November 10, 2016

retirementMost people work hard all their lives to enjoy the fruits of their labor during their golden years. But what if you are facing tax debt during retirement? Can you still protect your assets in your old age?

The good news is that when it comes to retired senior citizens dealing with tax debt, the IRS can actually be very cooperative. The agency understands that collecting a hefty tax debt can greatly impact an individual who is no longer able to earn a living, and so they are much more accommodating to retirees as compared to individuals who are still of working age.

Individuals in retirement typically only have a few assets, including retirement assets, social security, and their retirement home. The IRS understands that taking any retirement assets can be detrimental to retirees, and so they exercise more caution when it comes to executing liens and levies.

Of course, it is still possible for the IRS to go after such assets when collecting for a tax debt. It is essential, therefore, to understand how exactly a tax debt can affect your retirement assets.

If you have tax debt during retirement, your retirement assets and accounts are likely to be the first assets seized by the IRS to pay off your debt. There are, however, certain scenarios that you should be aware of. If you owe the IRS more than what you have in your retirement account, for instance, then the IRS is unlikely to seize those funds. If you are unable to withdraw funds yourself—such as for an investment that is inaccessible until you reach a specific age—then those funds are deemed inaccessible to the IRS as well. Finally, the IRS will examine the nature of your debt. They are less likely to seize your retirement assets for a minor accounting error compared to if you committed tax fraud.

 The IRS also has the power to seize up to 15% of your social security income, but you may still be able to fight this if you can establish that losing 15% of your income a month can be economically hazardous. In order to prove this, you must file Forms 433A or 433F. If the IRS approves, then the agency must search for payment options elsewhere.

 As a last resort, the IRS may opt to seize your home. Of course, the IRS does not want to leave seniors living in the streets, and so they will only go after your home if you have committed serious tax fraud or if the equity is unreasonably higher than what you need.

Note that while the IRS is generally more lenient about collecting tax debt from retirees, it does not mean your assets are entirely safe. If you are facing tax debt in your retirement, the important thing to do is to properly communicate with the IRS. It would still be wisest to hire an attorney who can help protect your assets and best interests.

Categories: Blog, Tax Tips