February 23, 2012

Posts Comments

Invoke Spousal Tax Relief to Gain Time

November 22, 2011 By


Are you married? And if so, for how long have you been married? If you are married, do you file joint tax returns each season? Partners that file joint tax returns are equally responsible in case any issue of tax liability arises. This method of filing for tax returns can cause problems, especially when only one party fills the Form 1040 and the other blindly signs it.

Being a venture that is prone to liabilities arising, it is mandatory that both parties take full responsibility in filling and signing of tax return forms. Ignorance and negligence of some couples, to fully involve themselves in marital finances and filing of tax returns, has caused them not only fiscal troubles, but tax troubles as well.

Fortunately, there is always rescue available. When a wife or husband finds out that the other spouse has misfiled tax returns, then he/she can ask the IRS to cut some slack. The Internal Revenue Service has three choices available to taxpayers who have incurred problems as a result of their spouse’s or ex- spouses’ creative ways of filing tax returns:
Firstly, the innocent spouse relief frees the victim of any additional tax debt. This applies when one’s spouse or ex-spouse failed to inform the IRS of new income, improperly reported income, or claimed credits or deductions that are improper.

Secondly, the innocent spouse may claim liability separation relief, which splits additional tax debt between the spouses. This may occur in case an item on a joint tax return was not properly reported. Usually, each spouse is allocated the amount he/she is responsible for.

Thirdly, he or she may claim equitable relief, which may only be applicable if one does not qualify for either of the two choices mentioned above. An appropriate example is failure to properly report an item on a joint tax return, and more specifically, if it is attributable to the other spouse.

The tax relief enjoyed by spouses has come under fire from many sides like Congress and the National Taxpayer Advocate. A lot of the debate has been centered on the premise that spouse relief has for a long time, been “too restrictive.” The problem lay with the former IRS rules which stated that when one discovered or realized that the other spouse had manipulated joint tax returns, time would have already expired for the innocent party to claim for innocent relief. The rule under contention stated that a taxpayer ought to request for relief within two years after the first date of IRS’s attempt in tax collection.

The rules have since been reviewed and now, innocent parties have an extended time frame within which they may apply for relief. Normally, the duration of time allowed depends on whether the applicant has a due balance or is seeking a refund. This implies that one may have a time frame of between 3 to 10 years to request for relief. Therefore, should one realize that the IRS is after his/her back due to an error committed by a spouse during the filing of a joint tax return, he/she should immediately request spousal tax relief, regardless of the time frame

Filed Under: Our Blogs Tagged With: , , , , , , ,

IRS Removes Controversial Two Year Limitation on Innocent Spouse Relief

August 23, 2011 By

The IRS has made a historic removal of a two year limitation rule the Innocent Spouse Relief starting July 2011. This removal of the 2-year rule applies for most qualifying taxpayers seeking to get protection under the relief. Prior to this tax code change, those seeking to be relieved from tax obligations through the Innocent Spouse Relief had to do so within two years from when the IRS contacted the spouses for collection. In practice, many spouses who were innocent to the tax liability because they were either unaware of the due taxes or were in abusive marriages (and could not refuse signing because of duress or pressured influence) could not qualify for relief because of the time limitation. One reason for this is that if the IRS contacted the “guilty” spouse for collection, he or she may conceal this from the other “innocent” spouse and thus, the innocent spouse would remain unaware of the collection process. When the “innocent spouse” finally becomes notified of the back taxes being collected, often times, it would be past the two year time limit and therefore, too late to claim the relief. However, with the removal of the 2-year time limit, many innocent spouse will now get their relief with no time constraints.

Time Limit Still Applies for Some

The IRS however, maintained that the two year rule will still apply for spouses who became aware of the IRS collection within the two year time frame and did not take any action. This rule however, will not apply for any spouse who is or was in an abusive marriage.

About Innocent Spouse Relief

The Innocent Spouse Relief is a tax relief provided to spouses who file taxes jointly with their partner. The current rules for the relief were introduced into the tax code in 2002. According to the tax code, when a couple files taxes jointly, they are both held responsible for the information in the tax return and should an issue arise from the tax return, they are both held liable individually (and the IRS can collect the back taxes from either or both of the spouses). However, under the Innocent Spouse Relief, if a spouse is unaware of false information claimed on the tax return (and the IRS discovers the false information in the returns), the spouse can be absolved from the consequential tax liability that may arise. The innocent spouse will need to file IRS Form 8857- “Request for Innocent Spouse Relief Form” and provide an explanation of their innocence in the tax liability. If there is enough evidence to show that the spouse could have been unaware of the due taxes or forced to sign the tax returns against his or her will, the IRS will relieve the spouse of the taxes due.

