Owe Back Taxes? The IRS May Grant You Uncollectible Status

Sometimes seniors find themselves owing past-due federal taxes they cannot afford to pay.  Although notices from the IRS can be especially frightening, there are solutions. 

If the sum owed is less than $50,000, the IRS will accept monthly payments over five years. For example, if $6,000 is owed to the IRS, monthly payments of around $100 can be made. There are also laws in place that provide that persons unable to pay their taxes can be placed on Currently Not Collectible (CNC) status with the IRS and not have to pay their past-due income taxes. The IRS is generally very understanding and helpful towards seniors with lower incomes applying for currently not collectible status.

Seniors with especially low incomes can often obtain CNC status by simply phoning the IRS at the number on an IRS collection notice. You can ask the collector to file “53” on your case, which means filing IRS form 53 (only a collector or IRS official can do this). You will not need to file detailed financial paperwork. For example, a senior with a monthly income of $1,200 and rent of $600 obviously will have no extra income to pay any past-due taxes. 

However, you may be asked to complete a financial form that shows you do not have any surplus income after paying necessary monthly living expenses. This form, IRS 433-A, can be found here. 

Although it is rarely done, the IRS can garnish 15 percent of a senior’s Social Security for past-due income taxes. However, this garnishment will never happen without the senior being first notified.  The IRS will almost never garnish pensions and other retirement income. 

Tips on Applying for Uncollectible Status

Here are some guidelines and requirements for applying for CNC status:

• The financial information supplied must prove to the IRS that the individual does not have any surplus income after paying their necessary monthly living expenses and that they have no significant additional assets.
• Individuals may need to submit their bank statements along with this IRS financial statement and any other relevant financial documentation for review.
• Look carefully at this web page http://www.taxdebthelp.com/hardship/requirements-uncollectible. At the bottom of the page are links to budget standards the IRS uses in determining whether a person qualifies for uncollectible status.
• If you are going to apply by phone, carefully prepare a budget ahead of time that shows expenses within those budget standards that consume all your money so it is clear there is no extra money with which to pay taxes.
• If applying by phone, the IRS collector might try to get you to say that you can pay something when you can’t.  Review on the IRS website the suggested budget numbers and national standards for where you live. Do not underestimate your expenses, which many people do.  If you fit within the criteria, you qualify for CNC status.

Once taxpayers are placed on CNC status, they will maintain this status for at least a year.  In the case of retirees, the status will likely be indefinite since retirement income and Social Security are constant and most retirees will not be working in the future. If an individual’s account keeps its CNC status until after the statute of limitations on the debt runs out, usually around ten years, the IRS will be permanently prevented from collecting the debt.

What About State Income Taxes?

 Not all states have procedures in place to put persons on uncollectible status for past-due state taxes owed. Federal law protects Social Security, pension, disability and VA benefits from garnishment by states for taxes owed. Unfortunately, not all state taxing agencies will tell seniors that their income is protected from garnishment; instead, they continue collection efforts.

If a senior’s bank account is garnished by a state tax collector, twice the amount of monthly Social Security deposited into the bank account is automatically protected from garnishment, no matter the source of funds in the account at that time. Federal banking regulations require a bank to determine an account into which Social Security is deposited and disregard any garnishment, including for past-due state taxes owed. If there are excess funds from exempt sources in the account, a claim of exemption would need to be filed with the state before the money could be released.

Relief From Medicare's Part B Late-Enrollment Penalty Offered to Some

Medicare is offering relief from penalties for certain Medicare beneficiaries who enrolled in Medicare Part A and had coverage through the individual marketplace. For a short time, these individuals will be able to enroll in Medicare Part B without paying a penalty for late enrollment.

Individuals who do not enroll in Medicare Part B when they first become eligible pay a stiff penalty. For each year that they put off enrolling, their monthly premium increases by 10 percent -- permanently. Some people with marketplace plans – that is, plans purchased by individuals or families, not through employers -- did not enroll in Medicare Part B when they were first eligible. Purchasing a marketplace plan with financial assistance from the Affordable Care Act (aka Obamacare) can be cheaper than enrolling in Medicare Part B. However, Medicare recipients are not eligible for marketplace financial assistance plans. And because marketplace plans are not considered equivalent coverage to Medicare Part B, signing up late for Part B will result in a late enrollment penalty.

