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.

Innocent Spouse Relief – Traditional

Innocent Spouse Relief – Traditional

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

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

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(b) Innocent Spouse filing are:

  • 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
  • It would be inequitable to hold the requesting spouse liable for the tax
  • Innocent Spouse filing must occur within two years of IRS initiating collection activity

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(b) relief, the spouses can still be married.

Refunds may also be available if the Innocent Spouse relief is granted within three (3) years of the original filing date of the joint tax return

Next week I’ll speak about Innocent Spouse relief under Section 6015(c) also known as “Separation of Liability”.

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

Innocent Spouse Relief – Overview

Innocent Spouse Relief – Overview

Many people have heard the term, Innocent Spouse, but they don’t really know what it means or how it works. Over the next several weeks I will explain.

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.

Generally speaking, Innocent Spouse claims arise after a married couple divorce. During the marriage they filed joint income tax returns. After the divorce, while the ex-spouses are living separate lives, outstanding tax liabilities for their married years may still exist and the IRS is attempting to collect.

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

Joint and several liability overrides what divorce settlements say regarding who will pay the tax. The IRS is not bound by the terms of the settlement that Divorce Court accepts.

Typically, the ex-spouse with the lesser amount of income or no income during the marriage will consider it unfair to be held responsible for tax liabilities mostly or completely generated by the higher earning spouse, especially if those taxes go unpaid.

The remedy available to the aggrieved ex-spouse is an Innocent Spouse Relief filing.

There are three (3) types of relief available under Internal Revenue Code Section 6015:

  • Code Section 6015(b) – Traditional Innocent Spouse
  • Code Section 6015(c) – Separation of Liability
  • Code Section 6015(f) – Equitable Relief

Over the next several weeks I will go into detail about all these remedies.

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

The FAST Act – Passport Revocation

The FAST Act – Passport Revocation

In December 2015, President Obama signed a transportation bill that authorized funds to invest in America’s infrastructure for highways, public transportation and rail called the FAST Act.

Tucked into this bill was a provision regarding the IRS’ ability to collect delinquent taxes from US passport holders.

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.

Since 2016, the IRS has been notifying the Department of State that there are passport holders who have “certified seriously delinquent tax debt”. You must owe at least $50,000 to fall into this category.

You will not be considered “seriously delinquent” if you are working with the IRS by applying for:

  • An Installment Agreement
  • Offer in Compromise
  • Collection Due Process Hearing
  • Innocent Spouse Filing

The IRS has not yet revoked anyone’s passport for being “seriously delinquent”, but if you apply for a passport or attempt to renew one with a balance due greater than $50,000 without being on some sort of payment plan or working with them on a  tax resolution option, your application will be denied.

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

OIC – Post Acceptance Compliance

OIC – Post Acceptance Compliance

Congratulations, you just got the letter from the IRS (Letter 5490) accepting your Offer-in-Compromise settling your tax debt for pennies on the dollar.

But guess what? It’s not over yet. 

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.

The first thing you must do is to fulfill the terms of the agreement, either by paying the Offer amount within five (5) months of acceptance for a lump sum agreement or within twenty-four (24) months for a short term deferred Offer.

Next, you must maintain tax compliance for the following five (5) years.

The IRS defines tax compliance as:

  • Filing your tax returns on a timely basis
  • Having sufficient taxes withheld from your W-2 income
  • Making your quarterly estimated tax payments if you are self-employed

Failure to maintain tax compliance for the five (5) years after Offer acceptance will result in a default of your agreement, reinstatement of your forgiven tax debt and a restarting of the IRS collection process.

Please do everything you can to avoid this fate.

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