The Scope of the Relief

The IRS receives on average about 50,000 Innocent Spouse Relief applications every year. They however, reject close to 2,000 applications for the lapsing of the two year limitation. However, with this new inclusion to the tax code, many of these victims will now receive justice and get the relief. The IRS has stated that this new rule will take effect immediately and any cases that are still under review will now be considered under this new rule. Any spouse who had been denied the relief because of the time limitation prior to the announcement can now reapply for the relief.

Action towards Removal of the Time Limitation

The removal of the time limitation on the Innocent Spouse Relief came after a spirited campaign by politicians and activist groups. The opponents of the former two year rule argued that the limitation cut off many innocent spouses from getting justice. Earlier in 2011, a group of House Democrats wrote a letter to the IRS commissioner, seeking the IRS remove the two year time limit. This followed many debates and discussions on Capitol Hill and the media that sort to have the IRS remove this rule. After all of these tremendous efforts, the changes have come as a welcome relief to many.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , , ,

Efforts to Review the 2 Year Limit on Innocent Spouse Relief

May 27, 2011 By


Filing returns jointly for any married couple comes with a range of advantages including entitlements to various tax breaks. Therefore, most married couples prefer filing tax returns jointly to maximize on such benefits. However, whenever a couple files returns jointly, they are individually liable to all the information and obligations associated to the returns. In this case, any omissions or erroneous entries are liable to both spouses irrespective of their knowledge or involvement with such information. However, the IRS provides an opportunity for innocent spouses to be protected from any tax liabilities if they were ignorant of the tax situation that led to the additional tax liabilities or signed returns out of pressure or extreme influence. Therefore, such an innocent spouse can petition to the IRS to be excused from any liabilities and thereby, pass the whole additional tax liability to the guilty spouse. This spouse-protection-arrangement is referred to as the Innocent Spouse Relief.

The Innocent Spouse Relief has protected many victims of tax fraud who find themselves in a problematic tax situation for information they were not aware of only because they filed their taxes jointly. However, to qualify for the Innocent Spouse Relief, one needs to meet a set of rules provided by the IRS. One of these rules is that you need to file for the Innocent Spouse Relief within a maximum of 2 years after submitting the returns. It means that if the IRS contacts a couple after the 2 year limit, an innocent spouse cannot utilize the Innocent Spouse Relief.

The two year limit on the Innocent Spouse Relief has been faced with a lot of criticism because this time limit provided by the IRS is seen as arbitrary and lacking any basis. There have been various efforts by different parties to seek a repeal of the limitation on the relief. The point of contention is that a spouse could remain innocent even 3 to 5 years after returns are made, and holding such an innocent spouse liable because of a time limitation is simply unfair. In one case, the IRS attempted to recover taxes from a spouse whose husband had been convicted of physically abusing her. The IRS claimed that it could not apply the Innocent Spouse Relief because of the time limitation. Luckily for her, the court ruled in her favor and the decision of the IRS to hold her responsible was reversed.

Various lawmakers, including 49 Representatives and 3 Senators, have endeavored to get an adjustment of the “2 year” rule. Representatives Pete Stark of California and Jim McDermott of Washington have written to the IRS Commissioner Doug Shulman, seeking an adjustment to the rule. Others including Senator Max Baucus, Senator Tom Harkin, and Senator Sherrod Brown have also made similar appeals to IRS administrators. However, this spirited effort has not been in vain. The IRS Commissioner, in response to these letters indicated, stated that the IRS was in the process of overhauling the whole relief to ensure that it addressed their concerns and ensured fairness to the innocent spouse.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , ,

Innocent Spouse Relief and What to Do When Fearing Retaliation

May 9, 2011 By

The emotions involved with marital and divorce issues are problematic enough, but sometimes, disputes between a couple can cause tax issues as well. Usually, both spouses are equally responsible for any tax debt when they file together, which means that either person may be held responsible for the entire debt due. However, one of the parties in the marriage may not know that the other made certain tax decisions and can file for innocent spouse relief (to be absolved of the resulting debt). However, innocent spouse relief is not always the end of the story, and sometimes filing for it can trigger domestic violence.

In our adversarial legal system, the IRS is required to tell the possibly not-so-innocent spouse about the status filed against them. Then, that spouse has the opportunity to tell the IRS his or her side and get limited information about their spouse or ex-spouse’s request. Unfortunately, sometimes, this notice can begin or escalate a cycle of spousal mistreatment.

