Enrolled Agent Exam Blog

Enrolled Agents Help Settle Your Tax Debts With the IRS

The Offer in Compromise (OIC) program in the United States is an Internal Revenue Service (IRS) program that represents an agreement between the taxpayer and the IRS that settles the taxpayer’s liabilities for less than the amount owed. You, usually use the checklist in the Form 656 to determine if you are eligible for this program. If you believe you are eligible to file an OIC you should seek out representation from either attorneys, Certified Public Accountants (CPA) or Enrolled Agents who can represent taxpayers in front of the IRS.

Enrolled Agents are great representatives when filing an OIC. Enrolled Agents are admitted to practice by the IRS and can do so nationwide, unlike attorneys and CPAs. In order to become an Enrolled Agent, one must pass the Special Enrollment Examination, also referred to as the EA Exam. The EA Exam is tax specific and covers tax law more in depth than the BAR or CPA Exam.

In most cases, the IRS rejects an OIC unless you offer an amount that is equal to or greater than the Reasonable Collection Potential (RCP). The RCP is what the IRS uses to measure your ability to pay, and includes the value attached to your assets like bank accounts, properties, automobiles, etc. Additionally, the RCP also takes into account your anticipated future earnings, and adjusts them accordingly for basic living expenses using set standards. An Enrolled Agent with OIC experience will know how to calculate the RCP and can help determine a reasonable offer amount to help prevent rejection.

Offer in Compromise: Considerations

An OIC can be requested based on the following conditions:

Doubt as to Collectibility: You show a reason for doubt that you can repay the full amount of the tax liability you owe to the IRS within the stipulated time for repayment. For instance, if you owe $20,000 in unpaid tax liabilities, you agree to what you owe is correct and accurate. Also, you show that your monthly income does not meet your living expenses, you do not own any property, and you are unable to pay off your liabilities in a lump sum or through installments.

Doubt as to Liability: You show a reason for doubt that your assessed tax liability is accurate and correct. Possible reasons for this doubt include mistakes by the tax examiner, failure of the examiner to consider your evidence, or you have new evidence.

Effective Tax Administration: To be eligible for an OIC under these grounds, you must show the IRS and the tax collectors that paying off your liabilities would create a situation of economic hardship for you. For instance, you may have enough funds to pay off your taxes within the specified time, but due to some unforeseen reasons, paying the taxes would worsen your economic situation beyond repair.

Offer in Compromise: Payment Options

Ideally, you are required to submit a $150 application fee along with Form 656 – Offer in Compromise. However, certain low income taxpayers may qualify to waive the application fee. You may choose to pay the OIC using one of the following options:

Lump Sum Cash Offer: The amount due must be paid within five or less non-refundable installments upon notice of acceptance. When filing your Form 656, you are required to pay 20% of the offer amount. A Lump Sum Cash Offer is calculated as follows:

If the offer will be paid in 5 or fewer installments in 5 months or less, the offer amount must include the net value of your assets and the monthly anticipated future earnings amount multiplied by 48 months.
If the offer will be paid in 5 or fewer installments in more than 5 months but less than 24 months, the offer amount must include the net value of your assets and the monthly anticipated future earnings amount multiplied by 60 months.
If the offer will be paid in 5 or fewer installments in more than 24 months, the offer amount must include the value of your assets and the anticipated future earnings amount spread over the remainder of the statute.

Short Term Periodic Payment Offer: You must pay the offer amount within 24 months of the date the IRS received the offer. The first payment is made along with the $150 application fee when Form 656 is submitted. The monthly installments must continue to be paid while the OIC is under review and are non-refundable if the OIC is rejected.

If the offer will be paid in 5 or more installments within 24 months, the offer amount must include the net value of your assets and the monthly anticipated future earnings amount multiplied by 60 months.

Deferred Periodic Payment Offer: You must pay the offer amount over the remaining statutory period for collecting the tax liabilities incurred by you.

If the offer amount must include the net value of your assets and the monthly anticipated future earnings amount spread over the remainder of the collection statute.

The IRS officials are not bound to offer you terms as proposed by you. The OIC investigator may propose a different plan after assessing your financial condition and ability to pay off your taxes.

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Offer in Compromise Overview for Enrolled Agents

So you did your homework, took an Enrolled Agent Course or used an Enrolled Agent study guide and passed the Enrolled Agent Exam. Now that you have become an Enrolled Agent you want to represent clients who have tax problems. The Internal Revenue Service Offer in Compromise (OIC) program is a good place to start. There are not many taxpayers that actually qualify for the OIC program, but almost every taxpayer who owes a balance to the IRS will inquire about it. Therefore, as an Enrolled Agent you should become familiar with how the OIC program works.

