ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – IS THERE INNOCENT SPOUSE RELIEF FOR PAYROLL TAX RELATED ASSESSMENTS? – PART 2
By Robert S. Schriebman
This is Part 2 of a 2-Part series of articles.
Angela M. Chavis and her then husband were officers of a corporation that withheld payroll taxes from its employees’ wages but did not pay those taxes over to the IRS. The IRS tried to collect these delinquent payroll taxes from the corporation without success. The matter was assigned to a Revenue Officer. After an investigation, the Revenue Officer decided to assess both Angela and her then husband for the trust fund portion of the corporate level deficiency. Angela and her husband divorced. The IRS sent Letter 1153, Notice of Trust Fund Recovery Penalty (TFRP) to Angela affording her a 60-day window to file a Protest to challenge the TFRP assessment. Angela failed to file the Protest. There was no response from Angela.
In its process of collection, the IRS issued a Collection Due Process (CDP) Notice to Angela. Angela filed her CDP petition, and in the petition, for the first time, she challenged the merits of the pending TFRP assessment. Angela sought to challenge the IRS proposed assessment against her but went about it the wrong way and the results were disastrous!
The Case of Angela M. Chavis v. Commissioner, (US Tax Court, 158 TC, No. 8, June 15, 2022), continued
In this Part 2, I will discuss the following topics:
Is Innocent Spouse Relief Available to Angela in a TFRP Assessment? – NO!
The Innocent Spouse relief statutes are found in IRC §§ 6015(a) et seq.; the heading is very informative. “Relief from Joint and Several Liability on Joint Return.” Subsection (a)(1) states…“an individual who has made a joint return may elect to seek relief under the procedures prescribed under subsection (b).” Subsection (b) states, “If…a joint return has been made for a taxable year.”
It is clear from the language of the statute that Innocent Spouse relief can only apply in matters involving income taxes. The TFRP, on the other hand, involves payroll taxes, or employee and withholding taxes.
Here, Angela does not owe the IRS any personal income tax. She has been assessed payroll tax deficiencies. Therefore, she may not avail herself of Innocent Spouse relief.
There are no Innocent Spouse relief laws for payroll tax deficiencies.
If This Were an EDD CUIC 1735 Assessment, Would Angela Be Allowed to Raise the Defense of Innocent Spouse? – NO!
The EDD has its own version of TFRP. It is up to the EDD collector to investigate and determine the targeted individual. If you are the target, you will receive a Notice of Assessment. When you receive the Notice from the EDD, you must file a timely petition with the CUIAB. The Notice will be addressed to you personally, “as a responsible person” for the corporation or LLC.
The EDD statutes contained in the Unemployment Insurance Code do not have any provisions for Innocent Spouse relief. Those provisions are contained in the Revenue and Taxation Code, and they only relate to assessments of personal income taxes and not employee and withholding taxes.
What Avenue is Available for Angela?- GO THROUGH THE REFUND PROCESS.
A person in Angela’s position, who failed to timely respond to an 1153 Letter, may be allowed a second bite at the Appeals apple, by going through the refund process. This will require the filing of an IRS Claim for Refund Form 843. One 843 Form must be filed for each payroll tax quarter in issue. A minimum of $500 should be paid with each filed form in order to account for one employee per calendar quarter. After these returns have been filed, the matter will be assigned to Appeals for an administrative hearing.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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