Getting Tax Relief
The IRS and state taxing authorities recognize that sometimes regulations can be blind to exceptional circumstances and that taxpayers need a source of relief. For that reason, there are three primary means of obtaining tax relief.
- Offer in Compromise – An offer is what it sounds like — offering a sum of money for less than the amount due. Offers in Compromise come in two forms. Doubt as to Collectability is an objective process based on a formula. The offer gathers information on your income, assets, liabilities, and household budget. The basic idea is to ensure the IRS receives a reasonable amount of the total due, while not stripping you of the ability to provide for yourself. The other type of offer is more subjective because it allows you to describe exceptional circumstances, economic hardship, inequitable administration of tax regulation, or genuine dispute based on tax regulation. Offers can take 9-12 months or more to be reviewed. Once approved, the offered amount must be paid, and the tax year(s) or amount(s) in question are completely resolved. All required tax returns must be filed, and in future years, you must remain current on tax liabilities. Failing to file or pay as required, can result in revocation of the original offer acceptance.
- Innocent Spouse Relief – In the event a spouse receives a notice of deficiency or understatement of income originating with items created by the other spouse, the injured spouse may qualify for Innocent Spouse Relief. The relief protects the spouse’s income and assets from collection where it can be proved that the other spouse acted willfully to violate tax regulation. An example may be a spouse who has a gambling addiction and receives tax forms reporting gambling winnings. To hide the addiction from the other spouse, the winnings are not reported on the couple’s joint tax return. The IRS maintains a series of documentation expectations to demonstrate that the spouse qualifies for relief.
- Equitable Relief – Also for spouses, Equitable Relief is a catch-all provision in the event relief is warranted, but the spouse does not qualify for Innocent Spouse Relief. An example may be an abusive environment, such as a spouse agreeing to sign a tax return under the threat of abuse. In this case, the injured spouse may be fully aware of the underlying tax issue, which disqualifies the spouse for Innocent Spouse Relief. However, the spouse signs the tax return to avoid further abuse.
Other relief options may be available, such as protecting a spouse’s refund from the other spouse’s federal debt (child support, back taxes, etc.) using Form 8379.