We can help if you owe IRS taxes on a 401k or IRS distribution – Call us today to speak with a tax professional.
Millions of individuals have taken distributions from their 401k and IRA or have liquidated their pension plan just to stay afloat in this troubled economy and will owe the IRS back taxes on their withdrawal.
There will be a record number of such individuals because of the economy, loss of jobs and business closures. Once a tax return is filed showing a balance due, within six weeks, the IRS will start sending out tax notices asking for payment in full.
Each individual will have to take the next step to deal with their situation.
The action that the IRS will take:
- IRS will send out a first notice or tax bill, a second notice, then a Final Notice of Intent to Levy. This process will take about 90 days;
- 30 days after the letter of Final Notice of Intent to Levy, IRS will start taking enforcement action;
- IRS will send out a Federal Tax Levy to third parties such as your bank or a wage garnishment to your employer;
- IRS will also file a Federal Tax Lien which will show on your credit report;
- IRS will continue to take enforced collection action until you contact them, settle and close your case.
This is what you need to do after the IRS contacts you
- Be prepared to have an exit strategy;
- Be prepared to contact the IRS with a completed Collection Information Statement and all documents supporting the Collection Information Statement;
- Make sure you are current with all your taxes and all tax returns have been filed;
- Be prepared to settle your case with an Offer in Compromise, Installment Agreement, or be placed in a Hardship Status.
We can help if you owe IRS taxes on a 401k or IRA distribution
IRS has ways to make this easy if you know how the system can work for you
The IRS must close your case off of their Collection Computer System. Once IRS secures a completed and documented Collection Information Statement (433A or 433F) from the taxpayer, they will close your case usually in one of three ways:
- IRS will accept an Offer In Compromise to settle your back tax bill. The Offer In Compromise Program has been set up for individuals who need to settle their tax bill once and for all. The Offer In Compromise Program is not a simple process and only 11,000 Offers In Compromise were accepted last year. It is thought that 90% of all accepted Offers In Compromise are settled by tax professionals. Offers In Compromise should not be negotiated by the taxpayer themselves because of a lack of knowledge and the “digging into areas” the IRS will do when working these cases. Skill and expertise is needed when filing an Offer In Compromise. There are four different types of offers available and most individuals need to know which one their case naturally fits into.
- IRS can and will accept an Installment Agreement or payment plan on the back taxes owed. IRS has a National Standards Test it uses to determine which payment plan works for your current financial state of affairs. The National Standards Test can be found online by going to www.IRS.gov and search National Standards. There are many professional tricks and skills that can be used to set up the lowest possible payment plan.
- IRS can place your case in a Hardship Status. IRS will take a a completed and documented Information Collection Statement and by using the National Standards Test can place your case in a Noncollectable Status, What this means is at the present time, you do not have the ability to pay the tax in full and you prefer to have your cased worked at a later time. The IRS uses the National Standard Test and full documentation of the Collection Information Statement to make their decision. Penalties and interest will continue to accrue.