Innocent Spouse Relief and the IRS

Stephen J. Dunn, a Forbes tax writer, recently blogged recent developments regarding an expansion of the IRS’ innocent spouse relief. Dunn, who often writes about the dangers of filing joint income tax returns, as well as the trouble couples face when securing innocent spouse relief. He gave a hypothetical situation to explain what couples face.

In the situation, the wife earns a good salary. Because she has enough Federal income tax withheld from her wages and paid to the IRS, she does not have a tax liability. On the other hand, her husband is self-employed and makes no estimated income tax payments to the IRS. The husband owes a great deal of Federal income tax on the income.

As a married couple, they have several options when it comes to filing income tax returns with the IRS. They may file separately as “married filing separately,” or together with a joint income tax return. With each option, there are very differing outcomes. If they file separately, the husband will owe a great deal of income tax, while the wife will not owe anything and may even receive a refund. If the couple files jointly though, they will be jointly and severally liable for the income tax they report on the joint return. The designation of “joint and several liability” refers to the fact that each spouse becomes liable for the entire amount that is owed. It is important to note that while each may be liable for the full amount, the IRS cannot collect more than that. If the couple elects to file the joint return, the decision cannot be revoked, not even by an amended return.

Dunn notes that accountants will often prepare joint returns for couples without notifying the wife of the alternative option.

According to Internal Revenue Code 6015, the Commissioner of the Internal Revenue Service has the power to relieve a spouse from liability in the event of a joint income tax return. In the past, and even after an addition to IRS procedure interpreted the section of the code, both the IRS and the U.S. Tax Court have not been generous in giving relief. The strict, narrow denial of relief has been the common course of action for both governmental entities.

Recently though, there has been an increase in applications for innocent spouse relief being granted. In January of 2012, the IRS issued Notice 2012-8 that makes innocent spouse relief more readily available to taxpayers. There have been instances in which individuals that were denied relief by the IRS Innocent Spouse Office, but when they appealed the decision, they were granted relief by IRS Appeals.

Dunn suggests that those who have been denied relief in the past may want to reapply under the new rule.

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Memphis Woman Sentenced to Prison for Fraud Scheme

According to the Memphis Business Journal, a Memphis woman was sentenced to almost 22 years in prison for a fraud scheme carried out over a two year period, 2006 to 2008. The woman, Aundria Bryant-Branch, was also ordered to pay restitution for a scheme with which she defrauded many taxpayers with information stolen from the Memphis Police Department.

The federal indictment stated that Bryant-Branch’s scheme included obtaining stolen identification information and “Warrant Book” from the Memphis Police Department. After obtaining the stolen information, Bryant-Branch would then pass along the information to individuals. The individuals who received the stolen information would then use the information to prepare and file false returns without the knowledge of the taxpayers.

Not only will Bryant-Branch have to serve time in jail, but she will also have to pay restitution. Judge Jon P. McCalla ordered her to pay a little less than $700,000 to the Internal Revenue Service. Once her prison time is over, she may be subject to monitoring for up to three years.

The U.S. attorney that prosecuted the case, Edward L. Stanton III, remarked that because she embarked on such a “brazen criminal scheme,” she now faces significant jail time and fines. Included in the attorney’s statement was a reiteration of the pledge of the government to work with the IRS to bring individuals who steal from honest, taxpaying Americans to justice.

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Rapper Fat Joe in Hot Water with the IRS

Fat Joe was the recipient of a large IRS tax bill.

Rapper Fat Joe, whose real name is Joseph Cartegena, found himself in a federal court in Newark, New Jersey. The Miami-based rapper entered a guilty plea for failing to pay taxes on what the IRS calculates to be more than $3 million dollars in income. They estimate that the tax bill will be over $718,000.

His tax attorney, Jeffrey Lichtman, appeared in court with Fat Joe told the press that the rapper would attempt to pay back the tax bill before he is sentenced. This only leaves a few months for the rapper to pay his tax bill, as the rapper is set to be sentenced on April 3. According the reports, Fat Joe was released on $250,000 in bail. The rapper faces a maximum of two years in jail, and a maximum fine up to $200,000. The rapper will also find the tax penalties on his IRS bill.

According to news regarding the rapper’s business activities, Fat Joe has been hard at work. He has spent recent months in the studio, recording his eleventh album. Chris Brown and Kanye West are on the list of album collaborations. Perhaps Fat Joe will be able to use the money to help pay off the looming tax bill, as long as he remembers to pay his taxes this time around!

