Irrational 401k final withdrawal

[Jmule1020]

What is the name of your state? WV
Hello,

Back in October of 2017, I was abruptly separated from my job. Already worried about bills and having just bought a new house, I took a final withdrawal on my 401k. I did need it, as I was out of work for 4 months and the money was spent. I know this was bad, but I felt that I had no choice as I could not collect unemployment, due to the circumstances of my dismissal. After preparation and filing of my taxes, I now owe tax and penalties on my entire 401k. This is due to the fact that I had loans that I was paying back, but did not satisfy the balance at the time of the withdraw. The end result being that I now owe the IRS nearly $70,000. Almost a whole year of salary. And owe state taxes of nearly $10,000. I cannot afford what ever payment plan would satisfy this tax debt and cannot afford legal representation that would settle it. Is there any provision in the tax code for financial hardship due to unemployment? Can I work with the IRS to make reasonable payments?

 

[Taxing Matters]

What is the name of your state? WV
Hello,

Back in October of 2017, I was abruptly separated from my job. Already worried about bills and having just bought a new house, I took a final withdrawal on my 401k. I did need it, as I was out of work for 4 months and the money was spent. I know this was bad, but I felt that I had no choice as I could not collect unemployment, due to the circumstances of my dismissal. After preparation and filing of my taxes, I now owe tax and penalties on my entire 401k. This is due to the fact that I had loans that I was paying back, but did not satisfy the balance at the time of the withdraw. The end result being that I now owe the IRS nearly $70,000. Almost a whole year of salary. And owe state taxes of nearly $10,000. I cannot afford what ever payment plan would satisfy this tax debt and cannot afford legal representation that would settle it. Is there any provision in the tax code for financial hardship due to unemployment? Can I work with the IRS to make reasonable payments?

I suggest you see a tax lawyer or other tax professional with experience in tax collection issues (not all tax professionals have that experience; a number of them only deal with substantive tax issues, meaning those issues that involve computing what tax you owe, not how you pay it). It might not cost as much as you fear. There are various options here that might resolve the problem, at least for awhile. You could get on an installment agreement, you could do some form of offer-in-compromise (OIC) in which you pay some amount that is less than the full balance due in full satisfaction of the liability, the IRS could simply declare it currently not collectible (CNC) and shelve the case for a few years until your finances improve (though interest and penalties still get added while the case sits), you might be able to deal with it in bankruptcy, too. A lot depends on the details of your financial situation.