OIC possible?

[Margaret CPA in OH]

Long time client apprised me a few weeks ago that she was scammed to the extent of her entire retirement, some 624,000.  She has, I think, some dementia and is in denial.  She eventually reported it to the FBI but they told her, sadly, she is one of thousands.

She is holding out hope that she will not have to pay the $200,000+ in federal and OH tax due despite my caution that I can see no way out of it.  She willingly withdrew all this money to buy bitcoin then gold and never saw any of it. The scammer told her that her identity was stolen and the only way to protect herself was to give them the money and they would invest it.

So here we are and all I can see is an OIC.  An installment agreement is for up to $50,000.  I tried to use the tool for an OIC but 'we are experiencing technical difficulties at this time.'  Does she need a tax attorney which she cannot afford?  I've managed some installment agreements and a discharge due to inability to pay but not an OIC. 

Fortunately her competent sister was finally brought into the picture and I've advised her to get Form 2848.  Other suggestions?

[BrewOne]

see the thread "new development in taxpayers who were scammed" and the link Lee provided.  Maybe they can zero out the income?  Meets the profit motive requirement.

[Margaret CPA in OH]

I put that exact phrase into the search box and it just brought up your post. ????

[BrewOne]

lol.  I guess you'll just have to look at the list.  Dated March 20

[Margaret CPA in OH]

Found it but I'm not sure it is helpful in this case.  I suppose an argument by someone could be made but she was responding to 'identity theft' and trying to protect her retirement fund from being accessed.  So I guess I can input for a theft loss but this still applies:

"The memo shows that the IRS recognizes that it can’t give taxpayers relief on the tax consequences of investment account withdrawals despite the theft of those funds, Lanning said. The theft loss deduction doesn’t eliminate the income..."

Perhaps it may offset some of the taxable income.  I'll try.

Thanks for your help, even the lol.

[BrewOne]

hopefully someone who isn't as brain dead as me will chime in.  It's not the identity theft, it's that you lost money in the pursuit of profit, and fall under Section 165 of the IRC:

(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business...

Not sure of the mechanics and I would probably hand it over to a tax attorney. 

 

 

[DANRVAN]

1 hour ago, Margaret CPA in OH said:

I tried to use the tool for an OIC

Have you tried the pre-qualifier site?

https://irs.treasury.gov/oic_pre_qualifier/

[BrewOne]

One issue with the OIC approach: all returns must be filed, so she has to sign a return that shows her owing tax on the disbursement of her retirement funds. And of course the elephant in the room is getting the IRS to respond when OIC was a very slow process even before the gutting of the agency.

Sorry, I didn't notice your comment that she can't afford a tax attorney.

[Margaret CPA in OH]

As above, "I tried to use the tool for an OIC but 'we are experiencing technical difficulties at this time.' "  I now have found the Memorandum from the Office of Chief Counsel IRS, Number 202511015, release date 3.14.25.

I am now comfortable listing it as a Casualty Loss because I am of the opinion that her situation fits Taxpyer 1-Compromised Account Scam.  Client was told that her identity was stolen and the only way to preserve her retirement funds was to turn them over to the scammer who would invest in safer assets, the Bitcoin and gold.  I'm now trying to fit this into the inputs for Casual Loss on Schedule A.  Unfortunately the tax is still due but it may be reduced somewhat as the itemized deduction will now be pretty huge.  

[Margaret CPA in OH]

Okay, I input the details on Form 4684 Section B, Casualty or Theft Gain or Loss, and the loss went to Sch. A minus $100.  Her tax went from$190,000+ to $1700+ .  Unfortunately the state has no mercy.  Her state tax is $20,000+.  They also do not have an easy payment plan without jumping through some hoops.  But she is in a much better situation now.  Thanks so much to you all, especially to BrewOne, for guiding me ultimately to the Memorandum  mentioned above.  This group is just great!

[DANRVAN]

1 hour ago, Margaret CPA in OH said:

Unfortunately the state has no mercy.  Her state tax is $20,000+.

So her state is not tied to the IRC?

Oregon is basically tied to fed, so 1040 A rolls into state A.

[Margaret CPA in OH]

Ohio starts with federal AGI which, of course, is before the standard or itemized deductions. Then there are state specific additions and deductions such as SS, not taxable in Ohio.  I called to see if there was any way to take into account the scam.  Nope.  It might be something for the legislature to address while they are trying to eliminate income tax altogether.

[Max W]

Don't overlook the possibility of CNC (Currently Non Collectable).  Even if OIC is feasible there is still the 5 year compliance and est tax requirements.  CNC will also protect future garnishments of SS benefits.

