My parents are very bad with money. In their 50s they started a business in the industry my dad had been working in for the past ~25years and never paid any taxes on any of the business income.
Needless to say, they have quite a substantial levy against all earnings. The thing is, they no longer work. My dad gets social security (with no other assets) and they live with family rent free.
The twist here is that my dad worked long enough for one company to get a pension payout in the low 6 figures. From what I gather, this money is fair game for the IRS.
Here's the question for all the tax mustachians. Is there a way to protect this money from the IRS levy? One idea that has come up is to gift as much as possible to my siblings and then put it all into a trust account. Would this work?
If there is no way to protect the money, my parents plan on blowing through the whole amount before they file taxes this year (extension). Kinda shiesty, but that's the reality. I'd rather the money be around to help them in their meager retirement, rather than being spent on dinners and worthless garbage.
Since they have a levy, I'm assuming you mean the IRS is holding them responsible for back taxes in some way?
Pension money, and even social security after a certain amount, is considered taxable income during retirement. If they do not file taxes and list that income, they are yet again failing to even declare the income and file it... let alone pay it.
Failing to pay is less of an issue than failing to declare/file income and taxes owed.
I wouldn't get within a mile of this. Gifting money to people does not get deducted from your income in any way. Even if they "gift" 100% of the income from the pension plus social security.
From the IRS's perspective, ignorance is not a suitable defense. Presumably, if you are mentally competent and not insane, you are supposed to know that you should file your taxes and do so accurately... otherwise risk paying both back taxes owed plus penalties. The criminal stuff won't really come into play unless it's shown they willfully and knowingly withheld information during that time. Not sure if that's the case, but I wouldn't rule it out...