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I have an IRS tax lien and making installment payments. I am…

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I have an IRS...

I have an IRS tax lien and making installment payments. I am likely to win a lawsuit within the next year. Can IRS attach my settlement?

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I have been paying on past taxes now for over 10 years. IRS placed a large tax lien on me at that time. I still have a 55K balance and am on an installment plan. I am likely to settle on a personal lawsuit for significant $$ within the next year.

Accountant's Assistant: Is there anything else the Expert should be aware of?

Not that I can think of. How can I protect receiving my settlement from my suit?

Submitted: 8 months ago.Category: Tax
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Answered in 16 minutes by:
8/30/2017
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 8 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,201
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. My name's Lane. - I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice on three continents since 1986.

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If you are current on the installment agreement, and stay that way, they will likely not arbitrarily attach the settlement by levying a bank or other account. The lien will stay in place so that if you try to sell any assets they will be in line first, to protect their interest.

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Also, unless the settlement is for physical injury, sickness or wrongful death (or parasitic damages arising FROM that) there will be a 1099 and you'll need to pay the taxes FROM that settlement.

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Now, what you need to worry about is whether you have what's called a partial pay installment agreement. The IRS is permitted by law to enter into installment agreements that will never pay them back. It’s okay ifyours will not – the IRS has 10 years to collect from you, and after the 10 years expires, you will not owe them, and the remaining balance will be forgiven.

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But in your situation that may not be a good thing. Internal Revenue Code 6159(d) requires the IRS to review Partial Pay Installment Agreements once every two years. and if your financial condition has improved, they can raise the expected payments, and MIGHT levy (actually attach, grab, assets)

...

But if your installment agreement is one where they SILL be paid back within 10 years, and you stay current, and pay all taxes due going forward, you'll likely not hear from them

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Customer reply replied 8 months ago
They told me that Feb 2019 is last month on statute. Been ongoing since 1998. Currently 55k balace and agreement $200 / month. They addeded 10 years for some reason. Current payments are for 2003 and still have 2004 on the books. Settlement is taxed???
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 8 months ago

Yes, settlements are taxed, again, UNLESS, or personal injury or sickness .. something physical.

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The tax policy/logic works like this; physical injury/sickness/death is tax free, but attorneys fees not deductible.

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Settlements for lost income, wages, employment discrimination, business protection or losses, taxes, punitive damages, (pretty much everything else) is taxable, but attorneys fees are deductible.

...

What's the settlement for?

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Customer reply replied 8 months ago
VW suit on 2 diesal cars. 1st offer over 40k. Declined and will move to trial if necessary
Customer reply replied 8 months ago
Atty thinks we may get close to 70k
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 8 months ago

Yep, it's taxable. you'll get a 1099.

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See this:

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https://www.irs.gov/pub/irs-pdf/p4345.pdf

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