Girlfriend Owes 16,000 over plane crash settlement

[earlytapemusic]

Ohio

My girlfriend was in a plane crash when she was 15, from which she received a settlement, which was subsequently invested. She is 21 now. In the past 4 months, the bloodless IRS has been auditing her, and she just received a phone call saying she owes $16,000, which she and her parents plan to appeal. The investment company that she used to invest the money has long since gone bankrupt, and there is no paper trail of her account, which has allowed the IRS to basically make up a fee of 16,000 in which to charge her. Since this is from a settlement from an event which happened before she was 18, could there be any loopholes somewhere in here?

What should she be worried about right now, and is there a risk that an appeal could help? I have little knowledge of tax law, but I want to help her out.. Any information will be greatly appreciated!

 

[tranquility]

There are lots of reasons how the IRS is correct, and a few as to how they are not. Were things reported correctly? On the "investmetnt" were the gains and losses reported?

Even then, see a tax professional. $16K is big money and arguing with the IRS, if you don't know how, is a waste of time.

 

[davew128]

Ohio

My girlfriend was in a plane crash when she was 15, from which she received a settlement, which was subsequently invested. She is 21 now. In the past 4 months, the bloodless IRS has been auditing her, and she just received a phone call saying she owes $16,000, which she and her parents plan to appeal. The investment company that she used to invest the money has long since gone bankrupt, and there is no paper trail of her account, which has allowed the IRS to basically make up a fee of 16,000 in which to charge her. Since this is from a settlement from an event which happened before she was 18, could there be any loopholes somewhere in here?

Do us a favor. Don't post asking for advice when you don't know the facts.

What should she be worried about right now, and is there a risk that an appeal could help? I have little knowledge of tax law, but I want to help her out.. Any information will be greatly appreciated!

Let's start off with what's obvious.

1) You are not a party to this. This is between your girlfriend and the IRS. Neither you nor her parents are a party to it.
2) You don't know that the amount is incorrect, or what it even represents. For all you know the settlement was taxable and they simply never paid tax on it.
3) Someone has a large cash windfall, gets audited, and doesn't have someone representing them? You deserve what you get at that point.
4) It is impossible to predict the outcome of an appeal, when you haven't offered any facts as to what was audited in the first place.
5) I also find it difficult to believe that a significant sum of money from a lawsuit settlement was invested with an investment company that went out of business and there isn't both a tax professional AND an attorney working for her. Hint: Theft loss of an investment is a deduction with favorable attributes compared to normal theft losses.