing I haven't made them aware of is the IRS debt and that the IRS tends to like to garnish back SSDI payments to which the insurer probably feels entitled to.
Customer: replied 2 years ago.
We may be beating this question to death.
Customer: replied 2 years ago.
I certainly can. I have if in a PDF but I'm wondering if you think we would be able to really answer this question on this context or if we should abandon it.
Customer: replied 2 years ago.
I've been paying about $600/month taxes on the premium the whole time (they basically ask me how much I'd like taken out and I just increased it to $600 as I owed the IRS more than I paid in last year). The private policy I have is exempt from this - it won't be offset at all. The taxes I owe the IRS, though, are mostly taxes from early distributions from my 401K. My doctor did certify me as permanently disabled on the 1040 Schedule R.
Customer: replied 2 years ago.
If you want me to email the policy, I'd be glad to - I just saw I'm allowed 10 minutes work time on this question and I feel as if we might be using up too much of your time.
Expert:  ShawnA replied 2 years ago.
Lets not worry about the 10 minutes just yet.
That's why I can offer a call. I'll do that now. If you accept the offer I can share my number with you in a private screen. The cost us just 10 We can talk as long as necessary.