How To Navigate An IRS TAX Lien

How To Navigate An IRS TAX Lien

I am sure that potential home buyers, existing home owners and real estate professionals have been faced with the problem of trying to buy or sell a home that has an IRS tax lien attached to it.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Over the next few weeks I will explain the methods used to navigate around a tax lien so that you will be able to buy or sell that home, but first you need to know a little about the IRS collection process.

The IRS collection process works as follows:

  • You file a tax return and if there is a balance due the tax is “assessed”
  • You receive a billing notice asking you to pay the balance within ten (10) days
  • If payment is not received, a “silent” lien arises which means you aren’t notified
  • You receive an escalating series of more threatening collection letters resulting in a
  • Threat to levy (take) your assets
  • If you owe > $10,000 the IRS will issue a “Notice of Federal Tax Lien” (NTFL) which attaches to your assets and destroys your credit rating
  • If you continue to ignore the IRS, levies will commence

Hopefully, you are never in this predicament. If you are, contact a tax professional who does tax resolution work immediately.

There are three (3) ways in which to navigate around a federal tax lien. They are:

  1. Subordination
  2. Discharge
  3. Withdrawal

Over the next few weeks I will go into each of these options in detail.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

Innocent Spouse Relief – In Community Property States

Innocent Spouse Relief – In Community Property States

Last week I gave an overview of the “Equitable Relief” option of an Innocent Spouse filing. That article is linked here.

This week’s article describes the Innocent Spouse filing available for taxpayers who live in the nine (9) community property states of California, Arizona, New Mexico, Nevada, Texas, Idaho, Washington state, Louisiana and Wisconsin. The rules for an Innocent Spouse filing for a resident of a community property state are covered by Internal Revenue Code Section 66(c).

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Tax reporting for residents of community property states filing “married filing separate” returns is different than that for residents of other states. In a community property state, a taxpayer must report all of their own income plus one half of the income of their spouse on an MFS return.

A married, legally separated or divorced spouse or ex-spouse may request Innocent Spouse relief from the tax associated with the income from the other spouse or ex-spouse on a married filing separate tax return.

The other requirements in a 66(c) Innocent Spouse in a community property state filing are:

  • The tax liability exists due to under withholding (deficiency) or under payment
  • Filing must occur six months before tax assessment period ends (2 ½ years after return is filed)
  • Refunds are available if requesting spouse made tax payments
  • No fraudulent asset transfers between spouses prior to filing
  • The requesting spouse did not knowingly participate in filing a fraudulent joint tax return

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

Innocent Spouse – Equitable Relief

Innocent Spouse – Equitable Relief

Last week I gave an overview of the “Separation of Liability” option of an Innocent Spouse. filing. That article is linked here.

This week I will go into more detail on the third of the three types of Innocent Spouse. filings, known as “Equitable Relief” covered by Internal Revenue Code Section 6015(f).

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Due to the legal concept called “joint and several” liability, each spouse is legally liable for all the tax owed on a joint return even though the income and resulting tax liability may be mostly or completely attributable to only one of the spouses.

One of the most important requirements for an Innocent Spouse. filing is that a “valid joint return” was filed voluntarily with the consent of each spouse without threats or duress.

The other requirements in a 6015(f) Equitable Relief filing are:

  • The requestor must not qualify for relief under Internal Revenue Code Sections 6015(b) or 6015(c)
  • The tax liability exists due to under withholding (deficiency) or non-payment
  • Equitable Relief filing must generally occur within ten years of tax assessment
  • Refunds are available
  • No fraudulent asset transfers between spouses prior to filing
  • The requesting spouse did not knowingly participate in filing a fraudulent joint tax return

There are seven (7) elements that the IRS considers in an Equitable Relief filing before making a determination as to whether it would be “inequitable”, causing an economic hardship, to hold the requesting spouse liable for the underpayment of tax.

They are:

  1. Marital Status
  2. Economic Hardship
  3. Knowledge or Reason to Know
  4. Compliance with Income Tax Laws
  5. Legal Obligation to Pay
  6. Significant Benefit
  7. Mental or Physical Health

Depending on the facts associated with these elements in each filing, these items could either favor granting relief, be neutral or be against favoring relief.

In a successful filing, the IRS will allocate the tax liability based upon the income of the two spouses and the requesting spouse will only be liable for the tax associated with their portion of the income. For 6015(f) relief, the spouses can still be married.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

Innocent Spouse Relief – Separation of Liability

Innocent Spouse Relief – Separation of Liability

Last week I gave an overview of the “traditional” version of the tax resolution option called Innocent Spouse. That article is linked here.

This week I will go into more detail on the second of the three types of Innocent Spouse filings, known as “Separation of Liability” filing covered by Internal Revenue Code Section 6015(c).

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Due to the legal concept called “joint and several” liability, each spouse is legally liable for all the tax owed on a joint return even though the income and resulting tax liability may be mostly or completely attributable to only one of the spouses.

One of the most important requirements for an Innocent Spouse filing is that a “valid joint return” was filed with the consent of each spouse without threats or duress.

The other requirements in a 6015(c) Separation of Liability filing are:

  • The requestor must be divorced or legally separated for at least 12 months prior to filing.
  • There must be an understatement of tax due to the under reporting of income or erroneous reporting of expenses that the requesting spouse had no knowledge of or reason to know.
  • Separation of Liability filing must occur within two years of IRS initiating collection activity.

In a successful filing, the IRS will split the joint return and treat each spouse as if they filed “Married Filing Separate” returns. Each spouse will be responsible only for the tax on their own income. No refunds are available.

Next week I’ll speak about Innocent Spouse relief under Section 6015(f) also known as “Equitable Relief”.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.