Part 3 of Form 8857, Request for Innocent Spouse Relief, includes a section where the filer can indicate that he or she has been an abuse victim and fears retaliation from his or her spouse or ex-spouse. This checkbox tells IRS agents to take special care with that particular case, but does not have any bearing on whether tax relief is granted.

The IRS has also increased its confidentiality measures and will not give the person against whom the relief has been filed any personal information about the filer. The only information that the IRS shares are facts directly related to determining the legitimacy of the claim. Additionally, all correspondence is centralized so that a potential abusive person will not have any indication of the other person’s whereabouts.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , ,

You May Be Entitled to Innocent Spouse Relief

December 16, 2010 By

If your former spouse caused you to get a notice of understated back taxes, you do not necessarily have to pay them yourself simply because you filed jointly at the time. If you are able to prove that your return from that year included understated taxes due to your spouse’s error, this may mean that your spouse is responsible for the difference. To be granted innocent spouse relief, you must prove that you did not know, nor did you have reason to know, about the understated taxes. You must also prove that it would be unfair to hold you liable for this understatement.

The IRS views knowing or having reason to know about the understatement of taxes as “actual knowledge” or a “reason to know”. “Reason to know” means that a reasonable person under similar circumstances would have known of the understatement. Erroneous items include unreported income and incorrect deductions, credits, or property basis. You may also be entitled to innocent spouse relief for a portion of your debt if you are able to prove that a portion of the debt is erroneous.

To file for innocent spouse relief, a taxpayer must file Form 8857. That form can be used to cover more than one year’s worth of a request. Form 8857 must be filed separately within two years of the first collection activity against you. On the form itself, there are descriptions of the documents required to submit to get innocent spouse relief.

If you fear repercussions from your spouse, you have other options. As the IRS suggests on their website, you may want to consider filing an Offer in Compromise Doubt as to Liability; this may relieve you of the responsibility to pay that debt. Before filing for innocent spouse relief, it will probably help you to consult a tax professional to find out if you qualify.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , ,

Innocent Spouse | Wage Levy

November 12, 2010 By

Wage Garnishment: What about my spouse?

Frequently when someone is issued an IRS wage levy, they may worry about whether their spouse’s income will also be subject to the levy. The fact is that the IRS is not allowed to take income from your spouse if they are deemed to not be liable for the taxes, whether or not you filed a joint return.

If you filed separate tax returns the situation is very simple; only you can be held liable for the IRS wage levy and only you will have to pay it. You are the person who signed the return, and therefore, under the law, you are the only person who can be held responsible for paying off the debt.

Additionally, if you have been issued an IRS wage levy for debt from a return you filed a few years ago with an ex-spouse, the IRS will not hold your new spouse accountable for any debt – it is either yours or your ex-spouse’s.

If you have filed a joint return with your current spouse, they will still not necessarily be held liable for your tax debt. The IRS has rules and regulations in place to protect ‘innocent’ spouses from being held accountable for debt that is not theirs and having things such as IRS wage levies imposed upon them. ‘Innocence’ here is determined by whether the IRS decides if your spouse knew about the unpaid taxes and whether they received any of the ‘benefits’ of them. If they decide your spouse didn’t know about the unpaid taxes and/or didn’t receive any benefits, they will be granted relief, otherwise they very well could be subject to a wage levy too. In the end, the decision is up to the IRS.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , ,

Do You Qualify For Innocent Spouse Relief?

October 20, 2010 By

Innocent Spouse Relief Requires Qualification

It is important to understand the joint filing of taxes by spouses can result in complications. It does seem like joint filing is an advantage because it entitles you to lowered tax rates and also deductions. The downside to filing jointly is if there’s a mistake such as incorrect reporting or the failure to report income on a return. In such instances both married parties will have be held accountable by the IRS.

There are married couples who make innocent mistakes on their jointly filed tax account. Even though it takes up time, these can eventually be cleared up. The big problems arise when one spouse is unaware of those mistakes or when one spouse is forced into providing a signature on the joint return. There are certain instances that qualify for Innocent Spouse Relief. This is how the IRS allows the innocent or blameless spouse to be exempted from the penalty caused by the fraudulent tax return of his or her spouse.

If you want to make use of the Innocent Spouse Relief option the IRS has specific requirements:

  • You and your spouse must have filed a joint tax return.
  • There must be an error on the joint return that is the responsibility of your spouse.
  • You must show evidence that at the date of signing you did not know of that error.
  • According to circumstance it must be clear it would be unjust to penalize you.

You can make use of an online tool at the IRS website that determines whether or not you qualify for Innocent Spouse Relief.

