I would greatly appreciate your thoughts on how best to advise a good friend's mother.
IN 2010 & 2011 this lady aka the grandmother, took her 2 grandchildren in to live with her while grandchildren's parents were divorcing (unstable home). Her tax returns were prepared by CPA claiming HOH, 2 dependents, CTC and EIC. In 2013 she was audited. Proof of relationship & copies of paid bills were provided but IRS also wanted evidence the children lived with her. Although she had added them to her lease in 2010, by 2013, the apt management had changed hands and previous management records were not in good shape. New management handwrote a note that the children were on her lease but IRS wanted it on letterhead which they did not want to provide. Additionally the school (etc) records were not to changed to grandmother's address because parents wanted to keep up with children's report cards etc. directly.
My friend, moved out of state for a few years so quit monitoring grandmother's situation. Meanwhile, grandmother is financially illiterate and didnt know what to do so she did nothing. She also quit filing (she may have filed 2012).
IRS assessed $7K/yr addl tax plus interest, penalties (including accuracy) in 2013. The last letter (LT16) she received in 2015 had an accrued balance for both years of over $20K. She hasnt received any other notifications but she has moved a few times.
She has a job earning less than $18K per year and has managed (over several years) to put away a modest 401(k) through her employer of less than $6K. She is now 59, is considered legally blind (still works), & can no longer drive. I assume she is considered currently non collectible as the IRS has not garnished her wages.
My friend moved back, mom(grandmother) moved in with my friend who drives her to (30miles)& from work (shift hrs). If she can keep working until 2021,when she is 62, IRS will garnish 15% of her small social security check. The SOL should close in 2023.
I roughed up the last 4 years of returns, averaging $1300 refund per year. I also ran through the OIC qualifier, but because I estimate she has no living expenses (lives with my friend & no longer owns a car), I used the IRS allowance for expenses and she fails to qualify.
Would the IRS have prepared SFRs and applied the old refunds to her balance?
Would she be a good candidate for OIC based on Doubt as to Liability? Or ETA? I hope she wouldnt have to liquidate her 401(k).
She spoke to an attorney who told her to have the IRS reopen the 2010 & 2011 audit and have her son write a letter than he had custody of the grandchildren (who lived with her). Is this a viable option?
I know she needs to come into compliance but would like an overall best approach to help her resolve this and I dont want to misstep if I can help it.
Thanks for your thoughts/advice.