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Can the IRS garnish my wages or take my refund for back taxes my husband owed before we married?
Continue ReadingIt is not at all uncommon for a spouse to find out after marriage that their husband or wife owes back taxes to the IRS. While your new husband or wife may never be “personally” liable for those tax debts, their income and tax refunds may still be vulnerable to IRS collection tactics. Forewarned is forearmed.
Tax Refunds
If spouses file a joint income tax return and an IRS tax debt is owed by one of the spouses, the Service will generally offset the entire overpayment. If the spouse who does not owe the obligation (referred to as the “injured spouse”) files a claim for his or her share of the overpayment (referred to as an “injured spouse claim”), the Service is required to refund his or her share of the overpayment. The question is just what is that share?
In Texas, all tax debts may be satisfied with 100% of the liable spouse’s sole management community property (i.e., any withholding attributable to the liable spouse’s wages) and 50% of the injured spouse’s sole management community property (i.e., any withholding attributable to the injured spouse). In addition, 100% of any part of the overpayment that is attributable to the liable spouse’s separate property is vulnerable as well. See Medaris v. United States, 884 F.2d 832 (5th Cir. 1989)
Wage Garnishment
Texas law provides that property acquired during marriage, other than by gift, devise, descent or personal injury recovery, is community property. Tex.Fam.Code Ann. Sec. 5.01 (Vernon 1975). Each spouse has a one half interest in all community property. See Broday v. United States, 455. F.2d 1097, 1100–01 (5th Cir. 1972). Therefore, the IRS can reach your non-liable spouse’s wages too — or at 50% of them.
What about other community property states?
Subject to some variation, the following quick reference chart is will give you an idea:
Arizona 50%
California 100%
Idaho 100%
Louisiana 100%
Nevada 50%
New Mexico 50%
Texas 50%
Washington 50%
Wisconsin 50%What can a Pre-Nupital and Post-Nupital Agreement Do to Help?
The lesson here is to talk to your fiance about debt and back taxes before you marry. Taxpayers with a prenuptial agreement can opt out of state community property laws and elect to have income treated as if they were domiciled in a non-community property state, in which case Section 66 of the Internal Revenue Code (IRC) would not apply and a much better result will follow. Post-nuptial agreements allow spouses to accomplish many of the same goals as prenuptial agreements, but are executed during the marriage. In many cases, the IRS will accord the same effect to such agreements.
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Does a single member limited liability company (SMLLC) afford protection to taxpayers who owe the IRS personally?
Continue ReadingQuestion: Does a Single Member Limited Liability Company (SMLLC) afford protection to taxpayers who owe the IRS personally?
Answer: State law will control whether the IRS or any creditor has the right to LLC assets. In general, the answer is that creditors of an LLC member have no rights to the “assets” of the LLC. They may be able to intercept payments the LLC makes to a member through what is known as a charging order or other means.
The IRS must look to state law to determine whether a person has an ownership interest in any particular asset. Aquilino v. United States, 363 U.S. 509 (Sup. Ct. 1960). If state law does not vest an ownership interest in an asset in favor of the person who owes the tax, the IRS cannot seize that asset. But, not everyone working at the IRS understands the law in detail and a zealous IRS Revenue Officer may go after your accounts.
Can the IRS attempt to levy the LLC bank account? Yes, they can. Would they be correct in doing so? Assuming the LLC was run properly and not as a personal piggy bank, then the IRS would not be justified in doing so. However, just because the IRS may not be able to successfully levy the Company’s bank account does not mean you are out of the woods.
If the LLC is paying you a salary, the IRS could garnish you wages. The IRS could also attempt to collect as against any distributions made by the LLC to you on account of your ownership interest in the LLC.
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Get the IRS to Withdraw your Federal Tax Lien
Continue ReadingDirect Debit Installment Agreements and Federal Tax Liens
In recent years, the IRS has made several fundamental changes; one of them affects federal tax liens. Where taxpayers enter into a Direct Debit Installment Agreement (DDIA) with with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:
1. Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
2. The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
3. The IRS will also withdraw liens on existing Direct Debit Installment agreements upon taxpayer request.Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored. In general, 3 consecutive direct debit payments (see below)
Other conditions that apply to lien withdrawal are:
1. You are in full compliance with other filing and payment requirements
2. You have made three consecutive direct debit payments
3. You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement. -
How to Order your own IRS Tax Transcript
Continue ReadingThere are many reasons why you should keep a copy of your federal tax return. For example, you may need it to answer an IRS inquiry. You may also need it to apply for a student loan or a home mortgage. If you can’t find your tax return, the IRS can provide a copy or give you a transcript of the tax information you need. Here’s how to get your federal tax return information from the IRS:
- Transcripts are free and you can get them for the current year and the past three years. In most cases, a transcript includes all the information you need.
- A tax return transcript shows most line items from the tax return you originally filed. It also includes items from any accompanying forms and schedules you filed. It does not reflect any changes made after you filed your original return.
- A tax account transcript shows any changes either you or the IRS made to your tax return after you filed it. This transcript includes your marital status, the type of return you filed, your adjusted gross income and taxable income.
