Innocent Spouse

Not Just Another Covid-19 Announcement (Part II)

March 19, 2020 | by Dennis N. Brager

On Tuesday evening our tax lawyers sent out an announcement discussing some of the tax filing and payment implications of the Covid-19 virus. We indicated that Secretary of Treasury Mnuchin had announced payment and filing extensions for the 2019 income tax returns.

Mnuchin was quoted as saying “We encourage those Americans who can file their taxes to continue to file their taxes on April 15,” Mnuchin said. “Because for many Americans, you will get tax refunds.”

We took that to mean that the filing deadline as well as the payment deadline was extended. This is the problem with tax guidance by Tweet and press conference. On Wednesday morning the IRS issued an announcement which states that there is no filing extension.

Not Just Another Covid-19 Announcement

March 17, 2020 | by Dennis N. Brager

Some of you may be concerned about the impact of the Coronavirus aka Covid-19 outbreak on your taxes, and those of your clients. The news from the IRS has been slow in coming. On Friday of last week President Trump declared a National Emergency. At the same time, he directed Treasury Secretary Mnuchin to provide relief from “tax deadlines” to Americans who are adversely impacted by the emergency. This allows the IRS to extend various deadlines for up to a one-year period. This authority is not, however, self-executing. That is, the IRS must specify exactly which due dates, and for how long they are being extended.

Prior to President Trump’s announcement Secretary Mnuchin had told reporters that most deadlines would be extended for “small businesses” and most individuals other than the “super rich.” Our tax lawyers couldn’t find a definition of super rich anywhere in the Internal Revenue Code. Finally, this morning, Tuesday March 17^th, after partnership and certain LLC returns were already due, Mnuchin stated in a press conference that the filing deadline for the 2019 income tax return would be extended by 90 days. For individuals that would mean July 14^th. Presumably, the IRS will actually extend the date to July 15^th just to make things a touch easier. Individuals living overseas already have an extension to June 15^th so presumably they would have until September 15^th to file.

In addition to stating that the income tax filing deadline would be extended, Mnuchin also stated that the 2019 payment deadline for income taxes owed of less than $1 million dollars for individuals or $10 million for corporations. This would be an interest and penalty free extension. For those who are over the thresholds it is unclear whether the entire amount due would be subject to interest and penalties or just that amount over the threshold. It is also not clear whether the filing extension would apply to those who owe taxes in excess of the cut-off amount.

How Long Do I Have to File for Innocent Spouse Relief?

July 27, 2017 | by Dennis N. Brager

You generally must file a request for innocent spouse relief within two years from the date that the IRS first attempts to collect the tax from you. If you do not have all of the documentation you need, you still need to file the form 8857 within the two-year period.

When Collection Activities Are Commenced

The IRS is considered to have made an attempt to collect tax from you when one of the following four actions is taken:

Can I Prevent My Spouse From Getting Innocent Spouse Relief?

July 25, 2017 | by Dennis N. Brager

The IRS must notify the other spouse—referred to as the nonrequesting spouse—if one spouse files a request for innocent spouse relief. If your spouse is successful in their attempt to receive innocent spouse relief, you will be on the hook for the tax debt, interest, and penalties that they get relief from. Because of this, the IRS gives the nonrequesting spouse the right to present evidence and dispute the request for innocent spouse relief.

Your Rights as a Nonrequesting Spouse

The nonrequesting spouse must be notified when the requesting spouse files a request for innocent spouse relief. The nonrequesting spouse must also be notified of the Service’s preliminary and final determinations regarding the request for innocent spouse relief.

The Requirements for Traditional Innocent Spouse Relief

July 20, 2017 | by Dennis N. Brager

Traditional innocent spouse relief is one of three types of defenses available to taxpayers when the IRS is attempting to collect tax that is attributable to a return filed jointly with your spouse or former spouse. The IRS can collect from either spouse for tax assessed on a joint return, but innocent spouse defenses allow you to avoid liability for these items, if certain requirements are met.

