Sad story/future IRS levy question

[mhcpa1964]

Client's elderly mother was defrauded in multiple ways. For 2021, she has 2 1099-Cs from credit card debt. She sold her home in 2022 and yielded about $100k. She has retirement income and pension income. Per Form 982 insolvency worksheet, she isn't insolvent. So the 1099-Cs will become taxable income. She should have filed bankruptcy but didn't. She now lives in an assisted living facility in the same state as her daughter.

Beginning in 2022, her Social Security is being garnished for a prior tax levy. That levy was only $825.

Her 2021 tax liability is about $15k federal and about $3k state. She will likely not pay the bills (though I'm not really sure right now).

My question regards how I can help lessen the future amount due, assuming she doesn't pay the tax bills. (And no wise cracks about paying the bill for her lol.) Do we have to wait for the IRS to send collection notices and then the levy? Can I include an explanation statement in her return? I'm not sure what exactly I'm asking. Just want to hear your ideas and experience with what's to come and how she can keep the bills as low as possible.

Thanks in advance to anyone who chimes in.

[Uncle Sam]

It's not clear from your facts - on the sale of her home "yielding $ 100K". Is that selling price of home or is it the profit before considering the 121 exclusion?
What caused her to come up with a $ 15K and $ 3K state tax liability? Is it possible to request an installment agreement or prepare for an Offer in Compromise?
I have a feeling you haven't provided us all the facts.

[spanel]

To many details left out... should have filed bankruptcy, but wasn't insolvent?? Mother was defrauded, yet no details on that, so not relevant to you situation???

Sounds like she has the $20k to pay the taxes from the sale of the house $100k??

I'm not sure what the problem is currently.. please elaborate on this.

Chris

[mhcpa1964]

The woman fell for a phone scam and gave most of her life insurance to the scammer. She was also married to a con artist who racked up the credit card charges that became the 1099-C. She might have been able to settle with the CC company or file bankruptcy, but she didn't. She just fell victim and never made her loved ones aware. The family obviously has other important health issues to tend to.

Her house is under the 121 exclusion. No issue there.

Her income is from SSB and the 1099-C and NOT the sale of her house. The sale of her house netted her $100k cash, that's what she pocketed, her equity. I made reference to the house because it establishes solvency, so I can't see filing Form 982.

So with the SSB and the 1099-C, she's stuck with a federal tax bill of about $15k and a state tax bill of about $3k.

Uncle Sam, I plan on mentioning the installment agreement to her daughter. And thanks for the Offer in Compromise suggestion.

Thank you all.

[New York Enrolled Agent]

Uncle Sam, I plan on mentioning the installment agreement to her daughter. And thanks for the Offer in Compromise suggestion.

Thank you all.

The IA might be a good option but an OIC seems completely out of the question. Look at your facts.

Why would the government compromise a $15K liability when the taxpayer (notwithstanding the sob stories) has $100K in cash? I would suggest you not waste your time on any OIC.

[mhcpa1964]

Thanks NYEA. Client's daughter plans on paying the bill. Daughter found some unopened mail of her mother's from the IRS and there are at least two years of unpaid tax bills. I'll pull transcripts and we'll request an installment agreement for all unpaid years.

[Uncle Sam]

I don't know whether you prepare the daughter's return or not, but you might mention to the daughter that if she exceeds the maximum gift tax exclusion for the year for paying the mother's taxes, she might be required to file a gift tax return for 2022 - if not, then suggest that she speak to her preparer about it.

[mhcpa1964]

Thanks Uncle Sam