Discussion:Tax Lien
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| 7 February 2008 | |
| We had a client with a unique situation referred to us by an attorney client of ours a few months ago. This client received a lien notice from the State regarding a tax liability arising from tax year 2006. The taxpayers filed MFJ. Earlier in 2006 the Husband passed away and apparently before the death he lost his job so essentially the estate has little/no assets.
Almost all of the tax liability from 06 is of a result of the husband's income (wife only had around $200 in interest). The surviving spouse cannot work due to disability & emotional distress and she only has her vehicle which the State is probably going to take away if they enforce this lien. We have a disagreement here in that one of our partners thinks she can amend her NE return to MFS which would shift the liability to the husbands estate. With the estate having no money, they wouldn't enforce the lien against the surviving spouse. On the other side, since the spouse will be inheriting the estate, there could be a chance that the State of NE could try and still go after her personal property. That is if we can even amend their 2006 state return to file separately in the first place. The other option ("Plan B") is to write a letter stating that the liability cannot be paid, there was no reckless disregard for the tax laws and request that the lien be absolved. But that is a crap shoot.
1) Should we even amend to MFS? 2) Is there a better way to approach this problem? Any input would be appreciated. Thank you. | |
| 7 February 2008 | |
| Others may have more specific tax advice, but check the state exemption laws. These are commonly called bankruptcy exemptions, but they are really general exemptions of dollar amounts or types of property that cannot be taken by creditors, including state taxing authorities (where made applicable). They are often scattered over various parts of a state code. [You are entitled to these exemptions whether you file bankruptcy or not]. Maybe the lawyer can help look them up. As far as the estate, I would not offer the Will and/or intestacy if Year's Support is available. See if a "Years Support" or like proceeding can be filed because it has an ability to cut off creditors depending on state law, the name differs in different states, perhaps lawyer can check on this also. A lot of times, the whole estate will be awarded, depending on its size (I assume size is small here or the bill would be paid.) | |
TheTinCook (talk|edits) said: | 7 February 2008 |
| If Nebraska is anything like the Fed's you can't amend to MFS after the returns due date. | |
| 7 February 2008 | |
| Nebraska requires taxpayers to use the same filing status on their state return as on their federal. Since you can't change the federal, changing the state is out too. At this point, the widow is a routine collection case and she should call and explain her situation. If the estate has little value, there will be nothing to get from it but the state could put in a claim. Depending on its value, the car may or may not be exempt from any action but I doubt the state collection people are going to take away a widows only set of wheels. | |
| 7 February 2008 | |
| My soft side wants to think that a well crafted letter or phone call to the State would evoke some sympathy and cooperation. The woman lost her husband. Does not sound like any attempt to cheat or evade is present. I would try anything I could to get this State on the side of trying to find a way to make this easy for her. Agree with Mscash, deep down somewhere the state collection people have a heart to. | |
| 7 February 2008 | |
| Quickfinder 2007 16-7 states that MFJ taxpayers cannot file MFS "except by an executor on behalf of a deceased spouse."
I did some research on RIA and found this little bit of information: ¶S-1806. Joint return after death of spouse.
"If (a) the surviving spouse makes the joint return, (b) thereafter, an executor or administrator of the decedent is appointed, and (c) the executor or administrator wants to file a separate return for the decedent (to relieve the estate of joint and several liability or for any other reason), the executor or administrator may disaffirm the joint return already filed by the survivor. He does this by filing a separate return, within one year of the due date (including extensions) for filing the return of the surviving spouse. 29 The survivor's joint return will thereby be converted into a separate return, 30 and the survivor's tax will be computed by excluding all items of income and deduction properly includible in the return of the deceased spouse. 31" Since generally the state will follow the Fed then maybe we have a chance to amend and file MFS and get relief from the State. It sounds like the partner responsible for this client(he is a tax attorney) really wants to go the MFS route so we are going to go ahead and try that and see what happens. Even though I do agree that I think that if we write a letter, that would probably evoke sympathy since this is pretty much an innocent spouse. | |