- You can get transcripts on the web, by phone or by mail. To request transcripts online, go to IRS.gov and use the Order a Transcript tool. To order by phone, call 800-908-9946 and follow the prompts.
- To request a 1040, 1040A or 1040EZ tax return transcript by mail or fax, complete Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses and individuals who need a tax account transcript should use Form 4506-T, Request for Transcript of Tax Return.
- If you order online or by phone, you should receive your tax return transcript within five to 10 calendar days. You should allow 30 calendar days for delivery of a tax account transcript if you order by mail.
- If you need an actual copy of a filed and processed tax return, it will cost $57 for each tax year. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area. Copies are generally available for the current year and past six years. Normal processing time is about 60 days.
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Was your Offer in Compromise Rejected? Appeal.
Continue ReadingAn offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. If the liabilities can be fully paid through an installment agreement or other means, the taxpayer will in most cases not be eligible for an OIC. Every year thousands and thousands of OICs are filed by taxpayers hoping to pay the IRS “Pennies on the Dollar”. The IRS accepts about one (1) in every four (4) offers; those are not great odds. So, what to do when the IRS rejects your OIC?
If the IRS rejects an OIC, then the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals. The appeal must be made within 30 days from the date of the letter. In some cases, an OIC is returned to the taxpayer, rather than rejected, because the taxpayer has not submitted necessary information, has filed for bankruptcy, has failed to include a required application fee or nonrefundable payment with the offer, or has failed to file tax returns or pay current tax liabilities while the offer is under consideration. A return is different from a rejection because there is no right to appeal the IRS’s decision to return the offer.
The appeals process might seem like a long-shot, but the reality is that you have a better shot at getting your offer accepted in the appeal’s process.To start, you need to fill out IRS Form 13711, Request for an Appeal of Offer in Compromise. This will get the ball rolling by showing the IRS that you believe your offer was unfairly rejected. Complete IRS Form 2848 if a tax professional will be signing the Form 13711. Once you are ready, send the letter to the address provided in your rejection letter. If you would prefer to handle this another way, then you can send your own letter into the IRS stating you want to appeal your OIC with the following information:
- Your Contact information (specifically, your name, address, phone, and SSN)
- A copy of letter IRS sent you that confirms their rejection
- The Tax years covered by the OIC in question
- The Details of the OIC submitted
- Any Documentation or Facts supporting your disagreement with the IRS’s decision
Just keep in mind, you must sign the letter stating that all information is true. This statement is made “under the penalty of perjury,” Again, once you are ready, send it to the address the IRS indicated in your rejection letter. Sometimes refusing to take ”No” for an answer pays off.
If you need help with an Offer in Compromise, contact the tax attorneys with the Perliski Law Group at (214) 446-3934 for a free consultation or use our online form.
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What is Innocent Spouse Relief?
Continue ReadingGenerally, both you and your spouse are responsible, jointly and individually, for paying any tax, interest, or penalties from your joint return. If you believe your current or former spouse should be solely responsible for an erroneous item or an underpayment of tax from your joint tax return, you may be eligible for innocent spouse relief.
There are actually three different types of Innocent Spouse Relief, and each one has slightly different qualifications. A basic overview is given below, but for a more detailed explanation you should consult an experienced tax attorney.
- Innocent Spouse Relief: you qualify if your spouse did not report income or claimed false deductions, and you did not know about it. Under this program, the IRS will not hold you liable for any of the debt.
- Separation of Liability: you qualify if your spouse did not report income or claimed false deductions, and you did not know about it. Under this program, the IRS will calculate your “fair share” of the tax debt based upon how much of the income on the return was yours and only hold you responsible for that amount.
- Equitable Relief: you qualify if your spouse did not report income or claimed false deductions, OR you just couldn’t pay the tax when you filed the return. If your issue is simply one of not being able to pay, this is the only program available to you. Under this program, you explain to the IRS what portion you should be held liable for and why that is the fair thing for them to do.
Being divorced or separated does not automatically qualify you for Innocent Spouse relief, but is a factor that the IRS considers. Innocent spouse relief may also be available if you were a resident of a community property state and did not file a joint federal income tax return and you believe you should not be held responsible for the tax attributable to an item of community income.
If you need help with filing for Innocent Spouse Relief with the IRS, contact the tax attorneys with the Perliski Law Group at (214) 446-3934 for a free consultation or use our online form.
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What is an In-Business Trust Fund Installment Agreement?
Continue ReadingSmall businesses who currently have employees can qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). These installment agreements generally do not require a financial statement or financial verification as part of the application process.
The criteria to qualify for an IBTF-Express IA are:
- You owe $25,000 or less at the time the agreement is established. If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.
- The debt must be full paid within 24-months or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.
- You must enroll in a Direct Debit installment agreement (DDIA) if the amount you owe is between $10,000 and $25,000.
- You must be compliant with all filing and payment requirements.
Businesses that do not qualify for an IBTF-Express IA should prepare Form 433-B, CIS for Businesses.