Three Types of Offers in Compromise

There are three types of Offers in Compromise for which the IRS may consider settling a tax liability for payment of less than the full amount owed. The three types are Doubt as to Collectibility, Doubt as to Liability and Effective Tax Administration.

1. Doubt as to Collectibility – Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.

Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax he/she owes is correct. The taxpayer’s monthly income does not meet their necessary living expenses. The taxpayer does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.

2. Doubt as to Liability – A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.

Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll tax liability accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.

3. Effective Tax Administration – There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.

OIC Payment Options

In general, a taxpayer must submit a $150 application fee and initial payment along with the Form 656, Offer in Compromise. Taxpayers may choose to pay their Offer in Compromise in one of three payment options:

1. Lump Sum Cash Offer – Payable in non-refundable installments, the offer amount must be paid in five or fewer installments upon written notice of acceptance. A non-refundable payment of 20 percent of the offer amount along with the $150 application fee is due upon filing the Form 656.

If the offer will be paid in 5 or fewer installments in 5 months or less, the offer amount must include the realizable value of assets plus the amount that could be collected over 48 months of payments or the time remaining on the collection statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 5 months and within 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over 60 months of payments, or the time remaining on the collection statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over the time remaining on the collection statute.

2. Short Term Periodic Payment Offer – Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the statutory period for collection, whichever is less.

3. Deferred Periodic Payment Offer – Payable in non-refundable installments; the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect through monthly payments during the remaining life of the statutory period for collection.

The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance.

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CFP Holders Can Earn Up to 48 Hours of CE by Passing the EA Exam

Successful completion of certain examinations for professional licenses or designations can qualify as CE hours towards your CFP designation. One such designation is the Enrolled Agent (EA). The Certified Financial Planner Board of Standards grants CE hours for passing the enrolled agent exams, not for attending or completing an enrolled agent review course.

A certified financial planning practitioner (CFP) must complete 30 hours of continuing education during each reporting period, including 2 hours of ethics. Each part of the enrolled agent exam counts as 16 CE credits towards CFP continuing education. The most one could earn for passing all three parts of the EA exam is 48 credits.

To qualify, the practitioner must pass an exam during the current reporting period, which is a two-year period ending the last day of the renewal month. Only 30 hours are required each period, and hours in excess of the requirement do not apply to future years. A CFP holder cannot split CE hours earned for any one program between two reporting periods. If you pass separate exams in separate reporting periods, each exam would count in its respective reporting period.

You can report your credit hours to the CFP Board once you successfully complete the enrolled agent exam by logging into their website, entering ”Designations & Licenses” as the CE Sponsor name, and finding the EA exam part in the list. Make sure you save a copy of your score report and maintain it in your records.

Major changes for all tax professionals are just around the corner. Enrolled agents are exempt from the mandatory competency testing and federal continuing education requirements imposed on all tax preparers by the new law. If you have earned the CFP credential and plan to prepare tax returns in the future, there has never been a better time to become an enrolled agent.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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Installment Agreements

An Installment Agreement establishes a payment plan for paying federal income taxes, much like setting up payment agreements when purchasing a car, house or any other commodity. An installment agreement, or IA, is the most widely used method for paying off debts to the Internal Revenue Service (IRS). If you owe $25,000 or less, you qualify for an IA plan of 60 months. If you owe more than $25,000, you will have to negotiate with the IRS to formulate an appropriate installment plan.

If you owe more than $10,000 in tax liability to the IRS you may wish to seek representation from an Enrolled Agent to increase the certainty you get a reasonable IA payment that you can afford. Enrolled Agents are licensed directly by the IRS to represent taxpayers. Enrolled Agents become licensed by passing the Special Enrollment Examination, also known as the EA Exam and can practice throughout the United States.

Types of Installment Agreements

The main types of installment agreements are:

Guaranteed Installment Agreements: If you owe $10,000 or less to the IRS, you are eligible for this type of IA, provided you meet the following criteria:

You have not filed your returns later than the due date or defaulted on your returns in the last five years.
All your returns are filed.
Your monthly installment payments will pay off the balance due (plus interest and penalties) in 36 months or less.
You have had no other installment agreements in the last five years.
You agree to file your returns and pay your taxes on time in future.

The IRS will not file a federal tax lien under a guaranteed installment agreement. This is helpful as tax liens have a negative impact on your credit rating.

