A tax question

self | 5-19-2009 | Self

[Gordon Pym]

I have a friend that is cashing in her 401k (mostly from a previous job)to pay off debts and buy into a business she is currently working for.The total amount is about $125000. The IRS had a tax lein from 2008 for $4500 that she paid along with a $450 fee to print a release for the 401k money. The lein was on the full amount of the 401k and not just the $4500 of it that was due.

After this was paid for and the 401k money was still not released she called into her Senator's office for help and they found another lein from 2007 for $6000 that has since been paid along with ANOTHER $450 for ANOTHER release.

She's now waiting on the IRS to make up their mind as to whether they will release the 401k or not even though they say everything is current at both the state offices for the two states she was living in at this time. (she moved here in 2006)

My question is how can someone attach the entire amount of a 401k to pay a bill for a small portion of that amount? Wouldn't it make more sense to allow someone to put the amount of the lein into escrow and pay it up when the money is released?

As it is everything she has, everything her family has, and everything that can be borrowed is tied up in this mess over roughly 10% of what is being held hostage.

How are they able to do this?

[Gordon Pym]

BTW all of the tax forms for both years in question were handled by a highly respected accountant in this area

I suggested that she find a good tax attorney but she no longer has the needed funds to hire one.

[library user]

...handled by a highly respected accountant in this area.

Was he nervous? Did he use a lot of slang? Did he use the word 'man'? When he was leaving did he say 'I'm splittin'? Does he take trips to South America?

But, seriously...

I suggested that she find a good tax attorney but she no longer has the needed funds to hire one.

Don't worry about having to pay a tax atty upfront. If she explains her situation thoroughly to a tax atty, he or she will do what they need to do ASAP -- if the atty thinks it's in both of their best interests to do so -- and then take payment later.

[NEMDF]

They can attach the entire amount, because who knows what the value of that will be at any given time? If her investment in the 401(k) was in assets that fluctuate in value (which would be normal), the IRS or any other creditor has no way of knowing what those assets might be worth at the time they are liquidated.

[SES1066]

If she has not done so already (though I would be surprised if not since this is the absolute 1st step), she needs to contact the IRS Ombudsman Office for help. That is the one spot that can make clear what is owed and owing and release any outstanding liens and it is FREE! At the very least she should come out the 1st meeting with them with documentation of her problem(s).

The start of this process is to print, fill and send in IRS Form 911 "Request for Taxpayer Advocate Service Assistance". Since your friend sounds to be in financial distress and this is taking longer than 30 days to resolve, this is just what the doctor ordered.

Hope this helps.

[TheBattman]

$450 fee... TWICE for printing of a release??? What the heck???

[Gordon Pym]

$450 fee... TWICE for printing of a release??? What the heck???

That's about what I said when she told me

[Gordon Pym]

OK here's an update. She got the release approved with help from her Senator's office. (actually it was a phone call from someone on his staff to kick the approval into gear) This hacked off the bureaucrat that approves these things so they flat out refused to fax the release to the investment company and said they would have to mail it out and the mail system could take two to three weeks.

Of course she had the option to go to DC and pick it up in person.

She borrowed my car and left this morning at 0300

[Gordon Pym]

Further update: It turns out that when she got down there she had to wait four hours past her appointment time before she could see anybody. During that time she called a tax help number that was posted in the area and was referred to a tax atty. AND a civil rights atty. It turns out that these leans were from a sole proprietorship of a previous business that was actually set up as an LLC. The accountant filed it as SP. On top of this the person that was handling the case for the IRS in Boston (the same person that kept bringing up the liens one at a time rather than in one bill) has the same last name as someone the business has a lawsuit pending against in CT.

Both of these lawyers agreed to take the case without fee until it is settled. (I think that says a lot right there)