Saturday, May 28, 2011

IRS Problems -- Innocent Spouse Protection or Offer in Compromise -- Which is the Better Way to Go

Innocent Spouse Protection
or
Offer in Compromise?

Some 50,000 taxpayers a year ask the IRS for innocent spouse relief. Most are women under financial pressure, and some come from privileged backgrounds: Past relief recipients include wives of former San Francisco Mayor Joseph Alioto and Levittown developer William Levitt.

Most women who are in need of tax relief from the IRS are not from "privileged backgrounds" and cannot afford high powered law firms to handle their stressful and sizable IRS problems. Most of the women who we have encountered at Flat Fee Tax Service who have IRS problems regarding the actions of a former spouse are or have been former small business owners. 



ACTUAL CASE STUDY

of an

INNOCENT SPOUSE 

In 1999, Cathy Marie Lantz's husband, Indiana dentist Richard Chentnik, earned $112,000.00, or so Ms. Lantz thought, when she signed their joint tax return. In 2000, Dr. Chentnik was arrested for Medicare fraud, convicted and imprisoned. In connection with the case, the Internal Revenue Service (IRS) sent the couple a bill for $900,000 of tax, penalties and interest.

Did Ms. Lantz owe the tax debt her husband incurred? The IRS said yes, the Tax Court said no. Last summer the Seventh Circuit Court of Appeals said yes again, siding with the IRS.

The Seventh Circuit Court of Appeals reasoning was this: To be absolved of responsibility for the couple's tax debts / liability, Ms. Lantz would have had to ask the IRS for "innocent spouse" relief within two years of the agency's sending a levy notice.

According to testimony, Ms. Lantz said she didn't do so because her husband told her he had taken care of the request. Dr. Chentnik did get the IRS form, according to testimony, but didn't file it before dying in a halfway house in 2004. The court held Ms. Lantz liable for the entire tax bill. 

The IRS has applied the two-year deadline to all requests since then, despite the disapproval of lawmakers like Sen. Charles Grassley (R., Iowa), who was on the Finance Committee when the revision passed. Tax Court judges have repeatedly held in taxpayers' favor on this issue, although two appeals courts have overturned the Tax Court. More appeals cases are underway.

While the outcome of possible changes is unclear, experts have advice for spouses with current worries:
• Should you suspect your partner of tax misdeeds, you should avoid signing a joint return. "It often makes you 'joint and severally liable' for any problem," says Carlton Smith of Cardozo Law School in New York. Like other experts, he advises these taxpayers to opt for the "married filing separately" status instead, which severs liability. This may cost more in taxes but can be worth it.
• Ex-spouses should know the IRS can legally disregard a divorce decree. "Even if the decree says one partner is responsible for taxes, the IRS can pursue the other if both signed a joint return," says Bryan Skarlatos, an attorney with Kostelanetz & Fink in New York.
Get help from a tax professional for filing IRS Form 8857 for innocent-spouse relief. The form is deceptively simple. It doesn't make clear that including documents like an order of protection or explanatory letter may prevent an IRS rejection.
The IRS is a collection agency. The IRS is charged with the responsibility for collecting money for the Federal Government. The IRS will always be looking for an opportunity to reject your paperwork.
IF YOU CANNOT PAY THE IRS
YOU MAY WANT TO
LOOK AT AN
OFFER in COMPROMISE
Have you heard of the expression, "there is more than 1 way to skin a cat?" Should you be in a tough financial position and you are unable to pay the IRS for a tax liability incurred while you were married to your former partner, the pragmatic way to go may very well be an IRS settlement through the Offer in Compromise program.
WHY
an
OFFER in COMPROMISE
Water and electricity have this in common, "they both take the path of least resistance." Why, if you are financially struggling, would you want to get yourself tied up in a lengthy and costly fight with the IRS over acceptance of an Innocent Spouse petition when the answer could very well be in an Offer in Compromise program that has been expanded by the IRS and made easier by the IRS Commissioner? Take the path of least resistance.
DON'T SHOOT YOURSELF IN THE FOOT
“I’ve made a whole set of changes to the Offer in Compromise (OIC) program since I’ve been here to try to increase the participation rate, increase the acceptance rate, because it’s good for the tax system,” Doug Shulman, the IRS Commissioner said.
THE IRS HAS EXPANDED
and
MADE EASIER
the 
OFFER in COMPROMISE
PROGRAM
“These changes to the Offer in Compromise program will help give taxpayers a fresh start,” said Doug Shulman, the IRS commissioner, in a conference call with reporters. These changes “are especially appropriate as the American people and small businesses are climbing out of the worst recession in a generation.”

BE PRAGMATIC
“There are a variety of things, all aimed at increasing acceptance rates for an Offer in Compromise, making it a user-friendly thing to apply for,” Shulman said.
WHAT IS AN
OFFER in COMPROMISE
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer in compromise will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through an Installment Agreement / Payment Plan.
The IRS has a complicated (for a novice/inexperienced taxpayer) formula that proves whether or not you, the taxpayer, has the ability to pay your tax liability.
If it shown that you could never pay back your tax debt in full, you would be eligible and qualified for an IRS settlement through the Offer in Compromise program because there is "Doubt as to Collectibility."
WHAT IS YOUR OBJECTIVE
If you are "hell bent" on proving that your former partner "did you wrong" and want to prove up an Innocent Spousal filing, then you may end up frustrated, angry and continuing to have the IRS all over you for the past tax debt.
THE OBJECT SHOULD BE
OBTAINING THE
BEST
RESULT
WHY FLAT FEE TAX RELIEF FOR YOUR IRS SETTLEMENT
• Experienced Tax Attorneys
• Lower fees - higher value
• Integrity, credibility, personal service & results
• No Salesman - No Pressure - No Client Complaints

FLAT FEE TAX RELIEF IRS SETTLEMENT FEES ARE:
• Fixed with no hidden charges
• Payable in monthly installments
• Low initial payment to begin work
• Always competitive and affordable 



If you qualify for an IRS Settlement through the IRS Offer in Compromise (OIC) program, you can "get your life back", you can save thousands of dollars in taxes, penalties and interest. Taxpayers can have IRS Tax Debt on all types of taxes, including most payroll taxes, penalties, and interest. It is the closest thing to amnesty that the federal government offers in connection with back tax debt.

Taxpayers should bear in mind however, that the IRS Offer in Compromise program or IRS Penalty Abatement program is a privilege, not a right such as bankruptcy. That being said, it is a very subjective process. The IRS has the final word. The IRS Offer in Compromise (OIC) process is a very complicated drawn out process that can take upwards of nine months to a year and even longer. There are IRS guidelines, rules and protocols established by operation of law, under IRC Section 7122. However, most IRS Offer Examiners (former Revenue Officers) use the Internal Revenue Manual (IRM) as their guide.
CALL 
FLAT FEE TAX SERVICE
for a 
COMPREHENSIVE - FREE CONSULTATION

I am Dave Rosa, V.P. at Flat Fee Tax Service, Inc. and author of this Blog. Give us a call at Flat Fee Tax Service and we will provide you with an honest, straightforward consultation and present you with the solutions that are best for your particular situation.
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1 comment:

  1. If you are separated or divorced from someone that has burdened you with an IRS tax liability, you may want to consider an Offer in Compromise rather than petition for an Innocent Spouse declaration. Find out why.

    ReplyDelete