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Can the IRS take a portion of your Social Security?

Yes it can. There are many factors that can you leave you owing back taxes in your 50s or early 60s include divorce or early withdrawal of retirement funds/default on debts after a sickness or job loss.

Failing to take action when you receive a letter from the IRS can push the problem down the road. Then, comes that wonderful day when you reach retirement age and start drawing Social Security. But a portion of your check (generally up to 15 percent) could be taken by the IRS to satisfy the back taxes along with interest and penalties.

A recent report from the Treasury Inspector General for Tax Administration finds the decision of some revenue agents to levy Social Security benefits causes economic hardship. In this blog, we will discuss the findings and explain available solutions that might be available to fix your underlying tax problem.

Broad discretion creates cases of economic hardship

Revenue officers at the IRS are given case-by-case discretion to determine whether it is appropriate to levy Social Security benefits. The agency is not supposed to levy benefits when the facts show a taxpayer will suffer an economic hardship.

In the report, the agency found that levy action probably caused or contributed to economic hardship in 15 percent of the cases reviewed. Also troubling was that the wrong form was used in 28 percent of the sample cases. This created a situation where a larger share of a monthly benefit was taken than allowed by the law.

The IRS will revise its Internal Revenue Manual to better clarify the standards for economic hardship.

Solving the underlying problem

If your main source of income is Social Security benefits, you may worry that you will never be able to pay your tax bill. What are your options?

The Tax Code requires a release of a levy when it causes hardship. If you can prove the levy leaves you without the resources to purchase food or pay for a roof over your head, it may be released.

Currently not collectible status is something that stops collection efforts. Interest and penalties do continue to add up during the time. And it's not a permanent fix, because the IRS will review your case every so often (about two years) to find out if you have a change in income.

If you worry that the amount of a tax bill is not correct, you can request a Collection Due Process hearing. If you missed the window for a CDP hearing, an audit reconsideration could provide a remedy. Also remember that the IRS only has 10 years from the assessment of a tax debt to collect.

When you have questions about resolving back taxes, get the answers you need from a local tax attorney. While a Google search or blog may provide a start, they can never replace individualized advice from a professional who handles these matters every day.

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