Category : News

Owe Back Taxes? The IRS May Grant You Uncollectible Status

Sometimes seniors find themselves owing past-due federal taxes they cannot afford to pay.  Although notices from the IRS can be especially frightening, there are solutions. 

If the sum owed is less than $50,000, the IRS will accept monthly payments over five years. For example, if $6,000 is owed to the IRS, monthly payments of around $100 can be made. There are also laws in place that provide that persons unable to pay their taxes can be placed on Currently Not Collectible (CNC) status with the IRS and not have to pay their past-due income taxes. The IRS is generally very understanding and helpful towards seniors with lower incomes applying for currently not collectible status.

Seniors with especially low incomes can often obtain CNC status by simply phoning the IRS at the number on an IRS collection notice. You can ask the collector to file “53” on your case, which means filing IRS form 53 (only a collector or IRS official can do this). You will not need to file detailed financial paperwork. For example, a senior with a monthly income of $1,200 and rent of $600 obviously will have no extra income to pay any past-due taxes. 

However, you may be asked to complete a financial form that shows you do not have any surplus income after paying necessary monthly living expenses. This form, IRS 433-A, can be found here

Although it is rarely done, the IRS can garnish 15 percent of a senior’s Social Security for past-due income taxes. However, this garnishment will never happen without the senior being first notified.  The IRS will almost never garnish pensions and other retirement income. 

Tips on Applying for Uncollectible Status

Here are some guidelines and requirements for applying for CNC status:

  • The financial information supplied must prove to the IRS that the individual does not have any surplus income after paying their necessary monthly living expenses and that they have no significant additional assets.
  • Individuals may need to submit their bank statements along with this IRS financial statement and any other relevant financial documentation for review.
  • Look carefully at this web page http://www.taxdebthelp.com/hardship/requirements-uncollectible. At the bottom of the page are links to budget standards the IRS uses in determining whether a person qualifies for uncollectible status.
  • If you are going to apply by phone, carefully prepare a budget ahead of time that shows expenses within those budget standards that consume all your money so it is clear there is no extra money with which to pay taxes.
  • If applying by phone, the IRS collector might try to get you to say that you can pay something when you can’t.  Review on the IRS website the suggested budget numbers and national standards for where you live. Do not underestimate your expenses, which many people do.  If you fit within the criteria, you qualify for CNC status.

Once taxpayers are placed on CNC status, they will maintain this status for at least a year.  In the case of retirees, the status will likely be indefinite since retirement income and Social Security are constant and most retirees will not be working in the future. If an individual’s account keeps its CNC status until after the statute of limitations on the debt runs out, usually around ten years, the IRS will be permanently prevented from collecting the debt.

If you are unable to work something out with the IRS over the phone, you can contact the Taxpayer Advocate Service (TAS). This free government service ensures that every taxpayer is treated fairly and understands his or her rights. The TAS is an independent organization within the IRS, headed by the National Taxpayer Advocate. Each state has at least one Local Taxpayer Advocate who is independent of the local IRS office and reports directly to the National Taxpayer Advocate. 

To contact TAS, call (877) 777-4778 or see its website for a list of local TAS offices.

What About State Income Taxes?

 Not all states have procedures in place to put persons on uncollectible status for past-due state taxes owed. Federal law protects Social Security, pension, disability and VA benefits from garnishment by states for taxes owed. Unfortunately, not all state taxing agencies will tell seniors that their income is protected from garnishment; instead, they continue collection efforts. (Click here for information on a law Oregon enacted in 2015 to put an end to this practice.) 

If a senior’s bank account is garnished by a state tax collector, twice the amount of monthly Social Security deposited into the bank account is automatically protected from garnishment, no matter the source of funds in the account at that time. Federal banking regulations require a bank to determine an account into which Social Security is deposited and disregard any garnishment, including for past-due state taxes owed. If there are excess funds from exempt sources in the account, a claim of exemption would need to be filed with the state before the money could be released.

For more information, visit HELPS, a non-profit law firm formed to educate seniors and persons working with them about seniors' financial rights and to resolve tax, student loan and housing issues.  

 

Protecting Your Construction Business from Common Lawsuits

On June 13, 2017, Amy E. Stratton presented “Protecting Your Construction Business from Common Lawsuits” to members of the Center for Women & Enterprise.  She was able to share tips about ways to avoid some of the most common law suits in the residential and commercial construction field through comprehensive contract drafting and alternative dispute resolution.

Center for Women & Enterprise

Lecture at Rhode Island Center for Women & Enterprise

On May 10, 2017, Amy Stratton lectured to the budding entrepreneurs of the Rhode Island Center for Women & Enterprise about legal considerations for business owners. It was a great chance for Rhode Island business owners from diverse industries to learn about some common pitfalls relating to legal structure, contracts and business financing.

