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Specializing in IRS and NYS Tax Representation. Workers Compensation Audits, Payroll, Sales and Income Tax representation for Businesses, Individuals, Restaurants and Construction Companies. Civil and Criminal Workers Comp Audit representation includes: NYSIF Examinations, Premium Disputes, Employee Misclassification, Underreporting, Unreported Income, and Failure to Keep Accurate Payroll Records.

Thursday, September 22, 2016

Celebrity Tax Counsel Selig & Associates Stands With Brad Pitt + Do It Yourself Guide to Innocent Spouse Relief


Brad Pitt’s a great guy, a fantastic artist, and most of all, an incredible father, and I particularly enjoyed him in Inglorious Bastards, although being partial to all things German, I could never quite bring myself to watch the end, says David Selig of Selig & AssociatesSo when my learned brother Attorney Bradley Dorin told me that [Brad Pitt] was getting a divorce, we sprang into action.
 
To this end, if Brad Pitt receives Alimony, he will have to pay income tax on his annual alimony award, and since we expect him to win a big chunk of change in this divorce, it may be better for him to treat the money as child support, which would be 100% taxable to his ex-wife, says Selig. 

Nota bene, alimony is tax deductible by the payer and child support is not. Additionally, when the property is divided, there could be significant tax consequences that Brad Pitt shouldn’t be responsible for. Specifically, says Selig, he needs to be compensated for his ex-wife’s tax basis, even though IRC §1041 says the division of property in a divorce is not a taxable event, in many cases, a devastating tax bill awaits the eventual seller. In a nutshell, Tax Basis is the price used to determine the capital gains tax when property is sold, viz. the purchase price. For example, if the eventual Divorce Settlement Agreement has Brad, in addition to all the real property, personal property, financial investments and business interests he’s entitled to, receiving $10,000,000 worth of stock, he’ll still be hit with a whopping tax bill when he sells, and that’s not fair! says David Selig.

1. How do I request Innocent Spouse Relief?
File IRS Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. You need not file multiple forms. One form can cover multiple years.

2. Should I include a letter when filing Form 8857?
You may include a letter and any other information you would like IRS to consider.

3. When should I file Form 8857?
You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held. The following are some of the ways you may become aware of such a liability.

    The IRS is examining your tax return and proposing to increase your tax liability.
    The IRS sends you a notice.

However, you generally must file Form 8857 no later than 2 years after the first IRS attempt to collect the tax from you that occurs after July 22, 1998. (But see the exceptions below for different filing deadlines that apply). For this reason, do not delay filing because you do not have the required documentation. See the answer to question 35, “What constitutes a collection activity for purposes of starting the two-year statute of limitations that cover the filing of Form 8857?” below.

Exception for equitable relief.
On July 25, 2011, the IRS issued Notice 2011-70 expanding the amount of time to request equitable relief. The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both:

Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. In certain cases, the 10-year period is suspended.

Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. See Pub. 556, for details.

Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability

Exception for relief based on community property laws.
If you are requesting relief based on community property laws, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse or former spouse for the tax year for which you are requesting relief. However, if the IRS begins an examination of your return during the 6-month period the latest time for requesting relief is 30 days after the date of the IRS’ initial contact letter to you. The period of limitations on assessment is the amount of time, generally 3 years, that the IRS has from the date you filed the return to assess taxes that you owe. If you do not qualify for the relief described above and are now liable for an unpaid or understated tax you believe you should be paid only by your spouse or former spouse, you may request equitable relief. See the Exception for equitable relief above.

Selig & Associates we represent people with tax problems.


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Selig & Associates is a boutique Tax Representation and Risk Management Firm specializing in unpaid tax obligations and commercial insurance coverage

  Tax Advocacy      Federal Tax Practitioner, CPCU and Attorney. Practicing before the Internal Revenue Service and New York State Departmen...