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Real Housewife Finds Herself in Real IRS Trouble

Miami Socialite, Alexia Echeverria of “Real Housewives of Miami” fame, is being chased by the taxman. Echeverria and her husband, Herman, whose lives are soap opera-like in their reality television intensity, are facing a very real IRS tax issue.

Papers filed with Miami-Dade County indicate that the IRS believes the Real Housewife Echeverrias have not been paying the full amount required by their 2009 income tax return. According to the report, the total amount due is over $90,000.

The IRS has attempted several times to collect the bill, but the couple has not yet responded. As the IRS will do when taxpayers are unresponsive, the agency filed a tax lien on the Echeverria’s million dollar Miami Beach home. Despite the fact that the lien was filed in May of this year, the tax bill has not yet been resolved.

In case Echeverria has not had a moment to research what an IRS tax lien is, how it affects a taxpayer, and how to release it, here is a quick overview:

One of the most common tools that the IRS has to catch the attention of a delinquent taxpayer is a tax lien. A tax lien is a legal claim against your property. The IRS files a lien when a taxpayer neglects, fails, or are unable to pay back taxes. The IRS uses a tax lien to protect the interest of the government in all of a taxpayer’s property—including real estate, personal property, and financial assets. The lien is filed once the IRS assesses the taxpayer’s tax liability, sends a notice that indicates the amount that the taxpayer owes, and the taxpayer does not pay the tax debt in a timely manner, whether intentionally or not.

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IRS to Issue Paycheck Withholding Guidelines by December 31

Paycheck Withholding
Paycheck Withholding

As Congress continues to debate tax rates for the coming year, the IRS has said that it will release information regarding paycheck withholding by December 31. The IRS has noted that many employers asking about the paycheck withholding guidelines, so it released a statement saying that information will certainly be released in the coming weeks.

Paycheck Withholding

The IRS has not yet said whether employers should plan for the higher tax rates that are supposed to come into effect in the coming year. The higher rates would affect workers as well, as higher tax rates would mean smaller paychecks to take home for employees.

While both sides agree that most taxpayers should not face higher income tax rates, they are still divided on the rates the highest income earners should receive.

A great deal regarding taxes next year remains up in the air. Congress returns December 27 to continue the debate.

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IRS Refund Information for 2013

With the beginning of tax season about a month away, the IRS has released information regarding the receipt of taxpayer refunds in 2013.

According to an article in Forbes this morning, the IRS expects to issue refunds with the same rapidity as last year. Nine out of ten taxpayers received their refunds within 21 days, with the average refund issued being around $3,000.

The IRS has made a few improvements to the Where’s My Refund system on its website. Taxpayers can now check when returns are received, when refunds have been approved, and when refunds have been issued. Information regarding the status of returns may be available in as little as 24 hours after refunds are submitted if the returns were filed electronically. If returns are mailed, updates are available four weeks after the returns were submitted.

Tax season officially begins January 22, 2012 when e-filing is activated for the 2012 tax year. Make sure to prepare for the upcoming tax season by speaking to a knowledgeable and trustworthy tax professional. Before you know it, the April 2013 deadline will be here! Contact someone today.

 

Segal, Cohen & Landis, LLP
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Complicated Tax Case Unfolds in Florida as IRS Special Agent Testifies

According to an article in the Tampa Bay Times, Richard Goodwill, IRS Special Agent, found himself in an uncomfortable position, despite aiding the IRS in collecting $40 million to pay a large tax bill from a complicated case involving Cast-Crete, Inc. and its business players.

Things began to unravel when the CEO of the company, Ralph Hughes, died suddenly of a heart attack in 2008. The IRS would approach Shea Hughes, his son, only a year later. Shea’s fortune would vanish in the coming years as the unscrupulous tax practices of the elder Hughes and his business partner, John D. Stanton III, came to light.

Goodwill testified on the third day of Stanton’s criminal trial to being hesitant to take the money that Shea Hughes’ father had worked so many years to accumulate, but was adamant that it had to be done. Shea Hughes was likewise resigned to the fact that taxes have to be paid.

The trial, which is currently being presented in U.S. District Court, has shed light on a partnership between Hughes and Stanton that drained millions of dollars from their company. The amount drained from the company was so great that Caste-Crete was unable to pay its extensive tax bill after its CEO passed away.