[Margaret CPA in OH]

Max W and others. by using Form 4684 and following the memorandum mentioned for those scammed of income producing assets, her tax was reduced to basically the tax on her SS due to the high income prior to the itemized deduction from the scam.  OIC is not an option anyway for federal as the limit is $50,000 owed.  Ohio tax pro line person said the only option for the huge tax due is to work with the AG office after nonpayment and she gets the nasty gram.  It's "only" $20,000+ at least not $200,000+.  I will research further to see if there is something via the AG similar to CNC. Haven't found it yet.

[Lion EA]

From IRS.gov:

What if I am not eligible or unable to apply or revise a payment plan online?

If you are ineligible for a payment plan through the Online Payment Agreement tool, you may still be able to pay in installments.

Individuals can complete Form 9465, Installment Agreement Request

If required in the instructions, please attach a completed Form 433-F, Collection Information Statement.

Mail your forms to us

If you prefer to apply by phone, call 800-829-1040 (individual) or 800-829-4933 (business), or the phone number on your bill or notice

If you are unable to revise an existing installment agreement online, call us at 800-829-1040 (individual) or 800-829-4933 (business). If you have received a notice of default and cannot make changes online, or you received an urgent notice about a balance due, follow instructions listed on the letter and contact us right away.

[Max W]

3 hours ago, Margaret CPA in OH said:

  OIC is not an option anyway for federal as the limit is $50,000 owed.  

OIC has no limits.  I've done some that owed over a $1M.  $50,000 os the limit for a streamlined installment agreement.  Beyond that its determined by disposable income and assets.

[Catherine]

What Max W said - there is NO LIMIT for total due on an OIC. There is a limit for automatic full-pay installment agreements. Those are not OICs.

Form 656 but the return must be filed & processed. You cannot file an OIC on tax that has not been assessed. 

I don't know of any state that does not also have an OIC-equivalent program. Names vary. Get federal OIC in process before state OIC; that way they allow 100% of state tax assessed as a legitimate claim. If there is a state OIC there's no tax claim. If there is a state payment plan underway then it's "only" a monthly expense.

[joanmcq]

Was there any withholding on the withdrawals?  I had a client that got scammed years ago and one of the very small bright lights was that there was 20% withholding.

[Margaret CPA in OH]

Alas, a whole $12 was withheld for federal, nothing for state.  And now another wrinkle:  reminiscent of the thread about checking prior year activity and comparing.  I asked for the 1099DIV from her investments and a few small ones held alone.   The sister found most of the documents and, sadly, it appears as though she liquidated nearly all her investments for about $162,139 with a LT gain of $132,200+ .  $92,152 had no basis.  I'm not impressed with the broker.  I asked for some statements before this began and all the statements for the rest of year to try and see the securities and figure out something.  It's so sad that her memory is failing and this situation just overwhelms her.  With these transactions (I had only page 1, will get the rest later) she now owes IRS almost just over $5000 if IRS allows it.  Ohio is the killer at $25,500.

I hope they (client and sister) don't find more.  I do want the backup pages but I think we're close.  

My head and heart hurt for her.  She's been with me since 2004.

[Catherine]

I've seen three elderly clients in the last couple of years end up with huge capital losses on "managed" accounts. More like "churned" as "managed" implies they have a clue that someone in their 80s or 90s is looking to preserve capital not trade for gains (losses). 

It is infuriating. These folks are trying to live on savings plus leave something for the kids and grandkids, not lose it all to fat fees to callous churner scumbags. And reporting them gets one absolutely nowhere. 

[Margaret CPA in OH]

A few years ago I had a client of about 3 years and I noticed that there were lots of st trades - lots!  I asked her about her understanding and she had no clue.  I suggested that she take her portfolio to a couple of other firms to review and ask how they would invest and manage her account. She changed investment advisors within a couple of months.  It certainly looked like churning to me and it was.  Yes, there are too many greedy people out there just waiting to take advantage of the vulnerable.

[joanmcq]

For the $92k in sales that had no basis; is it just that the broker didn't have to report the basis or that they didn't have it?  I've seen a few accounts this year where the broker doesn't have to report it, but the basis is available and on a 'realized gain/loss' sheet in the entire package.

[Margaret CPA in OH]

joanmcq, the sister indicated that it was the gold that was sold.  I don't understand that as I was also told that the scammers brought a box to the porch to 'prove' they had bought the gold, told client not to come out on the porch, then other scammers quickly arrived and took the box for safe keeping (or something).  I think it could as easily been a box of rocks.  Client really is having trouble with memory along with great embarrassment that this happened to her.  This is why I want to see the entire 1099 packet from the investment company along with all the statements from 2024, especially those in the months of the scam activities.  I'm hoping to get these this week.  Sister had a migraine Friday and didn't want to deal with this at the time.  I'm not surprised, this has to be tough on her especially as they were estranged for many years.