NAELA Conference

National Academy of Elder Law Attorneys

On April 27-28, 2017, Kristen Moonan and Amy Stratton attended the annual NAELA (National Academy of Elder Law Attorneys) conference in Boston, Massachusetts. They learned cutting edge planning techniques and shared planning strategies with elder law attorneys from around the country.

DVDs4Vets

DVDs4Vets

During the first three weeks of December 2016, Moonan, Stratton & Waldman, LLP assisted a local project called DVDs4Vets, which is collecting new and used DVD’s for distribution to local veterans’ homes and rehab facilities helping soldiers.

Estate Planning Basics

Estate Planning Basics

On Thursday, October 27, 2016, Kristen Moonan and Amy Stratton presented Estate Planning Basics to the residents of Capitol Ridge at Providence Assisted Living facility. The presentation gave residents a unique opportunity to ask questions about estate planning and probate without having to leave their home.

Walk to end Alzheimer's RI

Walk to End Alzheimer’s

On Sunday, September 25, 2016, Moonan, Stratton & Waldman, LLP participated in the Rhode Island Alzheimer’s Associations’ Walk to End Alzheimer’s at Roger Williams Park in Providence by sponsoring a team to raise money for this worthy cause.  It was a great success and we are looking forward to our continued active participation in the future!

Spending Down Assets to Qualify for Medicaid

Medicaid has strict asset rules that compel many applicants to “spend down” their assets before they can qualify for coverage. It is important to know what you can spend your money on without endangering Medicaid eligibility.

In order to be eligible for Medicaid, applicants must have no more than $2,000 in “countable” assets (the dollar figure may be slightly more, depending on the state). In addition, Medicaid also has strict asset transfer rules. If an applicant transfers assets for less than market value, the applicant will be ineligible for Medicaid for a period of time. Applicants for Medicaid and their spouses may protect savings by spending them on non-countable assets.

A Medicaid applicant can spend down money on anything that would benefit the applicant. Following are examples of what a Medicaid applicant may be able to spend money on:

  • Prepay funeral expenses. A prepaid or pre-need funeral contract allows you to purchase funeral goods and services before you die.
  • Pay off a mortgage, car loan, or credit card debts. You can pay off the debt fully or make partial payment.
  • Make repairs to a home. Fix the roof, make the house handicapped accessible, buy new carpet, etc.
  • Replace an old automobile. This can be useful for the healthy spouse.
  • Update your personal effects. Buy household goods or personal comfort objects. Buy a new wardrobe, electronics, or furniture.
  • Medical care and equipment. Purchase items that aren't covered by Medicare or Medicaid. See a dentist or get your eyes checked if those items aren't covered by your insurance.
  • Pay for more care at home. Make sure you get any caregiving agreements in writing, especially if family members are providing the care.
  • Buy a new home. A home can be an exempt asset, so it may be possible to purchase a new home.

In the case of married couples, it is often important that any spend-down steps be taken only after the unhealthy spouse moves to a nursing home if this would affect the amount of money the community spouse would get to keep, called the community spouse's resource allowance.

Each state has different requirements for spend down. Before making any spend down plans, consult with your elder law attorney.

Avoid Sibling Disputes Over Caregiving By Putting It in Writing

Caring for an elderly parent can be stressful for families. Siblings may disagree over how to provide care or where a parent will live, and if these squabbles escalate into a guardianship battle, it can cost the family thousands of dollars. To avoid this, lawyers have begun drafting sibling agreements (also called family care agreements).

If a parent becomes incapacitated and can no longer take care of him- or herself, questions can come up between siblings over where a parent should live, who should manage the parent's money, or who will assume primary caregiving duties. A sibling agreement can address these issues and provide consequences if the agreement is not followed.

Sibling agreements are not meant to replace a trust or a power of attorney. Instead the agreement can complement these valuable estate planning tools by providing guidance for the trustee or the holder of the power of attorney. The following are some examples of topics an agreement might cover:

  • Which sibling has primary care of a parent and how caregiving duties will be divided among siblings
  • Whether a sibling will be reimbursed for caring for a parent
  • Where the parent should live — with a child, in assisted living, in a nursing home?
  • How to decide whether a parent should move into a nursing home
  • How the parent's money will be managed
  • Whether the siblings will contribute financially to the parent's care

If the siblings can't reach an agreement, a geriatric care manager or mediator can help draft the agreement. Mediators can also help if one of the siblings breaches the agreement. Consequences for breaching a sibling agreement could be losing a power of attorney or a reduction in inheritance.

To draft a sibling agreement, talk to your attorney.