How to Win an Innocent Spouse Case The Workshop Eric L. Green, Esq. 1 About Tax Rep LLC Tax Rep is a member driven community that helps each other build their representation practice and help taxpayers, with members being able to do so knowing they are not practicing on their own but have other accountants and attorneys backing them up. If you are interested in joining (and getting today’s program for free) you can join Tax Rep at www.TaxRepLLC.com, use TAXREPNOW to save $100 a month for 3 months and start building your practice today! Biggest Tax Screw ‐ Ups 2 2 Eric Green, Esq. Managing partner in Green & Sklarz LLC, a boutique tax firm with offices in Connecticut and New York. Focus is civil and criminal taxpayer representation before the Department of Justice Tax Division, Internal Revenue Service and state Departments of Revenue Services. Has served as a columnist for CCH’s Journal of Practice & Procedure. Attorney Green is the past Chair of the Executive Committee of the Connecticut Bar Association’s Tax Section. Eric is a Fellow of the American College of Tax Counsel (“ACTC”). Biggest Tax Screw ‐ Ups 3 3
Eric Green, Esq. Eric is the host of the weekly Tax Rep Network Podcast, available in ITunes, Apple Podcasts and Google Podcasts Eric is the founder of Tax Rep Network, an online community designed to help tax professionals build their IRS Representation Practice He is the author of the Accountant’s Guide to IRS Collection, the Accountant’s Guide to Resolving Tax Issues, and the Accountant’s Guide to Resolving Payroll Taxes and Personal Liability Biggest Tax Screw ‐ Ups 4 4 CPE There will be 16 attendance check words Please write these down You will need them at the end when you click on the link and go get the certificate Innocent Spouse Workshop 5 5 Schedule Stick to our schedule 10 Minute breaks at the top of each hour Go to the restroom and refill your coffee (or drink of choice) 6 Innocent Spouse Workshop 6
QUICK BREAK We will resume the program in a moment. 7 History of Innocent Spouse • Prior to 1928: Spouses all filed separate returns, as joint filing was unavailable. • 1928: Joint filing is allowed by Congress. 1938: Congress enacts joint & several liability provisions for • taxpayers filing joint tax returns. • 1948: Income splitting is included in the Internal Revenue Code. 8 Innocent Spouse Workshop 8 8 History of Innocent Spouse (cont.) 1961: The United States Supreme Court decides James v. United • States , 366 U.S. 213 (1961), holding the proceeds from illegal activities are taxable income 1971: After James v. United States , the IRS and Justice Department • begin pursuing the spouses of criminals IRC § 6013 is created, allowing innocent spouse relief for income • omitted by the culpable spouse. Innocent Spouse Workshop 9 9 9
History of Innocent Spouse (cont.) 1984: IRC § 6013 is amended to include erroneous items • (deductions taken on the return with no basis in fact or law). 1998: The IRS Reform Act repeals IRC § 6013 and creates IRC § 6015 • • 2009: Lantz v. Commissioner • 2011: IRS reverses its position on equitable relief. See Notice 2011 ‐ 70 and Office of Chief Counsel Notice CC ‐ 2011 ‐ 017 Innocent Spouse Workshop 10 10 10 Why Do We Need Innocent Spouse Relief? Spouses may file a joint tax return. I.R.C. § 6013 • • Both spouses are individually liable for the taxes due on a joint tax return regardless of who earned the income and the IRS can collect from both spouses. I.R.C. § 6013(d)(3) • May lead to inequitable results • Death • Separation or divorce • Returns filed without consent • You can MFS and amend to go joint. You cannot amend a joint to go separate once its filed Innocent Spouse Workshop 11 11 Joint Liability Paragraph inserted into divorce agreements making one spouse • liable is not binding on the IRS • This is really grounds for suing your former spouse when the IRS seizes assets and/or income • It will be one item considered for equitable relief in innocent spouse Innocent Spouse Workshop 12 12
Identifying and Resolving Conflicts of Interest • Practitioners Generally Circular 230 forbids a tax practitioner from representing a client before the • IRS if the representation involves a conflict of interest. 31 C.F.R. § 10.29(a). • A conflict of interest exists if, among other situations, the representation of one client will be directly adverse to another. Innocent Spouse Workshop 13 13 Identifying and Resolving Conflicts of Interest • Lawyers • Rule 1.7 of the Model Rules of Professional Conduct, Conflict of Interest, provides: • “[A] lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or by a personal interest of the lawyer.” Innocent Spouse Workshop 14 14 Identifying and Resolving Conflicts of Interest Tax Court Rules (applies to lawyers and non ‐ attorneys admitted to • the Court) Rule 24(g) of the Tax Court Rules of Practice and Procedure provides as • follows: • “If any counsel of record * * * represents more than one person with differing interests with respect to any issue in a case * * * then such counsel must either secure the informed consent of the client * * *; withdraw from the case; or take whatever other steps are necessary to obviate a conflict of interest”. Innocent Spouse Workshop 15 15
Identifying and Resolving Conflicts of Interest • Strategies to Resolve Conflicts of Interest Between Spouses: • A practitioner may represent a client despite the conflict of interest if the practitioner obtains the informed consent of each affected client. Model R. Prof’l Conduct, 1.7(b); 31 C.F.R. § 10.29(b); Tax Ct. R. Prac. & Proc. R. 24(g). • Included in the materials is a sample waiver of the potential conflict of interest. Innocent Spouse Workshop 16 16 Step 1: Was There a Valid Joint Return? • General Rule: The most important factor in deciding whether a return qualifies as a joint return is whether the couple intended to file a joint return. Innocent Spouse Workshop 17 17 Step 1: Was There a Valid Joint Return? • Paper Returns Not Signed by Spouse: In general, a return must be signed by both spouses to be a valid joint return. • Exception 1: Express Consent to File Joint Return: • Where one spouse expressly authorizes the other spouse to sign the return, courts have found the requisite intent for a joint return. • Exception 2: Tacit Consent to File Joint Return: • Where one spouse tacitly consents to the filing of a joint return, courts have found the requisite intent for a joint return. Electronically Filed Returns: • • For electronically filed returns, whether a requesting spouse signed a return is determined by examining whether he or she signed the Form 8879, IRS e ‐ file Signature Authorization. • Did the spouses file separate returns? Innocent Spouse Workshop 18 18
Step 1: Was There a Valid Joint Return? • Tacit Consent • Did the requesting spouse have a filing requirement? • Did the requesting spouse file a joint return for prior years? • Did the requesting spouse participate in preparation of return? • Did the requesting spouse receive a tax benefit? • Did the requesting spouse have a non ‐ tax reason to file a joint tax return? Innocent Spouse Workshop 19 19 Step 1: Was There a Valid Joint Return? • Returns Signed Under Duress: A return signed under duress is not a joint return • Proving Duress: To prove duress, the spouse must show that he or she: (1) was unable to resists the demands to sign the return, and (2) would not have signed the return but for the constraint applied to his or her will. Innocent Spouse Workshop 20 20 Step 1: Was There a Valid Joint Return? • Forged Returns • Requesting spouse did not sign the return and there was no tacit consent. There is no ASED for the requesting spouse, until he or she files a return. • • The ASED for the nonrequesting spouse begins when the joint return was due to be filed, or was filed, whichever occurred later • If the signature was forged, but the return is also unlawful or invalid, process as a forgery. Innocent Spouse Workshop 21 21
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