Attorney-at-Law

DISABLED VETERAN – REDIVIVUS

In Uncategorized on 11/23/2015 at 16:55

The veteran may be disabled, but his (or her) disability pension counts for household income when reckoning ability to pay for installment agreement (and presumably other collection alternative) purposes.

In fact, IRS area counsel laid it out for the SO in Frank D. Mathews, Jr., 2015 T. C. Memo. 225, filed 11/23/15, and Judge Chiechi quotes it with approval.

The SO couldn’t find anything in the IRM or anywhere else about the status of veterans’ disability payments. Yes, they’re tax-exempt all right, but the vet still has the money to live on.

As a veteran I will not make a political comment, nor mention the words “Pfizer” and “inversion.” At least, not on this blog, which is avowedly non-political.

Here’s IRS’ stalwart area counsel, whom I will hereinafter designate as “Jody.”

Judge Chiechi quotes from the SO’s Case Activity Record: “Call from Jody. He told me he was not able to find anything that specifically states a taxpayer must include on his Form 433-A Collection Information Statement exempt income. However, it is his opinion exempt income must be included in any calculation of a taxpayer’s ability to pay. The taxpayer has the income to live on. I said I would like to tell the representative that I spoke to IRS Area Counsel and they confirmed exempt income must be included on the Form 433-A Collection Information Statement. He said I can mention his opinion because he is confident it will stand up in court.” 2015 T. C. Memo. 225, at p. 9.

And the SO offered Frank a streamlined installment agreement, including the disability number. Frank says no, and petitions.

The IRM and the Form 433-A are misleading, but that’s unfortunate, because determining ability to pay means including all income, taxable or not. IRS agrees that Frank’s veterans’ disability benefits aren’t taxable. But ability to pay means all income, whether or not taxable.

“Indeed, the Internal Revenue Manual identifies certain payments that a taxpayer receives which are required to be included in determining the amount that a taxpayer would be able to pay each month to the IRS with respect to an unpaid tax liability, even though those payments are excludible from gross income. By way of illustration, IRM pt. 5.15.1.11(2)(f) requires certain child support payments that a taxpayer receives to be included in determining the amount that a taxpayer would be able to pay each month to the IRS with respect to an unpaid tax liability, even though the taxpayer may exclude from gross income under section 71(c) child support payments described in that section.” 2015 T. C. Memo. 225, at p. 19.

And both IRM and Form 433-A allow deductions from monthly income that would not be deductible for income tax purposes, like cellphone, cable and trash removal.

Finally, that a payment is exempt from levy doesn’t exempt it from inclusion in ability-to-pay calculations. Judge Chiechi cites the Ligman case. For details of that imbroglio, see my blogpost “I’ve Been Working On The Railroad,” 4/27/15.

 

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