Interesting Potential Client – Notice of Deficiency

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    I met with a potential client today. She received a notice of deficiency (90 days runs on Jan 9th) regarding a business she and her ex-husband owned. The liability is up around $250k, with penalties. She disputes that she received any “income” from the business, by which she claims she received no benefit such as cash or other distributions. The divorce was apparently very bitter with her getting only the marital home, which appear burdened by her ex-husband’s 700k in tax liens. She also has interests with her ex-husband in properties in New Mexico.

    Her attorney was there and it sounds like a nasty divorce with a great deal of conflicting evidence regarding what happened in the business. My thought is that fighting the assessment is probably a losing battle. Still open to anyone else’s thoughts.

    My thought would be to see what the value of her assets are and potentially make an offer. The home was valued at $350k but I think that may be over its actual value as it needs extensive repairs. Additionally, the lien against her ex-husband was recorded I think before the transfer (I will certainly need to confirm that). He owes upwards of $700k. I have no idea what the land is worth but it sounds like raw land (also not sure if lien against ex-husband was filed against it).

    I don’t know if it is worth trying for an OIC as doubt as to collectability. It sounds like the home is not in great shape and potentially 1/2 of the value is subject to an IRS lien of the ex-husband. I am also not sure if it is better to contest the liability in tax court or try using the OIC as to doubt as to liability. I know I definitely don’t want to try this in tax court, from what I gather this was a bitter divorce and I doubt the ex-husband is going to help her out.

    Just not sure what to do about the NOD considering that need to file something in a bit over a month. Other thoughts welcome. Thank you in advance.

    Jim Wade

    Eric Green

    James, this has the potential to be a great case or it could be a nightmare. So here is what I would do:
    1. With the client, explain that the assessment could be challenged if the records were reviewed. Does she even have access to the records, does she know what happened during the exam, and is she willing to pay to have the work done?
    2. Do the Offer/RCP analysis and see if an Offer is even a possibility.
    3. Go through with her in detail who did what, are their former employees who are witnesses to back her story up, any evidence she didnt sign checks, etc…. Where we are going here is whether she has an innocent spouse case.

    I think you need to figure out if she is or could be an Offer candidate, does she have an innocent spouse argument, and are there records/is she willing to spend the time and money to fight the assessment.


    James Wade


    Thank you for getting back so quickly. I just wanted to add something I did not explain in the earlier email (apologies). There was no joint return, the couple filed separate returns. The business was a flow-through entity and she was allocated income through a K-1. So no innocent spouse.

    I am interested in your thoughts as to what to do about a situation like that. I know the PC wants to challenge it but the facts seem very muddy. The money earned was apparently spent by the family on bad investments and some land out in New Mexico (though that appears to be the ex-husband’s fault).

    Thank you again. Well worth the monthly payment!


    Eric Green

    Sounds like they just owe the money. Its probably an Offer, or an installment agreement. If the have assets but simply cannot pay or tap the equity you have them make three attempts online to get a loan (you do this online so they get the rejection letters) and file a 433-A with the evidence they cannot pay and cannot get a loan, and request to have them placed in CNC. That buys them temporary relief.

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