The Conditions for Innocent Spouse Relief

All four of the following conditions must be met in order for you to qualify for traditional innocent spouse relief:

What’s the Difference Between an Innocent Spouse and an Injured Spouse?

July 17, 2017 | by Dennis N. Brager

An innocent spouse defense is used to get relief from the typical joint and several liability that exists for joint tax returns. If you filed a joint return, and your spouse erroneously understated the amount of tax owed, you can attempt to claim innocent spouse relief. If you are successful, the IRS will not attempt to collect the understated tax from you.

An injured spouse is a spouse whose portion of a joint tax refund has been offset due to the other spouse’s financial obligations. An injured spouse can use form 8379 to attempt to reclaim their portion of a refund, but only if they are not responsible for the spouse’s financial obligation that caused the offset, and if the injured spouse either paid federal tax during the year or is due a refundable tax credit.

Why Tax Refunds Are Offset

Innocent Spouse Relief Options: Separation of Liability

July 13, 2017 | by Dennis N. Brager

Separation of liability is an innocent spouse defense that allocates a tax deficiency between two spouses in proportion to each spouse’s contribution to the deficiency. While the IRS can generally collect the entire tax debt for a joint return from either spouse, separation of liability—along with the other innocent spouse relief options—prevents the IRS from collecting tax from one spouse when the erroneous item on the return is attributable to the other spouse.

The Conditions for Separation of Liability Relief

In order to qualify for separation of liability, you must have filed a joint return and meet one of the following conditions:

The Requirements for Equitable Relief as an Innocent Spouse

June 21, 2017 | by Dennis N. Brager

Equitable relief is one of three forms of innocent spouse relief available to married, or formerly married, taxpayers. Taxpayers who filed joint returns are generally jointly and severally liable for the full amount of any tax due, but innocent spouse relief allows an escape from this liability. Unlike the other two forms of relief, equitable relief is available for amounts reported on a tax return but not paid, in addition to amounts attributable to items that were not reported on your tax return.

Generally, the following requirements must be met in order to qualify for equitable innocent spouse relief:

You are not eligible for either of the other two types of innocent spouse relief.

How to Appeal a Denial of a Request for Innocent Spouse Relief

June 16, 2017 | by Dennis N. Brager

A request for innocent spouse relief is made by filing form 8857 within two years of the date that the IRS first attempted to collect the tax from you. You may have more time in certain situations, such as if you are seeking equitable relief.

The IRS must contact your spouse or former spouse to let them know that you have requested innocent spouse relief. This is true even in cases where spousal abuse or domestic violence occurred. The non-requesting spouse’s interests are affected by the IRS determination regarding your status as an innocent spouse because if you are successful, it will leave your spouse solely liable for some or all of the tax debt from your joint returns.

Because of the adversarial nature of innocent spouse determinations, your spouse or former spouse may try to show that you are not entitled to relief. They may claim that the item that caused the tax liability is partially attributable to you, or that you knew about an understatement of tax on the return. There are many factors that are weighed when making an innocent spouse determination, and you can expect the non-requesting spouse to point out all of the factors that weigh against a grant of innocent spouse relief.

Can the IRS Collect From a Non-Liable Spouse?

May 26, 2017 | by Dennis N. Brager

The IRS may be able to collect delinquent tax debt from a non-liable spouse in some cases. This means that tax debt that was accrued by one spouse on a return filed separately, may still result in collection action being taken on the other spouse. However, the IRS cannot pursue collection from a non-liable spouse in every case.

First, it is important to distinguish between joint tax debt and separate tax debt. Joint tax debt is any tax debt related to a return filed jointly. Separate tax debt could be related to a return filed before the taxpayer was married or a return filed after the marriage using the married filing separately status.

For joint tax debt, the IRS can collect from either or both spouses. They can levy your bank account, or your spouse’s bank account, or both. The Internal Revenue Manual states that wage levies should generally be applied to the spouse with higher earnings. However, in flagrant cases of neglect or refusal to pay, the IRS can levy the wages of both spouses.