Stanton is now facing several charges that could land him in prison for up to 15 years in prison if he is convicted, including failing to pay both his personal taxes and taxes on the company, as well as obstructing an audit as it was being conducted by the IRS.

While Caste-Crete made over $160 million dollars in the years from 2001 to 2007, the company only paid about $93,000 in taxes. In information provided to the jury by prosecutors, the court also learned that Mr. Stanton was apparently the executive in charge of reporting profits and filing tax returns. Now the company owes over $100 million dollars in taxes. The number includes penalties and interest that have accrued in the previous years.

Goodwill’s testimony revealed that both Stanton and Hughes had collected almost $50 million dollars each from the company from the years 2005 through 2007. Because most of the company’s profits were erased by the money the partners took, there was nothing left to pay the tax bills such profits would ensure.

As a result, the IRS looked to the trust belonging to the Hughes family, arguing that any dividend payments to Hughes should only have been paid after the IRS received its money. According to the IRS agent, Shea Hughes was gracious as the money was taken from the trust.

Unfortunately, the legacy of a Hughes’ father, a man once lauded as a pillar of the political community in Florida, is quickly turning dark, as the reality of his financial and political dealings is coming to light. Hughes had a role in siphoning off profits from his own company, as well as paying for leeway in front of county commissioners with side money.

 

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Tax Evasion: Santa Monica Woman Facing Prison Time

Tax Evasion: Santa Monica Woman Facing Prison Time
Tax Evasion: Santa Monica Woman Facing Prison Time

According to a report in the Santa Monica Patch, a local business owner, Utta Hollingshead of Santa Monica, entered a plea of guilty to one count of subscribing to a false tax return. The guilty plea for tax evasion was the result of a deal Hollingshead made with prosecutors.

Prison Time For Tax Evasion

Hollingshead could possibly spend three years in prison for allegedly concealing over $210, 000 in income from the Internal Revenue Service. Hollingshead, who owned massage therapy and fitness business Utta Body Sculpture LA in Beverly Hills, admitted to endorsing checks from her business clients not to business accounts, but to her personal accounts. She would then proceed to use those funds to cover personal expenses. The checks, along with various cash payments, never made it into the bank accounts of the business. The money was also never reported on her income tax returns in the years this was occurring, 2005 to 2007.

In addition to a maximum of three years in prison, Hollingshead may be fined $250,000. Hollingshead will be sentenced in February of 2013.

 

Segal, Cohen & Landis, LLP
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Former Baywatch Actress Hit with IRS Wave

Baywatch
Baywatch actress Pamela Anderson

The latest star to find herself in trouble with the IRS is Pamela Anderson, an actress made famous for her turn as a lifeguard in the hit television show Baywatch. According to reports from TMZ, the actress was the recipient of two tax liens totaling $371, 514.65. The liens apparently stem from unpaid taxes in 2011 that amount to almost $260,000 and a State of California tax bill of around $112,000.

Unfortunately for the Baywatch actress, this is not her first time dealing with IRS issues. Ms. Anderson received a tax lien for unpaid taxes of over $1.7 million.

If you find yourself with a federal tax lien, the most important thing is to begin the process of resolving your tax issue immediately. The more time that passes, the more money you will owe. Penalties and interest can add a substantial amount to your tax bill. Call your trustworthy tax professional today for more information.

 
Segal, Cohen & Landis, LLP
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Baldwin Arrested for Tax Evasion

Stephen Baldwin is the latest Hollywood actor to find himself in the midst of financial woes. This time, the IRS is involved.

Baldwin, a member of the Baldwin acting family, is facing tax evasion charges. According to reports, Mr. Baldwin failed to pay income tax to the state of New York for years 2008 to 2010. Including penalties and interest, Baldwin is the recipient of a hefty tax bill of over $350,000. Sources say that if convicted, Baldwin could face up to 4 years in jail. Baldwin will face the charges on February 5, 2013.

Baldwin, like many other celebrities who have faced similar tax issues in the past, claims that the situation he is currently in isn’t the result of a willful failure to pay his taxes, but a failure to hire competent tax professionals. As a Forbes article from this morning notes, celebrities are not the only ones who find themselves in complicated tax situations after trusting the wrong tax professional.

Hiring the right tax professional is an important task. Contact Segal, Cohen & Landis, LLP to speak to tax professionals you can trust.

Segal, Cohen & Landis, LLP
9100 Wilshire Blvd., Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999