Offer In Compromise

[deserttax]

Not sure how to handle this situation. Client has delinquent federal taxes of $27k. He incurred it while single. He got married in 2012. Does the spouse need to be added to the 433-A? Although he is married, does he have to show his marital status as married since the debt was incurred before marriage. I'm sure they will need to file MFS for 2012 and forward, correct? Also, apparently he has an installment agreement in effect but i believe has stopped payment on it.

Any direction regarding this issue would be much appreciated.

Thanks

[taxmandan]

From the OIC manual: "You will also need to gather information about your average gross monthly household income and expenses. The entire household includes spouse, significant other, children, and others that reside in the household. This is necessary for the IRS to accurately evaluate your offer."

The ability to pay the taxes on an offer depends on household income and expenses, not just his alone.

[erchess]

More info is needed

about "his" income and assets. I mean one person might never be able to pay 27K while another person could pay it off right now out of petty cash. If he is not in a community property state, any income and assets titled in his name and half of any titled jointly are available to satisfy his tax debt. Without knowing more about what he already owns, what is currently coming in and what is likely to start coming in in the future we really can't say a lot. I will throw out some ideas.

MFS tax filing is the only certain way to be sure the IRS never holds up her money for his debt. However filing injured spouse is normally accepted and MFJ will usually result in significant tax savings. Depending on the difference in bottom lines your clients may or may not want to chance Injured Spouse and the decision as in all matters of uncertainty must be theirs.

An OIC will be accepted if there is doubt as to the outcome if whether the tax was owed should be litigated. Judging from your post you don't seem to think that will work but check it out and if need be ask questions.

An OIC will also be accepted if it seems clear that the person is never going to be able to pay the full amount of tax. Assuming there are no facts such as the taxpayer is in say Medical School or is early in a career field that often pays much better as time goes on, then the IRS will accept an offer to pay within the next six months 90% of his annual income plus 90% pf the quick sale value of his assets.

If the client is broke now an answer that may work better than an OIC is to file a collection information statement and get him put in Currently Not Collectible Status (CNC Status). This will require much less of your time than an OIC so it will save your client considerably but whereas once dune an OIC won't change unless the client violates its terms, CNC status gets reevaluated periodically for the life of the taxpayer and each re-evaluation will require paperwork that the client will probably be unable to do for himself.

[erchess]

hmmmmm

I see that Dan disagrees with me on whether she can be made to pay his debt stemming from years when she did not file jointly with him. I will be the first to admit that I could be wrong but I still will ask for a cite to an authority (which obviously does not include Instructions) or at least other opinions.

[taxea]

She shouldn''t be held responsible for his debt prior to the marriage. Discussing this with the IRS will help in CNC. I did one with only the wife's income and expenses even though the husband had his own liabilities from a business he owned while they were married. There are things the IRS is reasonable about when approached in the right way.

[deserttax]

Update on OIC

Client live in a community property state. I've done some more research on my OIC client and am finding that I could report his monthly income, his assets and his share of community assets and report his expenses and a ratio of household expenses based on his income over total household income. I got this from IRM5.15.1.4 - Shared Expenses. Here's an example"

Example:

Taxpayer’s income of $20,000 plus non-liable person's income of $5,000 equals household income of $25,000. Divide the taxpayer's income of $20,000 by household income of $25,000 to determine the taxpayer’s share of the household income which would be 80% in this instance. Multiply the taxpayer’s allowable shared expenses by the calculated household income percentage of 80%. This represents the taxpayer’s shared allowable expenses. The taxpayer would also be allowed 100% of expenses which are his/her sole responsibility, unless they are expenses covered by the Allowable Living Expense standards.

http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e670

Do you agree with this interpretation? However, it doesn't address the issue of having to include the TP's personal information (Nmae, SSN, etc) as well as any Employer information. Other than marking the marital status as "married", should I leave the TP's information out of the 1st page of the 433-A? I think I should but am afraid the IRS will kick it back as incomplete.

Also, this client hasn't filed 2012 yet and they are expecting a refund. I suppose there's no way to salvage some of it other then filing MFJ with Injured spouse. They, of course, are required to be current with all filings before they will look at an OIC. The TP, who is the one delinquent on taxes, doesn't have a bucket to piss in (no assets other than a car) and his credit is shot to hell. Would it make sense for him to speak with a bankruptcy attorney to see if that is a more viable option than just filing an OIC. I'm not sure if that would help since I believe you can't discharge any tax debt for the three most recent tax years? His back taxes total roughly $28k+ from 2009 and 2010.

[taxmandan]

I see that Dan disagrees with me on whether she can be made to pay his debt stemming from years when she did not file jointly with him. I will be the first to admit that I could be wrong but I still will ask for a cite to an authority (which obviously does not include Instructions) or at least other opinions.

Nope, didn't say any such thing. She isn't being made to pay his debt, but theIRS uses the entire household financial situation to determine what $$ amount is acceptable for an Offer from him.

[Roberts]

Anyone know of a quality class / book to work through on how to handle OIC cases?

I worked my way through the ASTPS bootcamp via an audio course but felt like it was only scratching the surface once I took on a rather simple case. I've got a book from NOLO Stand up to the IRS which I'll start working through once tax season is over.