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Signature Under Duress: An Alternative to Innocent Spouse Relief

Perhaps you’ve already heard of innocent spouse relief and have done research on the different relief options (innocent spouse relief, relief by separation of liability or equitable relief). Maybe you’ve even pursued one or more of these options already and were denied, simply because the circumstances surrounding your situation just didn’t quite fit the qualifications. There may still be options available depending on the nature of your case.

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Community Property and The Federal Tax Implications

The IRS when assessing and collecting tax debt from a taxpayer follows the federal laws and regulations governing this but, when it comes to community property states and tax debt arising from community property, the IRS generally defers to the states’ community property laws as shown under Treasury Regulation (“Treas. Reg.”) § 1.66-1(b)(1). For taxpayers living in a community property state it is absolutely necessary to know what can be considered community property and what the tax implications are for the community property, especially after a legal separation or divorce.

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IRS Tax Debt Relief: Do You Qualify For Equitable Relief?

If you don’t qualify for other types of relief such as innocent spouse relief under Treasury Regulations (“Treas. Reg.”) § 1.6015-2 or relief by separation of liability under Treas. Reg. § 1.6015-3, equitable relief, though sometimes difficult to have accepted, may be another alternative. Prior to considering equitable relief as an option the IRS must have determined you do not qualify for innocent spouse relief, relief by separation of liability, or relief from separate return liability for community income. Below are some key pieces of information to consider before pursuing equitable relief.

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San Diego Collection Financial Standards – Allowable Expenses

When an individual owes back taxes to the IRS and cannot afford to pay the entire amount (or any amount) they must enter into a “collection alternative” or a “currently not collectible” status.  Collection alternatives include either an installment agreement (monthly payments) or an offer in compromise (settlement).  Whereas, currently not collectible, more of a temporary hardship status, means the individual is unable to make any payments at this time (but should be able to in a year or so). 

In either case, there is a good chance the IRS will require a look at your current financial position by reviewing your assets (home equity, cash, retirement, etc.), monthly income, and monthly expenses.  The asset and income portion of the inquiry is fairly straightforward (although there are some wrinkles). 

Where it gets tricky (for taxpayers) is determining their “allowable” monthly expenses.  In speaking with IRS Agents throughout the past few years, I have heard on several occassions that individuals understate their monthly expenses.  Accordingly, I felt a quick blog post might be helpful to those individuals trying to resolve their tax issues pro se (pompus lawyer-speak for “on their own”). 

What are Collection Financial Standards?

Collection Financial Standards are set in place to ensure the IRS does not leave a taxpayer without enough money to survive.  The funny thing (maybe) is that the IRS essentially creates these standards…although, the IRS does rely on “credible” data in making its decision (this seems reasonable because even the Bankruptcy Court pulls from these IRS created standards).  Back to my point, the standards are created by using aggregated government data that aims at creating a “reasonable” living standard.  Here is a list of where some of the data comes from:

  1. Bureau of Labor Statistics Consumer Expenditure Survey
  2. Medical Expenditure Panel Survey 
  3. U.S. Census Bureau
  4. American Community Survey
  5. BLS expenditure data

These standards are either national or local.  National standards are used throughout the country and do not change based on the city or state you live in.  Local standards are more tailored to where you reside (think of the cost of living in San Diego vs. Kansas City). 

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Let’s Look at the National Standards First…

The majority of collection financial standards fall under the “national standards” category and are used throughout the country.  Here is a list of each of them (current as of 2017). 

Food and Clothing        
  (person) 2 3 4 5+ 

National

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The Joint Committee on Taxation’s Comparison on House and Senate Tax Bills has been Released: How will San Diegans be Impacted

On December 7th, 2017 the Joint Committee on Taxation (“JCT”) released its COMPARISON OF THE HOUSE- AND SENATE-PASSED VERSIONS OF THE TAX CUTS AND JOBS ACT. Currently, the two versions of the new tax bill are undergoing a period of reconciliation to determine which provisions will stay and which will go. In the meantime, the JCT report helps clarify the current differences between the bills. More specifically, for the individual tax reform, it breaks down into three categories (view the JCT report):

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What you Really Need to Know About S-Corp Tax Savings

 

If you are self-employed, an independent contractor, or operating a sole proprietorship you may be interested in learning more about a well-known tax saving strategy—forming a corporation or LLC and electing to be taxed under Subchapter S of the Internal Revenue Code (“IRC”). This is commonly referred to as forming an S-Corp. Although the tax savings of operating an S-Corp are very real (under the right circumstances), it does come with additional compliance costs (filing fees, other taxes, returns, etc.). As a tax attorney that has represented several hundred individuals and small businesses, I felt it would be helpful to provide an honest and detailed breakdown of the requirements and identify some of the common mistakes people make.

Disclaimer: This article was drafted for informational purposes only.  It is not a substitute for legal representation.  The concepts and laws discussed in this article are generalizations and may not apply the same way for each factual scenario.  Therefore, when assessing whether forming an S-Corp is the best option for you, it is important to seek legal advice outside of this article.

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