Can the IRS Collect From a Non-Liable Spouse?
The IRS may be able to collect delinquent tax debt from a non-liable spouse in some cases. This means that tax debt that was accrued by one spouse on a return filed separately, may still result in collection action being taken on the other spouse. However, the IRS cannot pursue collection from a non-liable spouse in every case.

First, it is important to distinguish between joint tax debt and separate tax debt. Joint tax debt is any tax debt related to a return filed jointly. Separate tax debt could be related to a return filed before the taxpayer was married or a return filed after the marriage using the married filing separately status.

For joint tax debt, the IRS can collect from either or both spouses. They can levy your bank account, or your spouse’s bank account, or both. The Internal Revenue Manual states that wage levies should generally be applied to the spouse with higher earnings. However, in flagrant cases of neglect or refusal to pay, the IRS can levy the wages of both spouses.

How the IRS Initiates Criminal Tax Investigations
What seemed like a minor transgression when filing your tax return could end up being a tax crime punishable by years in prison. The IRS Criminal Investigation Division (CI) pursues about 3,000 criminal prosecutions per year to provide a deterrent effect to all taxpayers. If you have been chosen as one of the taxpayers to be “made an example of”, you could face severe fines or time in jail in the name of increasing tax compliance by other taxpayers.

The criminal investigation process often begins when an auditor or collection agent detects possible tax fraud. The IRS can also be “tipped off” by the public—anyone can submit a 3949-A Information Referral form to the IRS that reports suspected tax law violations. Other law enforcement agencies can also reported suspicious activity to the IRS.

Special agents may then begin a preliminary investigation. A supervisor will evaluate the information to determine if further investigation is warranted. At least two layers of CI management must review the information before a criminal investigation can proceed.

IRS “Substance Over Form” Argument Fails
The Sixth Circuit reversed a Tax Court decision and denied the IRS’s “substance over form” argument by allowing a clever tax reduction technique that was legal under the letter of the law. In Summa Holdings v. Commissioner, the court rejected the IRS’s position and declined to let Congress off the hook for allowing a loophole that was used by the taxpayer to avoid the contribution limits on Roth IRAs.

The Beneson family used a domestic international sales corporation” (DISC) to transfer money from their family-owned company to their sons’ Roth IRAs. DISC dividends are subject to a tax on unrelated business taxable income, but once the DISC dividends go into a Roth IRA, the earnings would grow tax-free, and the distributions would also not be subject to tax.

In other words, the Benesons avoided the Roth IRA contribution limits (currently $5,500 per account annually) using this strategy. Between 2002 and 2008, the Benesons transferred over $5 million into two Roth IRA accounts.

Considerations When Submitting Delinquent International Information Returns
The IRS procedure for submitting delinquent international information returns such as Forms 3520, 3520A, Form 5471, or Form 8938,  along with a reasonable cause statement is one of four options the IRS allows for taxpayers wish to come into compliance with their offshore filing requirements. This procedure has some benefits over the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Procedures, but it also has its drawbacks.

The main benefit is that if the IRS accepts your reasonable cause statement and submission of delinquent international information returns, you will have all penalties waived. Both the OVDP and the Streamlined Procedures (at least for domestic taxpayers) involve paying penalties, with the OVDP requiring much higher penalties and eight years of tax returns.

The drawback is that if your reasonable cause statement is rejected, you may be responsible for the full amount of the international reporting forms penalties.

Man Pleads Guilty After Hiding Swiss Bank Accounts
A case from a few years ago involving undisclosed Swiss bank accounts demonstrates the pitfalls of failing to disclose foreign financial accounts, as well as what happens when you lie to IRS special agents.

A New York resident pleaded guilty to corruptly endeavoring to obstruct and impede an investigation by the Internal Revenue Service after repeatedly lying about his assets in Swiss bank accounts. Not only did the taxpayer fail to report his foreign financial assets, but he also told several IRS agents that he had no foreign financial assets.

For the tax years 2001 through 2010, Georges Briguet, the owner of now defunct famed French restaurant Perigord, failed to report his foreign financial accounts on his tax return. He did not report the income from these accounts or pay taxes on this income. He had placed around 7 million Swiss Francs in a Swiss bank account in 1992.

How Much of My Wages Can the IRS Levy
An IRS levy on your wages or other income is limited by a defined exemption amount. Your exemption will be determined based on the standard deduction, your filing status, and the number of exemptions you claim. All income that exceeds the exemption amount will be taken by the IRS.

Unlike bank account levies, wage levies are continuous. The IRS will continue to take many out of every paycheck you receive until your full delinquent tax balance is paid off.

A few examples can illustrate how much money you will actually receive while the IRS is levying your wages:

When to Use the IRS Voluntary Classification Settlement Program
The IRS Voluntary Classification Settlement Program (VCSP) allows taxpayers to reclassify their workers as employees for employment tax purposes and eliminate the risk of payroll tax problems caused by misclassification in previous tax years. In essence, the taxpayer agrees to classify its workers as employees going forward and pays a small portion of the employment tax liability that would have been owed for previous tax years if the workers were considered employees. In exchange, the IRS will not conduct a payroll tax audit based on worker classification for prior tax years.

The VCSP should not be confused with the Classification Settlement Program (CSP), which is available to taxpayers currently under an employment tax audit. The VCSP is not available to taxpayers who are currently under an employment tax audit.

Eligibility for the Voluntary Classification Settlement Program