Women are the most common victims of tax fraud committed by their spouse. Many don't know they can file with the IRS for 'innocent spouse' relief.
If your current or ex-spouse owes money to the IRS and you filed a joint return you may need innocent spouse tax relief. Innocent spouses need to know how to fight back against the IRS. This post will give you an example of innocent spouse relief and five resources to help you save yourself.
You know something is wrong with our system when an innocent spouse is saddled with a crushing tax debt created by an ex-husband without her knowledge while white collar criminals associated with our banking crisis live like kings.
Some 50,000 tax payers file for innocent spouse relief each year with the IRS but there are many more victims that either don’t know about their rights or file after the IRS’s two year deadline. But relief may be on the way in the summer of 2011 as the IRS is reviewing innocent spouse relief after pressure from congress.
Here’s an example of tax fraud committed by a husband that injured his innocent wife as reported recently by Laura Saunders in the Wall Street Journal – A New Push to Protect Spouses.
“In 1999, Cathy Marie Lantz’s husband, Indiana dentist Richard Chentnik, earned $112,000—or so she thought when she signed their joint tax return. In 2000, Dr. Chentnik was arrested for Medicare fraud, convicted and imprisoned. In connection with the case, the Internal Revenue Service sent the couple a bill for $900,000 of tax, penalties and interest.
Does Ms. Lantz owe the tax debt her husband incurred? The IRS said yes, the Tax Court said no, and last summer the Seventh Circuit Court of Appeals said yes again, siding with the IRS.
The court’s reasoning: To be absolved of responsibility for the couple’s tax debts, Ms. Lantz would have had to ask the IRS for “innocent spouse” relief within two years of the agency’s sending a levy notice.
According to testimony, she said she didn’t do so because her husband told her he had taken care of the request. Dr. Chentnik did get the IRS form, according to testimony, but didn’t file it before dying in a halfway house in 2004—so the court held Ms. Lantz liable for the entire tax bill. ” – Wall Street Journal
Tax articles and Podcasts from Tax Mama on Innocent Spouse Relief » Visit
For someone who wants to perform deep research you can buy the guide from the American Bar Association intended for practitioner Attorney’s like me that walks through the entire innocent spouse relief process (cost is about $100). A Practitioner’s Guide to Innocent Spouse Relief:
Until next time,
Jeffrey I. Fouts, Tax Attorney
Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer (Ellijay, pop. 1,584) not some fictional marketing character. I represent tax payers before the IRS in all 50 states. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.
I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C. My competitors covet my Google ranking but my clients covet my sound counsel. I deal directly with my clients and have a small, tireless staff. You can put off your tax problem, or put us to work.
There are two tax problem areas that small business owners fall into that lead to trouble with the IRS. This article will discuss these problem areas briefly and then give you five good resources to help you avoid them.
Two common small business tax problem areas:
New to running a business and bookkeeping (e.g. business structures like LLC’s S-Corps, etc.).
Red tape: There’s a dizzying number of rules, procedures, forms, and processes to follow.
Small Business Tax Problem #1 – New to Running a Business
New to running your own business? We often start our small business with a dream, the back of a napkin and a credit card. Tax planning generally isn’t on the short list. If and when taxes come up it’s often at the last moment and complex financial and tax decisions are not given their due. Later, you hear about tantalizing tax write offs. These exist, but only if you qualify. This false expectation of entitlement and lack of understanding about all the arms and legs of running a business is often what gets small business owners in trouble.
Small Business Tax Problem #2 – Confusing & Overwhelming Choices
Just the question of how you should structure your business, be it a sole proprietorship, LLC or Corporation can turn into a maze. These structures have potential benefits and pitfalls and cover more areas of business than just taxes. There are the legal protections , then the different methods of accounting, record keeping, business licenses, and the list goes on. It’s easy to get bad advice.
5 Resources to Help Small Business Avoid Tax Pitfalls
Stay out of trouble by educating yourself and then investing in advice from experienced resources. Even when you’re putting your business together on the cheap, you can minimize high cost resources like CPA’s, Attorneys, or Tax Experts by reading up on the basic issues and then keeping your time short and focused with your chosen advisers. Here’s a list of five resources on the web where you can further your small business tax education.
SCORE – The Small Business Partner of the Small Business Administration » Visit
Teaspiller – An online directory of qualified Bookkeepers and CPA’s in your area » Visit
WageFiling.com lets you prepare, print and e-file W2 Forms or 1099 Misc forms without having to purchase tax forms, special envelopes or software. » Visit
Tax Mama – Get your tax questions answered by experts in the Tax Mama forums » Visit
Here are two bonus links.
