Are Retired People Screwed when it comes to IRS Debt?

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS.

A retired couple decides to liquidate some of their stock investments because they are no longer able to handle the ups and downs of the market. This action puts them into a strong and safe cash position but also produces a large tax bill. Paying that bill significantly reduces the savings they have built and depend upon for their retirement years.

They decide to make an Offer-in-Compromise with the IRS instead. The offer is rejected by the IRS because the analysis of their financial position shows that they could full-pay the debt. Is it a lost cause for this couple?

Not necessarily. The IRS can accept the Offer on the grounds that it would promote Effective Tax Administration by avoiding an “Economic Hardship”.  This would be the case for the retired couple depending upon their savings for the rest of their lives.

The big factor for taxpayers hoping to have an Effective Tax Administration Offer accepted is a history of compliance. Investing in dubious tax shelter schemes, repeated non-filing penalties, or failure to pay on a regular basis are all factors that will work against the offer.  Most of these offers are in fact initially rejected by the IRS, so you can expect that a trip to Appeals is going to be part of the process.

I will discuss the meaning of “Economic Hardship” in more detail in my next post.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.