OIC with Nonliable Spouse — Where to put nonliable spouse income?

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  • #46144
    John M. Perry III
    Participant

    I am drafting a Form 433-A (OIC) for evaluation. The taxpayer who owes back taxes from several previous years married a nonliable spouse in March 2021. I know I must allocate some of the household expenses, and to do that I must list the nonliable spouse’s income contribution to the household so the IRS can review the allocation percentage I use, and doing so is not a problem. I am just stuck on how to present it.

    Reg. § 301.7122-1(c)(2)(ii)(A) makes it clear that “Where a taxpayer is offering to compromise a liability for which the taxpayer’s spouse has no liability, the assets and income of the nonliable spouse will not be considered in determining the amount of an adequate offer.” Unless I’m reading that wrong, the nonliable spouse’s income is NOT included in the amount of monthly income available to pay on the offer (even though it is used in the computation of his allowable percentage of certain household expenses).

    However, if I list the nonliable spouse’s income where Form 433-A (OIC) says to list it, on Page 6, Section 7, line 32, the nonliable spouse’s income will be included in the total available household income in Box D and, after subtracting allowable household expenses, in Box F. The amount in Box F, which includes the nonliable spouse’s income that is not supposed to be used in determining the amount of an offer, is then used in Box G or Box H on Page 7 to determine the amount of the offer. That is wrong, it seems. It seems the form violates the Treasury Regulation.

    How do I inform the IRS of the nonliable spouse’s income so they can check my work in allocating the household expenses, while not including that income in the amount of income available for the offer? If I leave the nonliable spouse’s income off of line 32 but disclose it in my cover letter or on a separate attachment, will that be satisfactory?

    I appreciate any assistance.

    #46145
    Eric Green
    Keymaster

    John I complete the 433-A OIC with the total expenses and both incomes. I then attach my excel spreadsheet showing the allocation and user those numbers to complete the 656.

    #46146
    John M. Perry III
    Participant

    So you prepare the 433-A (OIC) as if it were a joint offer, with both spouses liable, then you do the expenses allocation on a spreadsheet you attach (and explain, I’m sure)?

    Then for the Form 656 offer you reduce the amount in Box G or Box H by the nonliable spouse’s income contribution (and explain what you have done, too, I’m sure)?

    And the IRS doesn’t send anybody around to break your knees? They accept it that way, I mean, even if the Form 433-A (OIC) and the Form 656 don’t exactly track (as long as you explain it)?

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