Employment Taxes
Payroll taxes, Social Security and Medicaid are particularly confusing. This is a common small business tax problem that I help solve for my clients. The IRS page is one of those pages that might make you cringe (it looks like a lot of work!) but it’s a necessary resource nonetheless. » Read More
This article on BusinessWeek is useful for s-corp shareholders wondering if they need to pay themselves a salary (and therefor payroll taxes). » Read More
Until next time,
Jeffrey I. Fouts, Tax Attorney
Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer (Ellijay, pop. 1,584) not some fictional marketing character. I represent tax payers before the IRS in all 50 states. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.
I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C. My competitors covet my Google ranking but my clients covet my sound counsel. I deal directly with my clients and have a small, tireless staff. You can put off your tax problem, or put us to work.
Here are some options to consider if you completed your tax return but find that you still owe money to the IRS.
File an extension
There’s more than one kind of IRS extension. The less known ‘Undue Hardship’ extension allows taxpayers additional time to pay their taxes without incurring penalties. You still pay interest that accrues at the standard federal rate plus 3 percent per month. File IRS form 1127 the ‘Application for Extension of Time for Payment of Tax Due to Undue Hardship’. This kind of extension is far from automatic. You will need to show extenuating circumstances to be approved, such as illness, job loss, a death in the family or other extreme circumstances. Still, this remains a highly viable option, especially with so many people suddenly out of work due to the economy.
Negotiate a Payment Plan with IRS
There is a very good chance the IRS will accept a payment plan. You file IRS form 9465, a ‘Request for installment agreement’. If the amount is $25,000 or less (including combined taxes, penalties and interest you may even qualify for the streamlined acceptance procedures offered by the IRS. This means that you aren’t required to file additional documentation that proves your ability to pay. Once you go over $25K, the IRS will want a detailed financial statement to determine how much you can afford to pay each month. This process can be a burden and often leaves my clients wondering if a blood sample and rights to your first born will be ‘requested’ next. I remind my clients that the alternative is worse.
Settle with the IRS
If you have a financial hardship, a settlement with the IRS may be your best option. The IRS considers what you owe, your assets, and your ability (or lack thereof) to repay what you owe. The IRS has specific settlement options depending on if you really owe the tax or if the issue is more your ability to pay (there are other factors as well). The IRS will want a detailed financial statement to determine your ability to pay each month. If you (or your attorney) can reach a settlement you may be able to pay much less than the total you owe the IRS. The phrase ‘pennies on the dollar’ is overused in marketing by my fellow lawyers, CPA’s and enrolled agents but it is possible. Even when a ‘pennies on the dollar’ settlement isn’t reached, it’s often favorable to you. After all, who ever thought they’d get a discount on their taxes even while making monthly installment payments?
File your taxes no matter what
Failing to file your taxes is how you get in even deeper trouble with the IRS. Even so, don’t let unfiled tax returns from stopping you. Fixing your tax problem is one of the biggest gifts you could ever give yourself. While it’s not dirt cheap to fix a big tax problem you’ll likely find your peace of mind is worth every penny.
Until next time,
Jeffrey I. Fouts, Tax Attorney
Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer (Ellijay, pop. 1,584) not some fictional marketing character. I represent tax payers before the IRS in all 50 states. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.
I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C. My competitors may covet my Google ranking but my clients covet my sound counsel. I deal directly with my clients and have a small, tireless staff. You can put off your tax problem, or put us to work.
Are you concerned with someone trying to scam you while pretending to lower your taxes? There’s good reason to be worried. This is a report on five common kinds of tax ripoff I’ve seen while defending my clients against the IRS.
No one likes to pay taxes and that’s why there are so many tax ripoffs. The crooks know that you ‘want to believe.’ But this isn’t Disneyland, a tax scam you unknowingly participate in can turn in to IRS fines or even land you in jail.
Because of this, it’s important to know about these scams so you can avoid them. There’s a second reason you need to defend yourself against these people which I’ll get to in a minute.
First let’s look at the kinds of ripoffs and scams my clients experience most often:
Top 5 Tax Ripoff or Scam Reports
Improper Home-Based Business Expense
Identity Theft
Off Shore Tax Haven Ripoff
Tax Avoidance Ripoffs such as ‘Frivolous Arguments’
Tax Savings Scheme like the ‘Share/Borrow Dependents’
Let’s look at one popular tax ripoff from the list above that’s been driving a lot of complaints with the IRS lately.
