Discussion:Offer in Compromise Community Property
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Discussion Forum Index --> Advanced Tax Questions --> Offer in Compromise Community Property
Discussion Forum Index --> Tax Questions --> Offer in Compromise Community Property
| 14 February 2008 | |
| My client did not file his 2000, 2001, 2002, 2003, 2004, and 2005 tax returns. He was a single filer and lived in Wyoming for those years. He is now married and lives in Arizona, a community property state. We have just filed the returns and now are looking into the Offer in compromise rules. In the instructions to the Form 656 it states that they require colleciton information statements on both spouses, even a non-liable spouse such as the wife in this scenario. I am in Idaho and have only done one offer in compromise before, for a single filer. My question is how to do the collection statements in this situation, the wife owned the house before the marriage and it is in her name. Expenses on whose statement, etc...? The house and her 401 (k) is protected because it belongs to the non-liable spouse, right? I would love some guidance, please!
Thanks | |
| 14 February 2008 | |
| The IRM has some Arizona-specific guidelines for community property and collections issues. See 25.18.4.5. Not entirely sure that the IRM is 100% correct on this issue. | |
| 14 February 2008 | |
| What may be forgotten in this discussion is that IRS is never required to accept an Offer from any taxpayer in any situation. In this circumstance, the assets of the non-liable spouse cannot be levied by the IRS so those assets will not be factored into the Offer. However, IRS WILL consider the income and expenses of the entire household because it materially affects the collection potential of the liable spouse.
As stated in the 656 instructions: However, the income and expenses of the entire household is required on the responsible spouse’s collection information statements. The entire household includes spouse, domestic partner, significant other, children, and others that contribute to the household. This is necessary for the IRS to evaluate the income and expenses allocable to the liable taxpayer. In states with community property laws, we require collection information statements from both spouses. We may also require financial information on the non-liable spouse, or cohabitant(s), for offer verification purposes, even when community property laws do not apply.' | |
| 14 February 2008 | |
| I didn't pay close attention to Riley2's post and it does change the opinion somewhat. Here is the discussion from the IRM to which he is referring:
Wisconsin and Arizona. Because each spouse has a half interest in community property, a federal tax lien attaches to 50% of all community property. However, Wisconsin law also provides that premarital debts (Wisconsin includes these in a classification of debts called predetermination date obligations) can be collected from the liable spouse's contribution to community property. This would, for example, include 100% of the liable spouse's wages. As already discussed, the Service may supplement its federal remedies with state law remedies. Medaris v. United States, 884 F.2d 832 (5th Cir. 1989). Therefore, in this circumstance the Service can take 100% of the liable spouse's contribution to community property, plus 50% of any other community property. Thus, for example, the Service could reach 100% of the liable spouse's wages and 50% of the nonliable spouse's wages. Arizona is similar to Wisconsin. In Arizona, all separate property of the liable spouse is available. In addition, 100% of community property traceable to or contributed by the liable spouse and 50% of all other community property would also be available. The issue as it would apply here is whether or not the liable spouse contributes to any gain in equity since the two were married. I don't believe it would change the equation in the monthly ability to pay since that is already being factored in. | |
| 14 February 2008 | |
| The separate property of the non-liable spouse is able to be seized? That's harsh. Don't marry someone with tax debts if you live in AZ, I guess. | |
| 14 February 2008 | |
| That is why you should do a federal tax lien search and a blood test before getting married. | |
| 15 February 2008 | |
| 25.18.4.3 Seems to indicate that in Texas, separate property may be immune to collection, when no joint return is filed. It seems that community property is up for grabs however. If one spouse has filed separately, paid all her own taxes, is up to date on filings, and owns valuable business property via an LLC ownership (all separate), if the husband files for years 2001-2007 (and yes I am cautious about the six year limit here) it would be malpractice to amend and file joint returns for those years. Right? Am I wrong in assuming it would be better for them to forgoe any benefits of joint filings, and retain the asset protection? | |
| 15 February 2008 | |
| I have one like this right now except they are a bit smarter and are dealing with the tax problem before saying I do. I and another one where the husband to be wanted the lady but tax free and put up enough to fund an offer for her. It worked great. There is nothing like taking care of the problems while they are still little problems. | |
| 15 February 2008 | |
| MsCash, you are indeed God Blessed, the last time I had a client take care of a little problem when it was still a little problem had to be 1990 or so. | |
| 15 February 2008 | |
| How about when the potential spouse doesn't fess up and tell the other about their little issues? Perhaps you should run a credit & background check before you get hitched. | |
| 15 February 2008 | |
| Community Property def. "She gets the property and you have to leave the community". | |
