IRS / Settlement Question?

Question

If you receive a settlement from a motor vehical accident, but still owe the IRS money, will they take that settlement check? My husband is self-employed and we file joinlty. An extension has been filed on our taxes. I'm getting a settlement soon, but wonder if the IRS will take it since we still owe.

Answer 1

You shouldn't have anything to worry about unless you owe for prior years. There is a lengthy process the IRS goes through prior to intercepting income or attaching liens or levies. This process doesn't begin until after the liability has been assessed (When you file your taxes.). If you owe for prior years, they may try to intercept, but they normally won't even know about the settlement until you have been paid. If your getting a lump sum settlement, you'll have all the moneyy by the time the IRS even knows your getting it.

Answer 2

Who owes the money to the IRS? If it is your husband and you are the one receiving the check then you need to file an Injured Spouse form. An Injured Spouse claim is a way for you to protect the portion of the refund that matches to your income, as reported on the individual income tax return filed by you and your husband/wife using the filing status “Married Filing Jointly”, from being taken for a non-marital debt belonging to your spouse. Married couples can't get Earned Income Credit (EIC) if they file separately using the filing status “Married Filing Separately”, the Injured Spouse claim can help married couples claim EIC and get at least part of that refund.

You qualify for an injured spouse claim if you meet ALL of the 3...

1. You are not required to pay the past-due amount. This means that the debt that will be or was taken from your tax refund happened before you got married OR your spouse is the only one who is responsible for the debt.

2. You reported income on the joint tax return. This means some or all of the income on the tax return belongs to you. Income includes wages and self-employment.

3. You made and reported payments on the joint return. Payments included are federal income tax withheld from your wages, estimated payments, or refundable credits, such as EIC.

Answer 3

If the check is for punitive damages, the insurance company may (should) report this amount to the IRS. They should give you the option to have taxes withheld. Of course, this is for the tax payment on the check...not a payment for previous tax. The IRS would have to know you were about to receive the check and do some sort of thing making the insurance company pay backup withholding. It seems more likely that the IRS would freeze your assets/bank account once you try to deposit or cash the check.
It's hard to say. The IRS just wants their money, and their tactics are many!

Answer 4

Don't file jointly with your husband and they can't touch the money. Put it in the bank in your own name, not jointly. You can always amend your return later to file jointly. (You can not amend from jointly to single, only the other way around.)

If you owe taxes for a previous year, if the IRS knows about it they can take the money.

However, the IRS will notify you before they levy on any assets. This gives you an opportunity to either pay or work out payment arrangements.









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Answer 5

If they become aware of the settlement then YES they will. If all you owe them is your current taxes and you have filed an extension then at this point they are not actually aware of what you owe them so they will leave you alone...FOR THE MOMENT ... DON'T MESS WITH THE IRS .. PAY THEM what you owe them ...they can get really nasty if you mess with them!

Answer 6

That IS a good question. Go in person to your nearest Internal Revenue Service-Taxpayer Assistance Division Office to speak to a representative. Good luck.

Answer 7

you don't need to make IRS aware by contacting them. Yes they will take your settlement. The insurance will report it.