Improper Home-Based Business Expenses
This scheme purports to offer tax ‘relief’ but in reality is illegal tax avoidance. The promoters of this scheme claim that individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a bogus home-based business. But the tax code firmly establishes that a clear business purpose and profit motive must exist in order to generate and claim allowable business expenses. Even when you have a legitimate home-based business high deductions in this area are a known audit trigger.
Spotting a Ripoff
Are there common denominators for a tax ripoff?
Thief’s like to use legitimate tax and financial advice that’s in the news. Like the small business tax breaks you might have heard about for a home-based business. Home-based businesses are a great legitimate tax break so naturally the media highlight it. Ripoff artists play on this media coverage to give their tax scam an air of legitimacy.
Which leads me to the second point about why it’s important to know about these ripoffs. The thief’s know you are much less likely to report them out of fear you’ll get in trouble with the IRS yourself. Fear is a strong lever that they’re only too happy to exploit.
Many advice columns point out that if something sounds too good to be true, it probably is. Then again, if people could follow this advice reliably then people would never fall victim to scams…
My advice is easier to get right. I recommend you visit the IRS web site to search their latest Tax Fraud Alerts. If you’re still not sure, consult an experienced tax preparer or tax lawyer like yours truly. If you prefer the phone, give me a call at 1-800-509-2770.
Until next time,
Jeffrey I. Fouts, Tax Attorney
Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer (Ellijay, pop. 1,584) not some fictional marketing character. I represent tax payers before the IRS in all 50 states. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating. I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C. My competitors may covet my Google ranking but my clients covet my sound counsel. I deal directly with my clients and have a small, tireless staff. You can put off your tax problem, or put us to work.
Are you trying to choose a tax attorney to fix your IRS tax problem but you’re concerned you can’t afford the cost?
Here’s a really good reason to pick me over my fellow attorney’s:
The money you’ll save on legal fees and the peace of mind of a capped legal fee.
Every day prospective clients ask me why they should hire me as their tax attorney over a competitor. I share my qualifications and tell them the story of how I’ve built my tax law practice over 18 years by helping people win against the IRS.
But my clients get most excited when we talk money, especially when I tell them I offer a capped legal fee for handling their IRS tax problem.
Every tax attorney has an hourly rate and most also charge an initial retainer to begin work on your behalf. (more…)
Ever wonder how wealthy people pay so few in income taxes? Here are some ways that wealthy individuals lower, or in some cases eliminate their federal tax bills.
The true effective rate for the super wealthy is actually much lower than that indicated by official statistics. Those figures fail to include the additional income generated by many sophisticated tax-avoidance strategies used by high net worth individuals.
Using tax deferred strategies such as purchasing large community properties, paying yourself in dividends, or claiming deferred income can save multi-millionaires huge sums of money, and allow them to continue to accumulate massive riches.
Be careful when using sophisticated tax reduction strategies, as the IRS can come after you for unpaid taxes if you improperly claim deductions and tax breaks..
Current actions in Congress are affecting the income tax filings, and returns, for Americans for the 2010 tax year. While payroll tax changes will allow for increases in employee’s take-home pay, coming tax reforms may eliminate many of the tax breaks that we now enjoy.
Increased Take-Home Pay
New cuts in payroll taxes for 2011 will increase take-home pay for most workers. The IRS recently released new income-tax withholding tables and instructions to help employers implement the 2011 cut in payroll taxes.
Millions of Americans will see their take-home pay increase during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This allows for a two percent payroll tax cut for employees by reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of paid wages. But this Social Security withholding change will have no effect on the employee’s future Social Security benefits. The new law though, also maintains the income-tax rates that have been in effect in recent years.
Workers won’t need to take any additional action, such as filling out a new W-4 withholding form, because employers and payroll agencies will handle the withholding changes.
Ending Tax Breaks is a Good Thing
While eliminating tax breaks may sound like bad news to some, it is actually good news. The more tax breaks we eliminate, the simpler the tax code gets. This is something we can all be in favor of.
Reducing tax breaks, for everyone, means that everyone is treated more equally. Hopefully it will also result in the 40% of “taxpayers” who presently pay no tax actually having to pay some taxes for the benefits they receive. This will cause them to truly have “some skin in the game”. All these are good things.
Coming Tax Reform
The IRS Taxpayer Advocate Service’s Annual report to Congress stated that the vast majority of taxpayers in the U.S. benefit from particular exclusions from income, deductions from income, and/or tax credits. They estimate that these tax breaks reduce average tax liability by about $8,000 per return.
