Family Finances: Tax Settlement, Innocent Spouse Relief, and Injured Spouse Relief

Posted on October 24, 2013 by Kursti Nakagawa

Family Finances

A recent study by Fidelity Investments revealed that individuals often lack adequate knowledge of family finances. The results of the study showed that a surprising number of marriage partners have insufficient information about important financial matters such as insurance policies, investment accounts, physical assets, beneficiary designations and income taxes, among other things. While this lack of awareness may not be a problem when life is going smoothly, it can have unforeseen consequences there is a bump in the road. In the face of a death, a divorce or a sudden disability, a spouse who does not have a satisfactory understanding of family finances can find themselves at a serious disadvantage.

The results of the recent Fidelity study showed that, while most couples reported that they communicated effectively about financial matters, a much smaller percentage said that they shared daily financial decisions. Less than half of the retired couples surveyed agreed on what type of lifestyle they expected to lead in retirement and only a slightly larger percentage had an acceptable level of information about retirement planning. Moreover, only 28 % of the couples surveyed said that either spouse could single-handedly manage the retirement finances.

Although it is natural to postpone a discussion of family finances when there is no immediate problem, it is important to be prepared for the uncertainty of the future. An unforeseen event can leave either partner with complete financial responsibility. With this in mind, financially responsible couples would be well advised to take the following steps:

Inventory Investment Accounts
Inventory Physical Assets
Prioritize Investments to be Tapped for Retirement
Discuss Income Tax Returns and Related Tax Issues
Prepare Wills with Agreed Upon Financial Conditions

Although the discussion of topics such as those outlined above can be stressful and uncomfortable, not doing so may well leave either spouse in an unfortunate situation. Consider, for example, the spouse who is left with a very aggressive investment portfolio upon his or her mate’s death. If the surviving spouse has no knowledge of the type of investments in the portfolio, they could very well suffer a significant loss if the market suddenly takes a sharp downward turn. Similarly, consider the predicament of a spouse who has no knowledge of his or her mate’s tax obligations. Faced with an unexpected death or divorce, the surviving spouse could be left with a tax debt about which they have no knowledge. Although tax this situation can be handled with a tax settlement agreement in the form of Injured Spouse Relief or Innocent Spouse Relief, it certainly not a situation anyone would chose to face.

If you have questions about Injured Spouse Relief or Innocent Spouse Relief, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the answers you are looking for. Visit us today at www.professionaltaxresolution.com for more information about these and other tax settlement options. Complete our online request form or call us at 877.889.6527 to receive a free, no obligation consultation.

Policy Change for Tax Settlements Involving Innocent Spouse Relief

Posted on July 26, 2011 by Kursti Nakagawa

The Internal Revenue Service has changed their policy regarding those tax settlements dealing with a request for Innocent Spouse Relief. Originally there was a two year limit on the innocent spouse relief, but effective Monday, July 25, 2011, that has been eliminated.

The IRS initiated a review of the equitable relief provisions of the innocent spouse program earlier this year, and decided to make changes in both the policy and the program. Those changes will become fully operational this fall and additional guidance will be issued, according to the IRS. The IRS said it would no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency, as of Monday, July 25, with respect to expanding the availability of equitable relief.

If the collection statute of limitations for the tax years involved has not expired, a taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief.

The new rule will automatically be applied to taxpayers with cases currently in suspense and should not reapply. The two-year limit in any pending litigation involving equitable relief will not be applied, according to the IRS. The IRS said it would suspend its collection action under certain circumstances where the litigation is final.

If you need help with tax debt, talk to one of our licensed experts today!

Amazing Tax Settlement – $1,600,000 Tax Debt Reduced to Zero!

Posted on July 14, 2011 by Kursti Nakagawa

Karen M. was recently divorced and owed the IRS over $1,600,000 for a joint IRS liability she had incurred with her ex-husband. The debt had accumulated over many years and, as is usually the case, included a significant dollar amount of assessed penalties and interest. The taxpayer was newly single, lived on a modest income and had no possibility of settling the debt owed to the IRS. After looking at the taxpayer’s situation and all of the available tax settlement alternatives, we determined that filing for Innocent Spouse Relief gave the taxpayer the most realistic chance of one day being free of the tax debt.

Innocent Spouse Relief provides a taxpayer relief from tax debt if their spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits. While the benefits from obtaining this tax settlement option can be significant, it is usually difficult to obtain. Generally, a taxpayer requesting Innocent Spouse Relief must claim and document that he or she had no knowledge of the unreported income and did not receive the benefits of that income.

In the case of Karen M., we were able to provide documentation demonstrating that our client had no knowledge of the unreported income and had limited involvement in the financial matters of the family. We were also able to prove that she did not receive the benefits of the income that was never reported and that the non-innocent spouse had a history of hiding income from both her and the IRS.

Professional Tax Resolution and the taxpayer were thrilled when a letter was received from the IRS indicating that the Innocent Spouse filing was accepted and that the $1,600,000 tax debt was reduced to zero. This is another good example of why CPAs, Enrolled Agents, and Attorneys are often so passionate about what they do. In most cases there are tax settlement options available even in the most complicated situations.