OIC - 529 plans

[BulldogTom]

Not even sure if the client has a 529 plan, but they are certain it is one. They have been saving for their kid to go to college for years. Have 15K in an account for him. They say it can't be withdrawn from the account with out a penalty unless it is used for his education. Will be getting clarification from the clients in the future.

Just the same, if it is an Education IRA or a 529, does it need to be listed on the 433 form for the offer?

I am early in the process and have not done one of these in years. Could use some help if any of you are experts.

Tom

Hollister, CA

[kcjenkins]

I'm not sure, Tom, but would suggest you ask the client to get you a copy of the paperwork on the plan. there is always paperwork. And the paperwork should clear up whether the child owns the plan or the parents do. If the kid owns the plan, then you should not have to disclose it, but if the parent does, I think you do. But that is just off the top of my head, I have not researched it.

[jainen]

>>does it need to be listed on the 433 form for the offer?<<

Contributions to a 529 are subject to gift tax rules, and distributions are taxed (when applicable) to the beneficiary. The donor controls the fund only as a custodian. (Of course, if the money was transferred with fraudulent intent to hide it from the OIC process, that doesn't count.)

Still, it might be useful to tell the IRS about the education fund, emphasizing the fiduciary role. The IRS won't accept an offer for an amount they can collect anyway. It's best to show them something that is otherwise beyond their reach. That 15K might be enough to stop them from looking elsewhere (like where the money would REALLY come from!)

[BulldogTom]

jainen,

This is not an attempt to evade (in my opinion). If it was, I would not take the engagement. The clients have a large outstanding balance due to his failed business. Right when she retired from her job. He can't find a job because he is over 50 in a tight job market. They have a son who still at home and is sucking a great deal of medical costs. The education plan was for the kid to go college, but it doesn't look like that is going to happen because of his condition. This wasn't how the end of their American Dream was supposed to happen.

[kcjenkins]

Then they might want to consider going ahead and taking the money out of the 529 and paying it on the medical bills now. If they are going to lose it either way, better it go there, IMHO.

[jainen]

>>not an attempt to evade<<

That's not what I meant. If they are only going to offer whatever is left in savings, it wouldn't be a strong offer because the IRS can just take all that anyway (and thanks for the financial statement so we know where it is). But maybe, for example, a friend will help them out but would prefer not to have the IRS looking that way.

If they can't bring any outside funds to the offer, it makes a much harder deal. In that case, it might be better to negotiate a minimal payment plan or the annual uncollectible status, or even bankruptcy.

By the way, you don't get any sympathy points by saying this is "a large outstanding balance due to his failed business." Tax liability comes only from business success. They chose to not pay their liability when they had the money to do so.