Posted on 04/22/2018 12:37:24 PM PDT by lee martell
Remember that song by Tom Jones; "I who have nothing!". That pretty much describes me. I'm near 62 y/o, working part time. I hope to keep working at least for the next eight to ten years, then start taking my Social Security.
I have no savings to speak of. I will always owe the IRS something from unpaid student loans or wrongly filed tax statements. Most times I don't receive any return at all, it's simply 'absorbed' and paid out to the Govt. The one bright spot is that due to a sibling's death last year, I have received about $20.000 from her estate. More should be coming later this year.
My question is, is there anyway to protect that inherited sum of money, to safeguard it, in case the govt. gets tired of waiting for the scheduled payout. I know from experience that the IRS has the ability to go to my bank at any time, and scoop out all that it contains, if they choose to do so. It has happened before, and I've never forgotten the shock.
Some online searches to that question advise setting up a retirement plan. I currently don't have one. Are there short term retirement plans that would allow me excess to my principal without incurring an Early Withdrawal 'punishment' fee? Could I renew such a plan after a few years have passed?
If it matters, I'm a Navy veteran. My next stop would be to ask someone at the Navy hospital to refer me to an advisor. Most people think they know, but have limited knowledge. I want to do things above board, no tricks. But I don't like the notion of being fully vulnerable to the mercies of the tax collection system.
The real problem isn’t dying, it’s living. If you need to go on Medicaid for late in life nursing care, the government will take whatever liquid assets you have and put a lien on any tangible assets like a home to recoup the expense.
Or living in a high-cost assisted living center accomplishes the same thing; they exist to take all of your estate.
As other posters have noted, you need to consult an attorney, estate planner or CPA about how to shelter your assets. Beware the preferential transfer rule.
If you owe the IRS money, set up an installment agreement. It will reduce the interest you pay and might keep them from filing liens. Stick to it, do not default.
If you can take out a loan to pay it off, it might be better.
Maybe Dave Ramsey has info. Go check him out.
“Set up a trust casts about $1,200.”
The IRS would seize a revocable trust. And you lose control in an irrevocable trust.
Is this cash or are items of value being distributed? House? Stocks? IRA’s? Cash being paid to you in the form of a check is not taxable and does not require reporting at this level of accumulation but, items being converted to cash will draw attention.
Both you and your sister should talk to a qualified advisor.
To be more accurate, ten years from date tax was assessed. An unfiled return would not start statute of limitations. Fraud would give IRS more time to assess a tax but statute is still 10 years. If IRS thinks you might skip out of debt then they will increase collection actions but statute is still 10 years.
As said before,a lien on an asset would survive the collection statute and result in collection of debt after 10 years is up.
Various actions the taxpayer may take would extend 10 years, including bankruptcy, filing an offer, appealing a balance due.
Cash assets only.
“If you owe the IRS money...”
Each case is unique and there are many options, depending upon the facts of your case. Don’t just pay if there is reasonable doubt as to whether it is legitimately owed.
About 3 yrs ago I settled a tax court case resulting from an audit. The IRS was after over $300K + penalties and interest. We settled for about $80K and the client set up an installment agreement.
Last week I spoke with the client and now we are in negotiations to settle it for much less under the new IRS “Fresh Start Program” due to client’s age, health and business profitability. The IRS will work with you and they do have compassion, as long as you are honest with them.
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“Enrolled Agents” just want to sell you the worst “investments” on the planet!
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Sometimes people ‘waive’ the 10 year limit to avoid criminal investigation and prosecution.
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When my clients said they were retiring early, I always asked them why? So often it was due to health.
So we would file for retirement and disability at the same time. My experience was that in years past, the disability was always approved and the person received the full age 65 benefit early and early Medicare. (after 2 yrs on disability)
Recently however the SS administration has been rejecting these cases for disability and the client had to fight the SS Adm. Every case was won by my clients, but they had to jump through the hoops.
I assume IRS would obtain judgement.
“Sometimes people ‘waive’ the 10 year limit to avoid criminal investigation and prosecution”
Until 1998 the IRS used these scare tactics to force people to sign the extension. That’s all they were..scare tactics. I never, ever advised a client to sign an extension to the statute and chewed out other CPA’s who did advise their clients to sign.
In 1998 the IRS was forced to stop the scare tactics.
Same here.
“I assume IRS would obtain judgement.”
There was nothing to put the judgement on.
The system is so broken right now that if you work with them, they are reasonable.
It is my understanding that when you die, your educational loans are forgiven.That may not be an option you would choose, but I am 84 yo and I do not expect to live long enough to pay off my student loans.
Talk with a professional about a self-directed, spendthrift trust.
a lien on an asset would survive the collection statute
IRS liens are non-mortgage liens.
Non-mortgage liens typically have little impact on mortgage liens. Most non-mortgage liens are recorded after mortgage liens (the reason being that lenders will not loan money if there is a judgment, tax, or mechanics’ lien recorded against the property) and therefore have a lower priority than the mortgage liens. This means that, in any foreclosure sale, the mortgage liens will be paid first out of the proceeds, and the remaining proceeds will be paid to the non-mortgage liens in order of priority.
Thus most of the time the IRS will not execute on the lien as they will get nothing. This is why mortgages need to be filed even when the money is from a family member.
People who get into trouble with the IRS usually have all the equity stripped out of the property already. We have even frozen payments on mortgages subject to IRS lien to maintain the higher mortgage balance to protect the equity.
Internal Revenue Code § 6321 provides that a federal tax lien attach to all “property and rights to property” of the taxpayer. Whether a right under state law is considered property or a right to property under Internal Revenue Code § 6321 is a matter determined under federal law.
Property is broadly defined to include every type of right or interest protected by law and having a negotiable value. Under Treasury Regulation § 301.6331-1(a)(1), a levy by the IRS seizes a delinquent taxpayer’s property and rights to property as of the time of the levy, however, it will not accelerate a right to receive a payment in the future. Thus, the IRS is entitled to levy all distributions from a trust or will that the beneficiary is currently entitled to receive, but cannot currently seize distributions to which the beneficiary will only be entitled to receive in the future. For example, if the beneficiary is then age 35 and has a right to a distribution at age 50, the IRS would not have a right to seize that future distribution to which the beneficiary has a right.
It has long been the IRS’ position that it can levy against a taxpayer’s right to receive a periodic or a lump sum payment from a trust or will. See Revenue Ruling 55-210, 1955-1 C.B. 544. In CCA 200614006, the IRS Office of Chief Counsel provided guidance to field offices on a particular taxpayer’s situation which might have broad implications. The taxpayer in the case argued that the spendthrift statute under her state law should protect her share of the trust income and principal from an IRS levy. This argument failed. The court in Leuschner v. First Western Bank and Trust, 261 F.2d 682 (9th Cir. 1958) held that “[t]here is no doubt that the paramount right to collect taxes of the federal government overrides a state statute providing for exemptions.”
The IRS Office of Chief Counsel opined that once it was determined that the taxpayer’s interest in the trust constitutes property or a right to property, the fact that a state spendthrift clause may be effective against the claims of other creditors under state law was of no consequence to the ability of the IRS to levy against the trust income and assets.
A Self-Directed Spendthrift Trust.
I’ve not heard of such a security model before.
I will add that to my study homework.
I like the “Self-Directed” potential there.
Can’t feel much sympathy for someone who hasn’t paid back the money he borrowed from the government, or who owes back taxes. Folks need to pay what they owe, rather than me making up the difference!
I take it you’ve never been screwed over by the IRS, have you.
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