OIC - Married, Innocent Spouse, MFS, Prior Tax Liability

Good morning all,

I did a search but couldn't find anything specifically relating to this.

I have a client that got married in 2016. Husband brought significant unpaid tax liability. He filed all of his tax returns but never paid in the tax due. Around $43k worth.

Wife has been filing for innocent spouse but they came to me as first time clients for 2020 tax year. We filed MFS due to other concerns beyond the back tax issue.

I've only done a few OICs in the past but were for single folks or married folks.

I'm not in a community property state but Minnesota is an "equitable property" state. She bought the house, loan is in her name, etc. Do her assets need to be listed on the OIC? Or is the fact that she has filed innocent spouse/mfs every year they've been married allow us to only list his assets?

Thanks

Your fact description leaves some open questions. My limited understanding is that H had income tax liabilities pre-marriage. W has no exposure to those debts, so I assume by innocent spouse you mean that she filed joint returns with H and it was later discovered on audit that not all of H's income was reported. The innocent spouse procedure is separate from the OIC.

I assume the OIC is for H only based on inability to pay, not liability, and you are asking if W's financial picture must be disclosed. That is a matter for the IRS to decide. I suggest you file the OIC without her info and see what happens. (But note that the OIC may delay the earliest filing date for discharging income taxes in bankruptcy.)

Sorry I didn't see the original post seven weeks ago.

Before I can answer whether or not the assets of the wife need to be included; I need to know how the home loan is being paid. Is the husband contributing to the home loan payments? Do they have joint or separate bank accounts?

If EVERYTHING is separate and he doesn't contribute I would not disclose any of her assets. I'll wait to see how you respond before answering further on that question.

Because the total owed is well under $100,000 the case will not go to IRS Counsel for review if the offer were to be accepted. If it were a case where Counsel had to give their blessing, Counsel could argue that the husband is benefitting from the wife's home ownership if he is essentially getting a free ride.

I'm not sure why gatortaxguy is bringing up bankruptcy, but clearly the taxes are pre-2016 and I see nothing noting that the liability was from an SFR. Dischargability would not seem to be a concern.

I'm saying the OIC can be filed without the Wife's information. If the IRS insists on that info, let them say so, and then you can figure out how to respond.

I strongly disagree, gator as that is absolutely contrary to the rules.

Excellent! I love being corrected. Please inform me with a citation.