It is possible for the blameless spouse who signed the joint filing to avoid liability if the guilty spouse tried to defraud Uncle Sam or misappropriated income. If you meet all the requirements of the IRS simply complete Form 8857 (Innocent Spouse Relief). You must do this within two years subsequent to the IRS trying to collect tax.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , ,

2 Types of Tax Relief

September 15, 2010 By

2 Forms of Tax Relief You May Qualify For

Tax time seems to come faster and faster each year. As you prepare for that day, it’s a good idea to ask yourself whether or not you might qualify for any kind of tax relief. This comes in many forms ranging from aid to those in a disaster to keeping your assets separated from your spouse. If you are unsure, it’s a great idea to ask a tax preparer for tax relief help and if you qualify for anything. Here are a few examples:

Innocent Spouse Relief

One of the most common forms of tax relief is called “Innocent Spouse”. When you request this, you can avoid paying taxes and penalties that your spouse (or ex) may be responsible for. This could be due to unreported income, faulty deductions, or if you know you aren’t responsible for something. A great example of this is if your spouse is required to pay child support and you are expecting a tax return. If they are behind, your tax return can be used to pay for your spouse’s child support.

Homeowner Relief

In the US, there are a few programs out there that will help cut the taxes of homeowners. This is both federal and state. Some countries may even offer relief to renters. You should definitely inquire about this form of tax relief; if you qualify, you could pay much less in taxes.

These are just a few common examples of the types of relief you may qualify for. It’s difficult to determine what you qualify for so by getting tax relief help from a professional, you might find yourself saving thousands of dollars. It’s definitely worth your time to pursue this each and every year.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , ,

Tax Relief: My Signature Was Forged by My Spouse… What Can I Do?

May 11, 2010 By

If you and your spouse file tax jointly, your visible signature is no surprise. If you can’t recognize your signature your spouse may have signed your name. If you don’t recall consenting to your spouse signing, it may be forged. Very often, this only becomes apparent once the IRS puts out feelers because they want money owed on your spouse’s tax return. To begin with, if you had no clue about the filing, you wouldn’t expect the IRS to come after you for money.

The only way to establish if you carry liability for money owed by your spouse is dependent on the filing history you shared. In the case of an unlawful signature, the IRS expects you to persuade them to change the position of the filing from joint to separate. You must not have directly given, or implied through your actions (Tacit Consent Rule), you consented to your spouse placing your signature on the filing. If so, you will be considered an “innocent spouse” and won’t be held responsible for a return without your consent.

Tacit Consent Rule in the Case of Ashworth v Commissioner, TC Memo 1990-423. Pamela Ashworth completed joint tax returns with her husband during their marriage from 1976 to 1981. The return for 1982 was audited and highlighted an outstanding balance. The return in 1982 was also a joint filing but Pamela Ashworth denied signing it. The Court established she did not lodge a separate tax return in 1982 and therefore the pattern of filing jointly from 1976 to 1981 had not been changed. The 1982 return was deemed authorized and lawful. It was based on upholding the Tacit Consent Rule (implied through your actions).

It’s not easy to prove your spouse forged your signature if you can’t show you diverted from a history of filing joint tax returns. The IRS uses that history to uphold the Tacit Consent rule. In order to gain tax relief, it’s up to you, to prove the rule does not apply to a joint filing in question.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With:

“Innocent” Spouses & Liability For An IRS Wage Levy

March 10, 2010 By

Frequently when someone is issued an IRS wage levy, they may worry about whether their spouse’s income will also be subject to the levy. The fact is that the IRS is not allowed to take income from your spouse if they are deemed to not be liable for the taxes, whether or not you filed a joint return.

If you filed separate tax returns the situation is very simple; only you can be held liable for the IRS wage levy and only you will have to pay it. You are the person who signed the return, and therefore, under the law, you are the only person who can be held responsible for paying off the debt.

Additionally, if you have been issued an IRS wage levy for debt from a return you filed a few years ago with an ex-spouse, the IRS will not hold your new spouse accountable for any debt – it is either yours or your ex-spouse’s.

If you have filed a joint return with your current spouse, they will still not necessarily be held liable for your tax debt. The IRS has rules and regulations in place to protect so-called ‘innocent’ spouses from being held accountable for debt that is not theirs and having things such as IRS wage levies imposed upon them. ‘Innocence’ here is determined by whether the IRS decides if your spouse knew about the unpaid taxes and whether they received any of the ‘benefits’ of them. If they decide your spouse didn’t know about the unpaid taxes and/or didn’t feel any benefits, they will be granted relief, otherwise they very well could be subject to a wage levy too, although what happens is up to the IRS.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: ,