Is it me or does Internal Revenue Manual section 25.18.4.12 contradict form 433-a?

If so then am I allow to adjust the household income on a relative basis or do I just have to write as a letter? This is significant since the minimum offer is calculated based on this information.

To understand better, you can view section 25.18.4.12 at http://www.irs.gov/irm/part25/irm_25-018-004.html#...

Of particular interest is this line in paragraph 3.

In addition, the liable spouse's share of community property and community property income should be considered. If, under the community property laws of the state involved, part or all of the nonliable spouse's share of community property or income would be available to satisfy the tax liability, the portion available should also be considered in the offer in compromise.

And this line in paragraph 4.

The total expenses of both spouses should be determined based on national standards and other expenses that would be applicable if both spouses were making the offer and were liable for the tax. This amount should then be reduced by the appropriate percentage. For example, if 50% of the total income of both spouses would be available to satisfy the tax liability, then 50% of the total expenses of both spouses should be allowed against this income. If 100% of the income is available, then 100% of the expenses should be allowed against the income.

But in the 433/656 booklet http://www.irs.gov/pub/irs-pdf/f656b.pdf, there is no mention of this. On the contrary, it requires household income.

Am I missing something?

Update:

Ok so I have received a few answers that basically tell me what I already knew and that is that My wife doesn't owe so her income and assets aren't included in the calculation and the shared assets are divided in half. What I am having an issue with is how this should be documented on form 433-a. The calculation must be my share of household income - expenses based on my percentage of income in the household. My issue is how to write this on form 433-a. to be continued.

Update 2:

So for the assets do I write the balance and then explain later or do I write 50% of the balance? It clearly says balance though and not my share of the balance. And for income it's much more complicated. It clearly states household income and even goes on to say later if there was income from a non-liable spouse then it must be included. Should I just fill out all the info and then offer less and explain my calculation in a letter? I do have all the appropriate laws to quote too.

Update 3:

After speaking with a tax lawyer, here is the real answer. Bash was right but he only answered part of the question. You must list household income (even income from a non liable party) and shared assets. The non liable party is not supposed to be included in the calculation. The correct way to reconcile this is to fill out the 433-a as if the spouse were liable, but then offer the amount as if they weren't. Use paragraph 4 to figure income. In an attached letter you should explain this.

2 Answers

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  • Favorite Answer

    To clarify paragraph 3:

    In most community property states the non-liable spouse is not liable for the debts of the liable spouse so you use 50% of the joint assets and income to determine what the liable spouse's resources are.

    However in 3 community property states -- CA, ID, and LA -- the non-liable spouse is liable for the debts of the liable spouse, so you use 100% of the community property assets and income to determine what the liable spouse's resources are. This is true even if the debt predates the marriage!

    With this in mind, paragraph 4 should now be clear.

  • 6 years ago

    Treatment of income and assets in community property states is treated differently than in non-community property states so the outcome for offer purposes can be very different. The Form 433-A is a one size fits all form that can't recognize that.

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