Did your spouse under-report income on a joint income tax return? If so, Innocent Spouse can help.

Case study:  Taxpayer’s wife handled all family finances until their divorce in 2005. Unfortunately, she had taken a retirement distribution in 1999 without his knowledge. The taxpayer recalled receiving some notices from the IRS, but ex-wife told him the IRS had made a mistake and she was working to fix it. Unfortunately, she was hiding many things from the taxpayer. After getting divorced, taxpayer was saddled with numerous personal debts as well as taxes when he hired Tom Ryder’s firm to resolve.              

The taxpayer was trying to negotiate an installment agreement, but the IRS wanted $2,430 per month, an unaffordable amount based on his budget. It appeared he qualified for an Offer in Compromise, but after nearly two years negotiation, the IRS determined he could nearly full pay via an installment agreement. Fortunately, we had designated his OIC payments to the most recent year 2004 while the OIC was pending. The biggest hurdle was year 1999, which had an additional tax assessment resulting from his wife’s retirement distribution.

The OIC had been pending for so long that the IRS rules had changed in the interim allowing him to request equitable relief for 1999. He agreed he owed 2002 through 2004, so we didn’t even try those years. The IRS representative evaluated the various factors and criteria for granting equitable relief (too complicated an endeavor to discuss here) and determined the factors were evenly weighted. The IRS proposed we split the difference and let the taxpayer out of one half the additional assessment, with associated penalties and interest.

The taxpayer agreed to the year 1999 reduction, which combine with the voluntary payments he had been making on other years, allowed him to reduce the installment agreement payments by over $500 to $1,900, an amount he certainly didn’t enjoy, but could live with. Fortunately, he had a history of substantially voluntary compliance prior to 1999 so we were able to obtain penalty abatement resulting in further $8,000 savings, plus fifteen years of interest associated with the penalty.