Long question

[erchess]

Divorced male late 50s no dependents unwilling or unable to borrow from family and unable at least in his opinion to borrow from commercial sources due to poor credit history.

He is retired on Disability consisting of prostate cancer from which he appears to be recovering fully and mental illness with which he copes ok in personal life but which keeps him from being able to get out with people and work. He leaves his house and yard only for medical and food buying trips.

Only significant assets are a car worth 3K which I might be able to persuade him to sell since he no longer is able to drive and a house which he paid $38,000 for in 07 and which he believes he might be able to sell for $35,000 if he wanted to sell. He owns both outright.

He does have a currently overdrawn checking account.

Only income is SSI $1,500 monthly.

Expenses from 433F Current / Allowance

Food Personal Care 750/526
Medical 150/60
Housing 269/917
Transport 100/239

My understanding from the IRS Website is that on all but the transportation it is possible to substantiate expenses greater than the allowance. Is this correct and if so does anyone have any pointers?

Note that client is over in Food and Personal Care but under in housing and transportation. How do these shake out when you calculate what the service will say that he can pay?

He owes the IRS $28,231 and I haven't yet completed calculation of what he owes the state he lived in back when he was not filing. Am I right in advising him that the amount they will take out of his Social Security Check if he lets it come to that is greater than the amount they would take in installment agreements?

Sorry to be so long and many thanks for any answers.

[taxmandan]

I would get him in CNC status and let the statute run. These are filed returns, not SFRs correct? With a complete 433 I don't see how theIRS would argue for an IA or even an OIC, if they do I would get the TAO involved, there is no reason he should give them any money.

[Gretel]

Erchess, I am dealing with these issues right now and have some interesting experiences along the way.

Just some pointers:

1. The IRS has different guidelines depending on if client can pay full amount within 5 years or not. If not only what they call necessary expenses are allowed. You want to look at the IRM (IRS manual) part 5 and do some digging.

In you case it looks like your client will only be able to pay a little over $200/month, not enough to pay off IRS debt.

2. Each category is looked at separately. If he is under the allowance, the actual lower amount is taken. Be prepared that they look at his personal expenses closely and to send in all the proof. Be also prepared that they disallow transportation expenses if this is not for public transportation or car expenses AND the car is needed for work or medical reasons. But this also depends on what I said under no. 1.

3. As long as the IRS doesn't know about the request for an installment agreement and they sent their warning letters they can clean out the account in full (have done this with my client after receiving and acknowledging form 433-F and then loosing it internally). It's very hard to get any $$ back after this.

This is my first experience with this issue but I am glad to share what I learned and your are welcome to send me a PM. Be prepared they I might not be able to get back until Tuesday though.

[DaveO]

I agree with seeking CNC status and letting the statute run. If the overage in medical and food is due to his condition the IRS should accept with proper documentation. A letter from a doctor often helps.

[erchess]

One More Question

First of all, ty for the above info.

We're about to get the Federal F 433f mailed off with documentation.

During the years he didn't file due to his illness he lived and worked in DC. So far DC has not contacted him. What advice does anyone have about DC? Should we even file the missing returns?

[Gretel]

Do you mean he just didn't file DC, or he also didn't file IRS?

[erchess]

He was seriously ill

with cancer and he didn't file taxes with IRS or DC. I think btw he'd have had a case for abatement of penalties if he had arranged to file within some reasonable period of time after he was well again but he did not do that.