Annuitizing Assets

Annuitizing Assets to Produce Future Income

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When a taxpayer is over age 60 we can look at annuitizing an asset rather than a liquidation value. The purpose is to find the value of income produced from an asset for the expected remainder of life of the taxpayer. This produces a monthly income figure that is added to other income sources for the analysis of an OIC. This is most successfully used in cases whereas the taxpayer has no other significant retirement assets or programs, and the tax debt cannot otherwise be paid off within the remaining statute of limitations. This is similar to the May 2012 OIC change in viewing business assets as an asset or income production, but not both. Also, if this method does not produce a positive net income that can be used in the Offer analysis, the IRS will likely decline to accept this as they would rather take their chances on a possible future windfall of the taxpayer.

This analysis uses the TValue software program. www.TimeValue.com

Annuitize the Asset

Need taxpayer’s current age. If within 6 months of next birthday, round up age.
Look up life expectancy as per IRS Pub 590 (in the appendix, Table 1)
Determine amount/value of the asset.
Determine the monthly AFR (Applicable Federal Rate) interest. Usually from the long-term table. Sometimes the mid-term table, depending on length of life expectancy.
Determine the start date of asset/investment accrual. Usually the 1^st day on the month in which retirement starts. Immediate if already in retirement.
Determine the start date of the annuity. Usually the 1^st day on the month following the date of retirement.

TValue Software entries

Line

Event

Date

Amount

Number

Period

End Date

Loan

Date of loan

Or investment

Total of loan/

Investment

Blank

Payment

Date of W/D

To start

Unknown

Life expectancy

Yrs X 12

Monthly

Caculated

by system

After entering the above information, click on the calculate button. The ‘Unknown’ on line 2 will give you the monthly income produced. This is the amount that gets included in the taxpayer’s monthly income on the FA as Other and I often put a description in to identify it.

TValue will produce an amortization report, albeit not an important part of this. Just save it as evidence of the calculation.

Use the result from above to list on the Form 433 as income on the 'Other Income' line and describe it as 'Annuitized Asset/Reverse Mortgage'.

Other Articles: (in process of updating and posting to the web. Available when there is a link.)

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