Since personal tax is computed as a percentage of income, any taxpayer who pays a 25 percent tax rate could be enjoying a benefit from deductions or exclusions from their income worth $32,000. The report finds that a fairly typical taxpayer which faces a 25 percent marginal tax rate on their taxable income ends up paying an average of 9 percent on gross income because of tax breaks.
In regards to pending tax reform efforts, “if tax rates are to be substantially lowered, many existing tax breaks will have to be eliminated immediately and others will be phased out,” National Taxpayer Advocate Nina E. Olson said in early January. “But I believe most taxpayers will conclude this is a worthwhile trade-off. If tax reform proceeds on a revenue-neutral basis, the average taxpayer’s liability will not change, and we will end up with a tax system that is simpler, more transparent, and easier and cheaper for taxpayers to navigate.”
I partially agree with her. The one area I disagree with her is that I think that taxpayers will fight any tax code changes which erodes any exemption, tax credit (mostly a type of welfare payment for the middle and lower income groups paid for by higher income earners). I think there will be class warfare (upper income earners vs. everyone else) and age warfare (seniors vs. everyone else).
No one will want to give up anything they presently receive – whether it’s the farmers getting free money, or corporations getting welfare, or “poor” folks getting tax credits.
Call me a cynic, but once a person, or company, gets their their snout in the public trough it’ll be nearly impossible to get them out. The only thing that would motivate folks to give up a tax break is if they thought the recession wouldn’t improve until they took action, or if they thought the recession would get worse if they didn’t take action.
Why do we dread the prospect of having our tax returns audited? We have this fear of something we probably don’t understand very well – the unknown. The perception is that it will be stressful, will take a lot of time, and burden us with demands that may seem unreasonable. And no matter what, the result will be to owe more money to the government.
Statistically the chances of being audited are low. In fiscal year 2008, the IRS audited 1% of the more than 137 million returns filed the year before. That being said, nearly 1.4 million tax audits were undertaken.
Let’s take a look at the examination process, and what an audit entails. The IRS audits (examines) tax returns to verify that the tax reported is correct. And contrary to popular belief, a selected return for examination does not always suggest that the taxpayer has made an error or been dishonest. In fact, some examinations result in a refund to the taxpayer or acceptance of the return without change. The overwhelming majority of taxpayers file accurate returns and make payments on time. But, obviously, the vast majority of the tax audits undertaken by the IRS are conducted because they have detected invalid deductions or other expenses and it is confident that the audit will result in a tax bill.
The IRS selects returns for audits using a variety of methods. Some returns are selected for examination on the basis of computer scoring. Computer programs give each tax return a numeric “score”. The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns. The score is based on the IRS’s study of a sample set of thousands of returns. The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income. IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.
Some returns are examined using Information Matching, which identifies payer reports (such as Forms W-2 from employers or Form 1099 interest statements from banks) that do not match the income reported on the tax return. The IRS examines many large corporate returns annually. Returns may also be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for examination.
Still other returns are selected based on information obtained by the IRS through efforts to identify promoters and participants of abusive tax avoidance transactions. Examples include information received from “John Doe” summonses issued to credit card companies and businesses and participant lists from promoters ordered by the courts to be turned over to the IRS.
The first step in an audit will be a computer-generated letter from the IRS, and most of these letters involve minor issues. According to the General Accounting Office, about half of the 10 million notices the IRS issues each year are because the information is “incorrect, unresponsive or incomplete.” The biggest reason people receive letters from the IRS is human error.
Each year, more than 1 million letters are sent to people because they failed to sign their returns. These types of errors rarely lead to a full audit. If the error is not easily identified, the tax audit begins. An audit is actually the process where the IRS asks you to substantiate the numbers on your tax return.
Many audits are “correspondence” audits. Nobody likes to get a letter from the IRS, but it’s probably not as bad as a visit from an IRS agent. More than 1 million of the almost 1.4 million audits last year were correspondence audits, while about 310,000 were field audits.
The audit notification letter tells which records will be needed. Taxpayers may act on their own behalf or have someone represent or accompany them. The auditor will explain the reason for any proposed changes.
An examination may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit).
The IRS trains its employees to explain and protect taxpayers’ rights throughout their contacts with taxpayers.
These taxpayer rights include
A right to professional and courteous treatment by IRS employees.
A right to privacy and confidentiality about tax matters.
