uncollectible IRS debt

[Gretel]

Client receives SS disability income only and only assets are a trailer home for $40,000 and a car. He just got divorced.

In 2007 & 2008 he withdraw all his IRA funds to a tune of $200,000 (all spend on his extended family that divorced him now), only for half of it taxes were withheld at 20%. He will need to file either HOH (if we can get all info for his stepson) or MFS. He owes at least $50,000. You get the picture, Please no moral comments.

I am intending to file Form 433-F and ask the IRS to put him on uncollectible status. I was advised to do so by the IRS agent who I worked with to get his account information. Does anyone have experience with this?

Is this better to file this form along with the tax returns or separate?
How could I find out about poverty limits, or whatever it is called, to see if his income is indeed low enough to pursue this or if a OIC would be better?

Thank you.

[Snaggletooth]

Grant the IRA

No moral comments, but why didn't the lawyers/judge simply just give her the IRA, or half of it, if that's where the settlement was to come? Then if she was going to get the money, let the party that gets the money pay...

O.K. that's water under the bridge, as this is probably a done deal...

Be prepared for extensive documentation. He will have to prove virtually everything, especially expense levels. Can't tell whether the 433 will be effective or not as I'm not really privy to the details, but if he CAN pay, they will conclude this and all the documentation work will be for naught.

He must contend that he has insufficient income to cover his tax bill, and not have sufficient income in the future.

[joanmcq]

The 433-A doesn't go with the tax return. he files the return, and when the bill comes, then negotiate the 433-A.

[Gretel]

No moral comments, but why didn't the lawyers/judge simply just give her the IRA, or half of it, if that's where the settlement was to come? Then if she was going to get the money, let the party that gets the money pay...

O.K. that's water under the bridge, as this is probably a done deal...

Be prepared for extensive documentation. He will have to prove virtually everything, especially expense levels. Can't tell whether the 433 will be effective or not as I'm not really privy to the details, but if he CAN pay, they will conclude this and all the documentation work will be for naught.

He must contend that he has insufficient income to cover his tax bill, and not have sufficient income in the future.

Thanks, Snag. The sad thing is they were not even married long enough that she would have been entitled to a settlement. I guess it was his attempt of trying to keep her, a painful and expensive experience.

I am all for him paying whatever he can, no matter how sad the story it is still his responsibility.

I wish I could get my hands on data what is considered to be enough income to be able to pay at least some of the bill.

[Gretel]

The 433-A doesn't go with the tax return. he files the return, and when the bill comes, then negotiate the 433-A.

Thanks, Joan.

[tilt53]

A Google search

of poverty guidelines turned up lots of listings, but maybe this one will help.

http://aspe.hhs.gov/poverty/09poverty.shtml

[DaveO]

Filing the 433-F is the way to go. File it by itself. Make sure you have good documentation for everything in there. If they determine his status to be currently not collectible they will leave him alone unless his income increases by 20%. They will still send him a notice each year, as required by law, to advise him of the balance due.

[Gretel]

Thanks Dave and Sandy.

[Jesse]

I am intending to file Form 433-F and ask the IRS to put him on uncollectible status. I was advised to do so by the IRS agent who I worked with to get his account information. Does anyone have experience with this?

I'm guessing uncollectible status does not reduce or eliminate the debt. So does it stop interest from accruing or what is the advantage of uncollectible status?

[joanmcq]

The interest & penalties continue to accrue, but they don't send but one notice a year unless they see your situation improving. no escalation or levies.

[Gretel]

I'm guessing uncollectible status does not reduce or eliminate the debt. So does it stop interest from accruing or what is the advantage of uncollectible status?

That is a very good question. Thank you.

[DaveO]

Interest and penalty continue to accrue but the statute of limitations continues to run as well. In the case of a person retired, or living on disability who has no prospects of increased income it's unlikely the IRS will ever collect.

[Jesse]

Do you need to file a new 433-F each year or only if circumstances would change?

[Nashville]

Good Question

Brings up a good question and one for preparer responsibility:

Olde Geyser has retired to a dilapidated trailer on 5 acres of almost uninhabitable land in the West Virginia mountains. When he was working as a nuclear physicist he rang up a tax liability of $50,000 before his fifth wife absconded with all his money. He has virtually no other assets and little presence of mind left to earn anything but a subsistence.

He travels 50 miles to the nearest tax preparer, files a 433A, and bails out of his liability.

A Hollywood producer somehow stumbles across Olde Geyser and his property. He thinks the trailer and surroundings are perfect for his next movie "Wrong Turn 5." In fact, he believes Olde is perfect to act the part of one of the mindless cannibals. Olde accepts a $300,000 payment for sale of his property and his role in the movie.

1) Can the IRS still go after this guy after exonerating his debt?
2) If the preparer knows of this, are there any requirements on the preparer?

My "rational" thinking says NO. What say ye??

[Gretel]

Gets more and more interesting. Isn't there a 10-year limit statute of limitation on debt owed to the IRS or is that only if the IRS stops sending correspondence?