If you’re not sure how to proceed, contact one of the tax attorneys at the Perliski Law Group at (214) 446-3934 for a free consultation or use our online contact form.
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What is a Small Tax Case?
Continue ReadingA “Small tax case” is handled under simpler, less formal procedures than regular cases. However, the Tax Court’s decision in a small tax case cannot be appealed to a Court of Appeals by the IRS or by the taxpayer(s). If you seek review of one of the four types of IRS Notices listed in paragraph 1 of the petition form (Form 2), you may file your petition as a “small tax case” if your dispute meets certain dollar limits (described below).
You can choose to have your case conducted as either a small tax case or a regular case by checking the appropriate box in paragraph 4 of the petition form (Form 2). If you check neither box, the Court will file your case as a regular case.
Dollar Limits: Dollar limits for a small tax case vary slightly depending on the type of IRS action you seek to have the Tax Court review:
1. If you seek review of an IRS Notice of Deficiency, the amount of the deficiency (including any additions to tax or penalties) that you dispute cannot exceed $50,000 for any year.
2. If you seek review of an IRS Notice of Determination Concerning Collection Action, the total amount of unpaid tax cannot exceed $50,000 for all years combine.
3. If you seek review of an IRS Notice of Determination Concerning Your Request for Relief From Joint and Several Liability (or if the IRS failed to send you any Notice of Determination with respect to a request for spousal relief that you submitted to the IRS at least 6 months ago), the amount of spousal relief sought cannot exceed $50,000 for all years combined.
4. If you seek review of an IRS Notice of Determination of Worker Classification, the amount in dispute cannot exceed $50,000 for any calendar quarter.
The IRS Form Kit for filing your case in Tax Court may be found here.
If you have a tax controversy, you can call a Dallas tax attorney with the Perliski Law Group at (214) 446-3934 for a free phone consultation to see how we can help, or fill out our online contact form.
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What do I do if I receive a Notice of Deficiency from the IRS?
Continue ReadingYou will get this letter if you owe additional tax or other amounts for the tax year(s) listed in the letter. The letter explains how to dispute the adjustments if you do not agree. If you want to dispute the adjustments without payment, you will have 90 days from the notice date to file a petition with the Tax Court.
If would like more information on how to appeal an IRS audit, you can call a Dallas tax attorney with the Perliski Law Group at (214) 446-3934 for a free phone consultation to see how we can help, or fill out our online contact form.
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How do I appeal an IRS Audit?
Continue ReadingFirst, after your audit, the IRS sends an examination report with proposed adjustments to the taxpayer; these will also include additional penalties and interest. Assuming you don’t sign off and return a copy of the report within a few weeks, the IRS will usually send you a 30-day letter with an explanation of your appeal rights. However, the IRS is not required to give you an administrative appeal after an audit and sometimes you will get a 90-day letter instead. In that event, the only way to avoid paying the taxes is to file your appeal with the United States Tax Court. But, let’s assume you got a 30-day letter.
Next, you need to file a protest. Protest in this context is another word for appeal. How long do you have? You must file your protest within 30-days of the date on the appeal notice letter (not the day you received it). But, what if you can’t file your protest on time? Request an extension for another 30 to 60 days to appeal. Requests to auditors or managers are usually granted, send a letter memorializing your conversation with the person who extended your deadline and include their name and ID.
How does the protest process work? That depends largely on how much you owe:
- If you owe less than $2,500: You can simply ask the auditor for an appeal—technically, your oral request is sufficient. But, to make sure you don’t get forgotten, either write a protest letter in your own words and write at the top “Small Case Request” (following the instructions and sample below) or use IRS Form 12203, Request for Appeals Review.
- If you owe between $2,500 and $25,000: Either write a protest letter and write at the top “Small Case Request” or use IRS Form 12203. In this instance, using the form is recommended.
- If you owe more than $25,000: Write a protest letter. The IRS doesn’t have a form for contesting tax debts over this amount so drafting a good protest letter is essential. Don’t rush it.
If you are appealing an audit debt of more than $25,000 (what the IRS considers a large case), then your letter needs to contain the following:
- your name (or names, if husband and wife) and Social Security number(s)
- a statement that you are appealing an examination report
- the findings in the report that you disagree with, including penalties and interest
- a brief explanation of why the report is wrong; although not required, you can attach copies of any documents supporting your explanation
- your signature(s) and date under a penalty-of-perjury clause, and
- copies of the 30-Day Letter and examination report.
Don’t use inflammatory language or attack your auditor; that won’t help and may discredit and otherwise meritorious protest. Be succinct and state why you believe the auditor made an error and provide any supporting documentation you want to be considered.
If your appeal is unsuccessful, you can further appeal to the United States Tax Court and if your audit debt is less than $50,000 you may qualify for “S” case status or “Small Case” status which will afford you a relaxed environment similar to small claims where you can speak to the judge in an informal manner and state your case as you see it.
If would like more information on how to appeal an IRS audit, you can call a Dallas tax attorney with the Perliski Law Group at (214) 446-3934 for a free phone consultation to see how we can help, or fill out our online contact form.