Married to someone who owes the IRS back taxes?  Injured spouse can help.

Case study: Taxpayer emigrated from Asia, operated a small native country grocery store that went bankrupt.  Taxpayer filed bankruptcy to wipe out business and personal debts.  However, still owed IRS trust fund recovery penalty $60,000 and Illinois sales tax $30,000 non-dischargeable taxes.  His wife had to get a job to help support the family.  She felt betrayed, abandoned and lost respect for her husband, especially after the IRS grabbed her income tax refund to pay his taxes.  With three young dependent children, it was a sensitive subject around the dinner table.  We had to butter her up to get cooperation for settlements with the various tax agencies. Teaching her husband about injured spouse really helped.

Taxpayer’s wife went to work in 2013 to help support the family.  Her 2013 and 2014 joint income tax refunds were offset by the IRS to pay down her husband’s astronomical tax liability.  Meanwhile they jointly owed $3,000 year 2011 individual income taxes.  While her husband’s portion of the income tax was included in his Offer in Compromise, the IRS was pursuing collections against her.  Spouse was not eligible for an OIC since she didn’t owe enough.

Attorney Tom Ryder reviewed the case and suggested they file Forms 8379 to request injured spouse relief.  The taxpayer was so broke he couldn’t afford to hire an accountant to prepare the forms.  Mr. Ryder told the taxpayer to try preparing the forms himself and he would review them.  The forms have a complicated allocation formula, especially with multiple jobs such as the taxpayer had.  It’s no wonder few accountants know about injured spouse, and even fewer can prepare the forms correctly.  The taxpayer revised several drafts trying to correctly allocate income and withholding, and we submitted them right before the deadline.  The IRS denied injured spouse for year 2012 since the wife didn’t work.  But they granted relief for years 2013 and 2014, while 2015 is still being processed.

Injured spouse saved the taxpayer’s wife $50 per month, plus her portion of future refunds.  Considering the tightness of their household budget, any small savings, plus avoiding the aggravation, made a big difference.  It also helped butter her up for the Offers in Compromise with the state and federal since we needed her bank accounts.  She controlled the family funds with an iron fist after the small business fiasco.  We needed her bank statements because the taxpayer simply gave his wife his paychecks and she deposited everything into her private bank account with only her name on it.  Without her cooperation, there was no way to negotiate Offers in Compromise with taxing agencies because they would think we were hiding something. 

Attorney Tom Ryder’s recommendation of Injured Spouse perhaps saved their marriage, or at least made it more pleasant, and definitely allowed the taxpayer to negotiate settlements with both the IRS and Illinois Department of Revenue.