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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7266
Experience:  15years with H & R Block. Divisional leader, Instructor
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hello. my husband has unpaid taxes from 2004 and 2005 that

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hello. my husband has unpaid taxes from 2004 and 2005 that he owes. We've only been married 1 year. Is my income going to be looked at or taken into consideration if my husband wants to try and lower the amount due or figure out an installment plan? thank you?
Submitted: 9 months ago.
Category: Tax
Expert:  PDtax replied 9 months ago.
Welcome to the site. I'm PDtax, and will be helping you today.

His tax debt is his, so your income is not in play. Joint assets, however, are. Bank accounts with his name on can be targeted, no matter the source of the funds.

The household income is used for purposes of an affordable installment agreement. A spouse used to be able to make an installment arrangement based solely on his or her income. It is still possible, but harder to do.

The good thing is the taxes are close to expiring as uncollectible. Ten years from filing is a starting point for the statute, so 2015 and 2016 may bring a close to these tax debts. IRS knows this as well, and will factor the expiration in to any deals or negotiations.

I suggest consulting a tax professional to review the specifics of your case, explain the calculation of the CSED (collection statute expiration date), and helping you protect your income and assets.

Thanks for asking at Just Answer. I'm PDtax.


Expert:  Robin D. replied 9 months ago.

Hello, I am a different expert and disagree with the above expert when they advise "your income is not in play". You listed California as your state. California is a community property state.

Where only one spouse is liable for a tax and that spouse makes an offer in compromise, community property rules apply as follows. Anything that could be classified as the liable spouse's separate property or income should be considered in the offer. In addition, the liable spouse's share of community property and community property income should be considered. If, under the community property laws of the state involved, part or all of the nonliable spouse's share of community property or income would be available to satisfy the tax liability, the portion available should also be considered in the offer in compromise. Treas. Reg.(NNN) NNN-NNNN1(c)(2)(ii)(B).

Community property assets will not be disregarded under this regulation unless inclusion in an offer would have an adverse impact on the taxpayer's ability to meet reasonable living expenses.

As indicated above, the non-offering spouse's share of community property income will be considered to the extent that the liability could be collected from it under state law.

In California, they do not distinguish between pre- and post-marital obligations and allow creditors to collect an obligation from 100% of community property. Therefore, in California the Service may also collect taxes from 100% of community property for all premarital debts of a spouse.

In short your question was will your income be looked at "if my husband wants to try and lower the amount due or", yes, because you live in California.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7266
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you
Expert:  PDtax replied 9 months ago.
Hi again. PDtax, the original Expert. Thanks to Robin D. for going further than I did. Let me clarify my answer.

In community property states, IRS allows for a shared method for determining income and expenses for installment agreements. The Internal Revenue Manual guides IRS employees in what/how they can collect taxes, and their Manual is invaluable as a source of what they will do.

http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e2495 is the link I used to their information regarding installment agreements. From that page:

"5.15.1.4 (10-02-2012)
Shared Expenses


Generally, when determining ability to pay, a taxpayer is only allowed the expenses he/she is required to pay. In cases where a taxpayer lives with a non-liable person, it may be necessary to review other income into the household and any expenses shared with the non-liable person in order to determine the taxpayer's allowable portion of the shared household income and expenses.


Although the assets and income of a non-liable person may be reviewed to determine the taxpayer's portion of the shared household income and expenses, they are generally not included when calculating the amount the taxpayer can pay. One notable exception is community property states. Follow the community property laws in these states to determine what assets and income of the otherwise non-liable spouse are subject to collection of the tax.
Note:

Community Property States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition, Alaska is an opt-in community property state; property is separate property unless both parties agree to make it community property through a community property agreement or a community property trust. The territories of Puerto Rico, Guam and the Commonwealth of the Northern Mariana Islands also allow property to be owned as community property. See IRM 5.17.2.5.2.1 , Community Property.



Regardless of whether community property laws apply, secure sufficient information concerning the non-liable person to determine the taxpayer's proportionate share of the total household income and expenses. Review the entire household's information and:


Determine the total actual household income and expenses.


Determine what percentage of the total household income the taxpayer contributes, i.e., taxpayer's income divided by total household income.


Determine allowable expenses.


Determine which expenses are shared and which expenses are the sole responsibility of the taxpayer, e.g., child support, allowable educational loan, union dues.


Apply the taxpayer's percentage of income to the shared expenses."

Expert again...A percentage of household income and expenses is used to determine the installment agreement income and expenses for a liable spouse. Your income is included in the math, but the allocation is to be followed by IRS to determine the actual amount IRS will accept as an installment agreement payment.

Thanks again from Just Answer. If you have follow up to ask, since more than one Expert has assisted, please ask for the Expert of your choice by name for further assistance. I'm PDtax.
Customer: replied 9 months ago.

Thank you for the information. I do have a question regarding the expiration of his tax debt. In 2004 and 2005, when my husband was going through his divorce with his ex-wife, she filed a 1099 for him (they had a business together) and never told him and he never got anything in the mail so he never knew. I think she also filed separately so his '04 and '05 taxes were never filed and he assumed she completed them. It wasn't until this past december when the IRS put a levy on his income that we found out this was outstanding. So, he filed his '04 and '05 taxes in the beginning of 2013. Does the 10 years start now?

 

Also, after doing some research on community property, I've read that pre-marital debt is separate property. So, it sounds like my income can't be used to pay off his tax debt and according to what you said, my income will only be taken into account when figuring out his percentage if income and expenses for the household. Is that right? My husband thinks we have to get divorced so they will only see his income as a single person and he can negotiate down what is owed.

Expert:  Robin D. replied 9 months ago.
The time starts when the tax is assessed so yes, if he filed in 2013 then that is when the clock starts to tick.
If you are in California they can take into consideration half your income for his debt. Half of your income is his income so half of your wages could be used to pay his debt unfortunately.
He can still negotiate down (that is the offer in compromise route). Your income (half) would be used in collection and that is why the IRS would also allow for your portion of expenses for the household too.
Customer: replied 9 months ago.

hello again. sorry for the ongoing clarification but what if he is not attached to any of my bank accounts or the small LLC that I have. Basically, his name is not on anything that is mine, so no comingling. I did start the LLC a few months ago and we were married at the time. Is my LLC half his and so the income I get from that business is half his?


 


He has other years of tax debt so would he be even eligible for an offer in compromise? Thank you.

Expert:  Robin D. replied 9 months ago.
The business income is half his because you are in a community property state.
In CA generally everything that spouses or domestic partners own together is community property. It includes everything you bought or got while you were married or in a domestic partnership — including debt — that is not a gift or inheritance.
Community property also includes all the earnings that either spouse or partner (or both of you) earned during the marriage and everything bought with those earnings.
Separate property is anything you have that you owned before you were married or before you registered your domestic partnership.
Salary, wages, or income from services you provide are also community property.
His eligibility for an Offer In Compromise would depend on what he has done thus far. First he has to attempt to have an Installment Agreement.
I would suggest he (and you) seek the assistance of a local CPA or Enrolled Agent to go over all his information and then apply for the relief before the IRS starts forced collections.
In California they do not distinguish between pre- and post-marital obligations and allow creditors to collect an obligation from 100% of community property. The IRS may also collect taxes from 100% of community property for all premarital debts of a spouse.

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