Net Equity in Assets

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  • #15279
    Michael O’Leary
    Participant

    I have a client who has about $20K in federal tax debts for tax years 2014-2017, negative future income and a small ($20K) IRA. Would the IRS actually require the taxpayer to liquidate the IRA (and generate more taxable income) in order to address the federal tax liability?

    #15364
    Eric Green
    Keymaster

    Yes, the IRS will seek to collect and would want the IRA liquidated, and roughly 70% paid over (20% for income taxes, 10% for early withdrawal penalty). Now if they are older an ETA Offer might be worth pursuing, especially given they are negative each month, but technically its an assets and the IRS would want it.

    #15389
    Michael O’Leary
    Participant

    Thanks. The argument I am forming in my head is that withdrawing the IRA would cause a hardship in their daily living because I believe (but haven’t confirmed yet through running the numbers) is that the future income is near zero or negative.

    #31660
    Robert Parker
    Participant

    If the IRS seizes the IRA account doesn’t the 10% early withdrawal penalty disappear? If so, just have them seize it –

    #33016
    Charles Zagara
    Participant

    If the client is going to lose the IRA and they are under 59 1/2, then I always have the IRS levy it to avoid the additional 10%

    #33018
    Eric Green
    Keymaster

    Charles if they will that is best, but what I find is most often they dont want to levy because of the paperwork and approvals they need to get: taking someone’s IRA is a touchy thing ad the IRS hates to do it if they can avoid it. So much so that one time it was $16K and I had the client refuse to pay it over and the IRS literally walked away from it.

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