I have been practicing tax law for 20 years but I still learn lessons every day. Here is a recent lesson in dealing with the IRS on behalf of a married couple with outstanding tax liability.
A husband and wife owned a business that had since closed. They filed their personal income tax returns as Married Filing Jointly. They came to me owing various but very dated tax liabilities. Through obtaining business account transcripts, I determined that the business owed payroll taxes for a number of past quarters. The clients’ records weren’t complete so I suspected there was a chance that the trust fund recovery penalty had been assessed against the husband and wife since those trust fund taxes had not been paid at the corporate level and the corporation’s IRS tax account transcripts showed the payroll taxes to still be due and owing. Therefore, on the IRS Form 2848 Power of Attorney, I included “Civil Penalty” as an area of the tax for which I was authorized to obtain information from the taxpayers.
I dutifully obtained the tax account transcripts for one of the spouses (husband) and determined that the civil penalties that had been assessed to him personally but were about to expire due to the running of the collection statute of limitations (“CSED”, what the IRS refers to as Collection Statute Expiration Date). We planned for the date that the CSED would expire on the civil penalty. When that date came, I checked the husband’s account transcripts and sure enough they showed no civil penalty owing. Good result!
However, the client asked if I had also checked the wife’s civil penalty liability. I had not. Why? Because they had filed Married Filing Jointly income tax returns and they jointly owned the business together. Surely the IRS had assessed the same civil penalty at the same time in the same amount and with the same CSED date for both spouses. But to fulfill the client’s wish, I checked his wife’s civil liability with the IRS. To my horror and surprise, she had thousands of assessed civil penalties with a later CSED date than her husband whose records I had checked. Fortunately, we have been able to calculate how to deal with the tax given the new CSED, but I learned a valuable lesson: check both spouse’s tax liability. The amounts and CSED could be different.
Practice Point. The IRS may assess the same tax or penalty to spouses at different times or in different amounts. While I don’t recall ever seeing spouses with income tax filed as Married Filing Jointly assessed in a different manner, I have now seen different assessment dates for the same civil penalty. The tax professional should check both spouse’s IRS tax account transcripts to make sure they contain the same information.
About the Author. Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal, state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.