A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
A right to representation, by oneself or an authorized representative.
A right to appeal disagreements, both within the IRS and before the courts.
Appeal Rights are explained by the examiner at the beginning of each audit. Taxpayers who do not agree with the proposed changes may appeal by having a supervisory conference with the examiner’s manager or appeal their case administratively within the IRS, to the U.S. Tax Court, U.S. Claims Court or the local U.S. District Court. If there is no agreement at the closing conference with the examiner or the examiner’s manager, the taxpayer has 30 days to consider the proposed adjustments and their next course of action.
If the taxpayer does not respond within 30 days, the IRS issues a statutory notice of deficiency, which gives the taxpayer 90 days to file a petition to the Tax Court. The Claims Court and District Court generally do not hear tax cases until after the tax is paid and administrative refund claims have been denied by the IRS. The tax does not have to be paid to appeal within the IRS or to the Tax Court. A case may be further appealed to the U.S. Court of Appeals or to the Supreme Court, if those courts accept the case.
You want to know if my firm is one you can trust to help you. Just like you, when I’m looking for someone to help me I want to know that they have a solid reputation. But what exactly does that mean?
Just like I would be if I were in your shoes, our clients are understandably pleased when they find out that my firm, Jeff Fouts and Associates (or Fouts Law Firm) has a great reputation. People find it comforting that in over 18 years of tax cases we have achieved a A+ rating with the Better Business Bureau.
But…what if our record wasn’t as clean as it actually is? What if, instead of our having very few complaints, we had a handful more complaints than we do now?
Is One Single Complaint, One too Many Complaints?
How many complaints are too many for a law firm, or any business, to have?
What I’m about to say may offend some folks, but I hope it doesn’t. The fact that a business has some complaints against it doesn’t necessarily mean the business is a bad business. It doesn’t mean the business:
is a rip off
is a scam, or
“sucks” (I apologize for using this term, but it’s a word some folks use a lot these days)
There are a lot of online complaints against legal services and lawyers because not every case is won or the settlement is not what the client hoped for. What we’ve learned is that sometimes that disappointment with the IRS spills over to us, even if we did everything that any attorney with the case could have done to help.
Think about how different this is to buying a product or a clear cut service where you know ahead of time exactly what you’re buying. For example, a hardware store, which is much less likely to have complaints than a law firm. Why? You can hold the product in your hand and know exactly what you’re getting. Or, you pay $1,200 over the course of the year for lawn service where you know your lawn is mowed weekly and sprayed for weeds once per month.
When a business is in constant interaction with the buying public it is always at risk of having unhappy clients – no matter what it does. I would even take that farther and say you can multiply that fact if the business is a law firm.
What causes this mis-match, and thus lays the grounds for potential client dissatisfaction and a possible client complaint?
Here are some of the things that increase the chances that a tax law firm will have more client complaints:
the client has expectations for the ultimate outcome of their case that aren’t in agreement with what the case’s facts allow as an outcome. Some intensive fact finding must first be done before we know what the client’s options are.
the client expects the service will cost less than it actually ends up costing
the client doesn’t understand that the service he is buying involves going through a process that is more difficult than the client originally thought it would be
But of course it goes both ways, there are also things which businesses do that cause clients to register a complaint. For example:
not giving reasonable attention to the client
not acting with reasonable speed to move the client’s case forward
incorrectly charging the client, contrary to the price/rates that were originally agreed upon
While we at the Fouts Law Firm are certainly not perfect, we try to not be guilty of any of the above.
So, what’s the answer? Is it reasonable to expect that a business can be in business for many years (we’ve been in business 18 years), and not have a complaint? I would say “No”.
Knowing that a business has had thousands of clients, like we’ve had, helps put a small number of complaints into perspective.
Since a customer shouldn’t expect perfection from a business, just what should they expect?
Since both the client and the business are human beings, a client should most certainly expect to be treated with proper concern about quality, a reasonable amount of patience, compassion when misunderstandings take place, and fairness in pricing. And the client should expect the law firm staff to work hard and be intelligent.
It’s all too easy these days for a person to anonymously “vent” or “rant” online. So, after you have read a complaint online, instead of concluding that a business: is a rip off, a scam, or sucks, you may want to consider the source – anonymous reviews that are quite often unfair or imbalanced or just downright wrong about the facts.
Are you concerned with someone trying to scam you while pretending to lower your taxes? There’s good reason to be worried. This is a report on five common kinds of tax ripoff I’ve seen while defending my clients against the IRS.