Although the Centers for Medicare and Medicaid Services (CMS) sent notice to individuals who had both marketplace plans and Medicare, it may have been too late. Therefore, CMS is allowing individuals who enrolled in Medicare Part A and had coverage through a marketplace plan to enroll in Medicare Part B without a penalty. It is also allowing individuals who dropped marketplace coverage and are paying a late enrollment penalty for Medicare Part B to reduce their penalty. To be eligible for the relief, the individual must:

• Have an initial Medicare enrollment period that began April 1, 2013 or later; or
• Have been notified of a retroactive premium-free Medicare Part A award on October 1, 2013 or later.

This offer is available for only a short time. To be eligible for the relief, individuals must request it by September 30, 2017. Individuals who are eligible should contact Social Security at 1-800-772-1213 or visit their local Social Security office and request to take advantage of the "equitable relief."

Don't Let Health Care Providers Use the Improvement Standard to Deny Medicare Coverage

Have you or a loved one been denied Medicare-covered services because you’re "not improving"? Many health care providers are still not aware that Medicare is required to cover skilled nursing and home care even if a patient is not showing improvement. If you are denied coverage based on this outdated standard, you have the right to appeal.

For decades Medicare, skilled nursing facilities, and visiting nurse associations applied the so-called "improvement" standard to determine whether residents were entitled to Medicare coverage of the care. The standard, which is not in Medicare law, only permitted coverage if the skilled treatment was deemed to contribute to improving the patient's condition, which can be difficult to achieve for many ill seniors.

Three years ago in the case of Jimmo v. Sebelius the Centers for Medicare & Medicaid Services (CMS) agreed to a settlement in which it acknowledged that there's no legal basis to the "improvement" standard and that both inpatient skilled nursing care and outpatient home care and therapy may be covered under Medicare as long as the treatment helps the patient maintain her current status or simply delays or slows her decline. In other words, as long as the patient benefits from the skilled care, which can include nursing care or physical, occupational, or speech therapy, then the patient is entitled to Medicare coverage.

Medicare will cover up to 100 days of care in a skilled nursing facility following an inpatient hospital stay of at least three days and will cover home-based care indefinitely if the patient is homebound.

Unfortunately, despite the Jimmo settlement, the word hasn't gotten out entirely to the hospitals, visiting nursing associations, skilled nursing facilities, and insurance intermediaries that actually apply the rules. As a result, the Jimmo plaintiffs and CMS have now agreed to a court-ordered corrective action plan, which includes the following statement:

The Centers for Medicare & Medicaid Services (CMS) reminds the Medicare community of the Jimmo Settlement Agreement (January 2014), which clarified that the Medicare program covers skilled nursing care and skilled therapy services under Medicare’s skilled nursing facility, home health, and outpatient therapy benefits when a beneficiary needs skilled care in order to maintain function or to prevent or slow decline or deterioration (provided all other coverage criteria are met).

Specifically, the Jimmo Settlement required manual revisions to restate a “maintenance coverage standard” for both skilled nursing and therapy services under these benefits:

Skilled nursing services would be covered where such skilled nursing services are necessary to maintain the patient's current condition or prevent or slow further deterioration so long as the beneficiary requires skilled care for the services to be safely and effectively provided.

Skilled therapy services are covered when an individualized assessment of the patient's clinical condition demonstrates that the specialized judgment, knowledge, and skills of a qualified therapist (“skilled care”) are necessary for the performance of a safe and effective maintenance program. Such a maintenance program to maintain the patient's current condition or to prevent or slow further deterioration is covered so long as the beneficiary requires skilled care for the safe and effective performance of the program.

The Jimmo Settlement may reflect a change in practice for those providers, adjudicators, and contractors who may have erroneously believed that the Medicare program covers nursing and therapy services under these benefits only when a beneficiary is expected to improve. The Settlement is consistent with the Medicare program's regulations governing maintenance nursing and therapy in skilled nursing facilities, home health services, and outpatient therapy (physical, occupational, and speech) and nursing and therapy in inpatient rehabilitation hospitals for beneficiaries who need the level of care that such hospitals provide

“The CMS Corrective Statement is intended to make it absolutely clear that Medicare coverage can be available for skilled therapy and nursing that is needed to maintain an individual’s condition or slow deterioration,” says Judith Stein, Executive Director of the Center for Medicare Advocacy and a counsel for the plaintiffs. “We are hopeful this will truly advance access to Medicare and necessary care for people with long-term and debilitating conditions.”

While this doesn't change the rights Medicare patients have always had, it should make it somewhat easier to enforce them. If you or a loved one gets denied coverage because the patient is not "improving," then appeal.