Level 10

IRS payment plan - 401k loan requested by IRS

Forum|Forum|1 year ago
February 12, 2025
4 replies
17 views

IRS wants my client to take a loan from her 401k. Client adamantly refused as this is her only remaining savings. The IRS would not accept the agreement until she makes the loan. She is considering taking a withdrawal of 100% of the 401k, then calling the IRS back to say she has no 401k. This won't work; in effect she would not be fully truthful if she didn't also say that her bank balance increased (where she would deposit the loan.) The IRS wants a $200 monthly payment. She can pay $50 per month.

Tax Talk

sjrcpa

Level 15

Start making the $50/mo payment.

Expect IRS to eventually levy her wages.

The more I know the more I don’t know.

S

strongsilenceAuthor

Level 10

She is 69 years old. She owes $7,000. Fairness comes to mind so laugh at me.

BobKamman

Level 15

I didn't see the answer earlier, that she owes only $7,000. So IRS gave her the 30-second answer, "pay us enough each month to pay it off in 36 months, and we won't bother you, and you can stop bothering us." So if she doesn't want to take the money out of her 401(k) all at once, take $2,400 a year. Is she still employed? Is she one of those people putting off Social Security until age 70? Does she own a house that would qualify for a reverse mortgage? How did she end up owing $7,000, anyway? "Fairness" means she has to pay her taxes just like most people.

BobKamman

Level 15

How much does she owe? How much is in her 401(k)? How did IRS come up with the $200, has she already sent them the 433 financial statement that lists the 401(k)? Does she think they are stupid? Do you think she is stupid?

S

strongsilenceAuthor

Level 10

How did IRS come up with the $200, has she already sent them the 433 financial statement that lists the 401(k)?

Bob,

We gave them the amounts verbally on the phone. And she admitted to having a 401k. Was that a mistake?

sjrcpa

Level 15

You can't lie to IRS.

IRS' computation of ability to pay is a higher amount than taxpayer's thoughts. IRS expects you to use all available assets. that includes 401(k) and home equity.

The more I know the more I don’t know.

qbteachmt

Level 15

Why doesn't she take a hardship distribution from the 401(k) for the full $7,000? There's no penalty at her age, and with her standard deduction, it might not even hit the tax tables.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-hardship-distributions

Don't yell at us; we're volunteers

abctax55

Level 15

"...Client adamantly refused "

OK - that made me laugh. I was unaware that was an option with the IRS.

I agree with Bob's question - WHAT generated such a liability? Wasn't there cash flow from that 'event'

There's gotta be more to this story.

HumanKind... Be Both

S

strongsilenceAuthor

Level 10

I agree with Bob's question - WHAT generated such a liability? Wasn't there cash flow from that 'event'

abctax,

I know very little about her. See my reply to Bob.

I think she is going to get a loan from a friend.

Appreciate your help.

I have to move on to my next problem client.

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