Questions for the Tax Lady: June 14th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Roni, I know that the federal estate tax is on hiatus this year. However, are there any state tax agencies that will collect an estate tax?

Yes. There are plenty of states that do enforce an estate tax (Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, and Wisconsin). However, the rules and rates vary for each state. If you live in one of the states listed above then I highly recommend speaking with an estate-planning attorney in your state.

Question #2: Will an accepted Offer in Compromise remove a bank levy?

An accepted Offer in Compromise will resolve your back tax liability with the IRS once you paid the amount offered in compromise. Once your back tax liability is resolved, the IRS will not pursue collection activity against you—this includes bank levies. What you need to know is that the Offer in Compromise process is lengthy and because and you only have 21 days to release a bank levy, filing an offer in compromise for the purpose of releasing a bank levy may not be the wisest choice. For more information regarding how to get tax levies released, check out this blog entry on the RoniDeutch.com Tax Relief Blog.

IRS Injured Spouse Relief

My law firm’s Tax Relief Blog posted a very informative new article earlier this week discussing IRS Injured Spouse relief. Unfortunately, there are thousands of taxpayers across the country who have run into IRS debt problems because of their spouse or ex-spouse and the IRS has established certain programs – like Injured Spouse Relief – to help these taxpayers. You can find a snippet of the blog entry below, but be sure to read the full article on the Tax Relief Blog.

Dealing with a back tax debt of your own can be stressful enough, but being held responsible for the back tax liability of a spouse – or former spouse – can be even more trying. Fortunately, there may be relief from being held responsible for your spouse’s or ex- spouse’s back tax liability.

The general rule is: when a couple files a joint federal tax return, the IRS will hold both taxpayers responsible for any unpaid tax debts. The IRS will even keep any refund available and apply it to a past due tax liability—even if the couple later begins to file separately but incurred the original debt while filing jointly. Some taxpayers might file separately to avoid a withheld refund, but this can cause the couple to miss out on valuable tax advantages for married taxpayers. This blog entry will explain the basics of the IRS’s Injured Spouse Relief program.

What is an Injured Spouse and what is the Relief the IRS Provides?

For federal tax purposes, an Injured Spouse is someone that is denied a tax overpayment refund or a portion of a refund because the funds were applied to off-set a past-due obligation of a spouse or ex-spouse. This obligation can be a past-due federal tax, state income tax, child or spousal support or even a federal “non-tax” debt, such as a student loan. In this case, the spouse is injured because they do not have a legal obligation to the past-due amount but by having their overpayment applied to the liability, the IRS is in fact holding the person responsible for the debt.

Continue reading at RoniDeutch.com…