Net Equity in Assets

[Michael O’Leary]

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?

[Eric Green]

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.

[Michael O’Leary]

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.

[Robert Parker]

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

[Charles Zagara]

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%

[Eric Green]

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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