OIC Question

[cientax]

Don't know what to do here. Couple owes for 2004 IRS debt about 40k on joint return. They divorced in early 2005 and now ex-wife wants to do OIC but cannot get ex-husband to go joint with her on the OIC. He no longer wants to mess with the problem. We are in Texas, a community property state, if it means anything with OIC. Can she solely file OIC on 50% of the debt or does it have to be together? I called the business hot line but they could not help and told me to go to their website for information. Anybody have any experience with this type of situation?

[kcjenkins]

She can file a separate OIC. She should file it for the entire debt, though, since the return that created the debt was a joint return. However, she should make her offer based on her ability to pay. Sure, if it will make her feel better you can always try to make the argument that she should only be liable for her half. But don't put much weight on that, because legally, each of them is liable for the entire amount. So just put your effort into showing her limited ability to pay, as that is what will count.

[taxguy057]

Have your clients exhausted all other avenues of paying back debt to IRS? It states they must "qualify" for an OIC. I read through the info on it and nothing tells if you can separate the debt since it was a joint tax liability to "them" in 2004. Now if the Judge made a ruling about in the divorce decree to separate it then she should be able to file hers separately.

[jainen]

>>Can she solely file OIC on 50% of the debt or does it have to be together?<<

She can submit a separate offer against the entire $40,000 she owes. Presumably it would not affect the ex-spouse's tax liability for the same $40,000, so she might do much better just helping the IRS go after him. I mean, suppose the best you can get from the OIC is 50 or 60% of the total debt? That's a pretty common range, and for her it's only $300 per month so unless she's totally unemployable she's going to end up stuck with her half anyway, including a big chunk up front and five years of strict compliance.

Remember also that even if the offer is accepted she will still have the same obligations under her divorce decree. Find out what those are.

[cientax]

Now they have decided to talk to each other and now want to go at it together. How would the 433's and 656 be prepared, jointly for income and expenses or separate forms? They are divorced and do not have any common relationship other than this debt. I called the specialty so called IRS HOTLINE and they refered me to their web site where I could find more information and were not able to answer my questions.

[jainen]

>>How would the 433's and 656 be prepared<<

Read the instructions to Form 656. They explain how to prepare a joint offer. But do not automatically agree to accept the ex-spouse into this engagement. He only decided "to mess with the problem" after he learned his estranged lover is getting serious. What if he changes his mind again after seeing her financial statement, or even after getting IRS approval? Did you find out what the divorce decree said about joint debts yet? Would they consider modifying the decree at this time?

Analyzing those financial statements and supporting documents, determining a realistic payment schedule and preparing the OIC will probably take you ten to twenty hours or more. That will double before you are finished dealing with the IRS on it. Typical fees may be $3000 to $5000, so you need a substantial retainer before getting started.