LLC and innocent spouse relief

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Subject Author Date LLC and innocent spouse relief mmurrell 09-03-2009  Re: LLC and innocent spouse relief Mike Wellman 09-03-2009  Re: LLC and innocent spouse relief Bill Brown 09-03-2009
Posted by mmurrell on September 3, 2009, 11:08 am Please log in for more thread options Clients are married, but separated for about 1 1/2 years now. Not living together and have filed Married filing separatly in 06 and 07. Both are member managers of their LLC, that they put together in 06, using the State websight. The LLC reports on a cash basis and shows self-employment taxable net income of nearly $70,000 in 08. The husband of the LLC worked the business, the wife just wanted her name on it, because she wanted to share in the likely profits, and she provided the initial $50,000 capital by borrowing from her 401-K. That agreement was fine for both, and everything is 50%/50%. In 2008, the husbands gambling problem esculated to extreme levels. He was using all the LLC sales money to gamble, and not paying for his parts, or restocking his inventory. It was bad and early in 2008, he was put on lithium, and things seemed much better. However, that was short lived. Throughout 2008, he had over $150,000 in sales, but only paid $40,000 in cost of goods sold, which was withheld from his commissions. He did not pay any sales tax due or any of his suppliers. He owes everybody under the sun a great deal of money, including the bank and the IRS from a 2006 tax debt of $12,000. He has no assets left, other than the home his wife and three teenage children live in. This home is worth about $150,000 and owned jointly. The wife is making the house payment with her two W-2 jobs, and supporting the teenagers. His depression has esculated to suicidal thoughts, and he is now in a mental facility, trying to just stay alive. He has lost everything, his family, all his assets (land and cattle), his homelife, etc. He has no money what so ever....even asked his kids to put money in their rual mailbox so he could go get something to eat. Just recently, he lost his company provided vehicle (from a new job he took in late 2008). It is really, really, bad. Now to my post question....the wife....she has nothing left either. All along, she has tried to keep as many assest of the family as she could, and would continue to make payments on the land and cattle, but it got to where she could not keep up with new notes her husband was taking out at the bank, She has a second mortgage on the home of which she has worked with the bank to accept interest only payment for the next year until she can get her pickup paid off. ($450.00 payment) at which time the full $450.00 will start going toward the 2nd morgage. The home and pickup is all she has.....except for two good W-2 paying jobs....She makes about $70,000/year. After completing the 2008 tax return, she owes about $15,000 in Federal and State income tax. She can not pay this because all her money goes to the house payment, the pickup payment, and the interest payment on her 2nd mortgage, her 401-k payment, as well as payments to the hospital for past medical bills of hers and the kids. Then of course her daily living expenses, utilities, etc, etc. She said maybe she could pay $100.00 a month but even that was a stretch. What are her options? Do you think she would qualify for an offer in compromise? Would she be a candidate for innocent spousal relief? She has a $20,000 balance in her 401-K...does she have to use that? I'm grasping at straws here, and would like any ideas or adivse. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mike Wellman on September 3, 2009, 12:08 pm Please log in for more thread options > Clients are married, but separated for about 1 1/2 years now. �Not > living together and have filed Married filing separatly in 06 and 07. > Both are member managers of their LLC, that they put together in 06, > using the State websight. �The LLC reports on a cash basis and shows > self-employment taxable net income of nearly $70,000 in 08. > > The husband of the LLC worked the business, the wife just wanted her > name on it, because she wanted to share in the likely profits, and she > provided the initial $50,000 capital by borrowing from her 401-K. > That agreement was fine for both, and everything is 50%/50%. > > In 2008, the husbands gambling problem esculated to extreme levels. > He was using all the LLC sales money to gamble, and not paying for his > parts, or restocking his inventory. �It was bad and early in 2008, he > was put on lithium, and things seemed much better. �However, that was > short lived. �Throughout 2008, he had over $150,000 in sales, but only > paid $40,000 in cost of goods sold, which was withheld from his > commissions. �He did not pay any sales tax due or any of his > suppliers. � He owes everybody under the sun a great deal of money, > including the bank and the IRS from a 2006 tax debt of $12,000. �He > has no assets left, other than the home his wife and three teenage > children live in. �This home is worth about $150,000 and owned > jointly. The wife is making the house payment with her two W-2 jobs, > and supporting the teenagers. > > His depression has esculated to suicidal thoughts, and he is now in a > mental facility, trying to just stay alive. �He has lost everything, > his family, all his assets (land and cattle), his homelife, etc. �He > has no money what so ever....even asked his kids to put money in their > rual mailbox so he could go get something to eat. �Just recently, he > lost his company provided vehicle (from a new job he took in late > 2008). �It is really, really, bad. > > Now to my post question....the wife....she has nothing left either. > All along, she has tried to keep as many assest of the family as she > could, and would continue to make payments on the land and cattle, but > it got to where she could not keep up with new notes her husband was > taking out at the bank, �She has a second mortgage on the home of > which she has worked with the bank to accept interest only payment for > the next year until she can get her pickup paid off. �($450.00 > payment) at which time the full $450.00 will start going toward the > 2nd morgage. �The home and pickup is all she has.....except for two > good W-2 paying jobs....She makes about $70,000/year. > > After completing the 2008 tax return, she owes about $15,000 in > Federal and State income tax. �She can not pay this because all her > money goes to the house payment, the pickup payment, and the interest > payment on her 2nd mortgage, her 401-k payment, as well as payments to > the hospital for past medical bills of hers and the kids. �Then of > course her daily living expenses, utilities, etc, etc. �She said maybe > she could pay $100.00 a month but even that was a stretch. > > What are her options? � Do you think she would qualify for an offer in > compromise? �Would she be a candidate for innocent spousal relief? > She has a $20,000 balance in her 401-K...does she have to use that? > I'm grasping at straws here, and would like any ideas or adivse. > Innocent Spouse does not remotely apply here. She may qualify for an OIC but there is not enough information to make that determination. It seems likely, unless her mortgage payments are way out of line compared to IRS allowables, that she could get the account put into a "currently not collectible" status for a year or two to allow her to get on her feet. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Bill Brown on September 3, 2009, 11:49 pm Please log in for more thread options > Clients are married, but separated for about 1 1/2 years now.  Not > living together and have filed Married filing separatly in 06 and 07. > Both are member managers of their LLC, that they put together in 06, > using the State websight.  The LLC reports on a cash basis and shows > self-employment taxable net income of nearly $70,000 in 08. > ... > > What are her options?   Do you think she would qualify for an offer in > compromise?  Would she be a candidate for innocent spousal relief? > She has a $20,000 balance in her 401-K...does she have to use that? > I'm grasping at straws here, and would like any ideas or adivse. > Innocent spouse relief only applies to situations in which joint returns were filed. It may be arguable that the LLC suffered embezzlement losses which would lower reported net income. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Alternative to Innocent Spouse or Offer In Compromise September 28, 2007, 3:59 pm Income From Debt Relief March 27, 2008, 11:13 pm Relief for late S-Corp election November 2, 2006, 12:52 am gift giving - grantor tax relief March 27, 2008, 11:12 pm Tax Debt Relief? Legit info only plz... 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