Streamlined Installment Agreements: You are eligible for a streamlined installment agreement if your balance is less than $25,000, and you agree to pay off the balance due (plus interest and penalties) in 60 months or less. Under a Streamlined Installment Agreement the IRS is not likely to file a federal tax lien. Like a Guaranteed Installment Agreement a taxpayer must have all tax returns filed prior to the agreement and must agree to file tax returns and pay taxes on time in the future.

Partial Payment Installment Agreements: This type of a payment plan is suitable if your minimum payments due do not meet the criteria set by the guaranteed and streamlined installment agreements. A Partial Payment Installment Agreement can be used regardless of the amount owed. In this case, your monthly payment is based on what you can afford after deducting your living expenses. The downsides of this plan are that the IRS is more likely to file a federal tax lien and you will be asked to fill out Form 433-F to report your assets, income, and expenses and provide bank statements and possibly other documentation for the past three months.

Non-Streamlined Installment Agreements: If your balance due is more than $25,000, you have to negotiate your installment agreement with the IRS. You also opt for a non-streamlined installment agreement if your repayment term is longer than 60 months, or you fail to meet the criteria associated with other installment agreement plans. In this case you are required to provide Form 433-F or Form 433-A along with documentation and there is a high likelihood the IRS will file a federal tax lien.

How to Set up an Installment Agreement with the IRS

The IRS encourages taxpayers to pay what they owe as early as possible. For individuals or businesses that cannot resolve their tax burden within the desired period, setting up an installment agreement with the IRS is the best option. Setting up an installment agreement requires you to:

Have previously filed all your tax returns.
Disclose all assets including cash and bank accounts.
Not be able to borrow the amount due to the IRS from other sources, like a second home mortgage.
Not have adequate equity in your IRA or 401K to pay the balance due.

The IRS officials will ask you for a complete personal or business financial statement, and will calculate your monthly payments by taking into account “allowable” monthly expenses.

IRS Installment Agreement Defaults

So, you have defaulted on your installment agreement payments to the IRS. What happens now? It is very important to know that the IRS must send you a notice of default before it starts collection activity. This notice is called “Notice of Intent to Levy!!! You Defaulted on Your Installment Agreement.” After the IRS sends this notice, you have 30 days to file an appeal to renegotiate the installment agreement. If you file the appeal within 30 days, the IRS cannot take any collection action or enforce the default until your appeal hearing is completed. This is mandated by law – Internal Revenue Code 6159(b) (5) – and by the Internal Revenue Manual (IRM 5.14.11.9).

Renegotiating your installment agreement protects your bank accounts and other assets from IRS collection agents, till you negotiate a whole new plan for repayment of your liabilities. If you are still unable to repay your IRS debt, other options available to you include Offer in Compromise (OIC), bankruptcy or being placed in IRS uncollectable status.

Installment Agreement Benefits

An installment agreement gives you, the taxpayer, adequate time to pay off your taxes in an orderly manner. As long as you are able to pay off what is owed by you, IRS collection agents would never bother you. Eligible individuals can get a six-month extension for filing their tax returns and possibly paying their tax bills if they are under certain financial hardships. These are all highlighted, along with eligibility factors in Form 9465.

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Collection Appeal Rights

As a taxpayer, you are entitled to know what Collection Appeal Rights you have with the Internal Revenue Service (IRS). There are some procedures with the help of which you can appeal against IRS collections action. The two main procedures you can use to contest collections initiated by the IRS are:

Collection Due Process (CDP): You are entitled to initiate a CDP procedure if you receive one of the following notices:

Notice of Federal Tax Lien filing and your Right to Hearing under IRC 6320
Final notice of your Intent to Levy and notice of your Right to Hearing
Notice of Jeopardy Levy and Right of Appeal
Notice of Levy on your State Tax refund

Collection Appeals Program (CAP): You are entitled to initiate a CAP procedure for the following actions:

Before or after the IRS files a Notice of Federal Tax Lien
Before or after the IRS levies or seizes your assets
Termination of an Installment Agreement (IA)
Rejection of an Installment Agreement

You may represent yourself or enlist the services of an Attorney, CPA or Enrolled Agent at the CDP, CAP and other Appeals proceedings. If you want a representative to appear on your behalf, you must file Form 2848 – “Power of Attorney and Declaration of Representative.” You may also authorize an individual, Attorney, CPA or Enrolled Agent to receive or inspect confidential material but not represent you before the IRS, by filing Form 8821 – “Tax Information Authorization.”

How to Request a CDP

You must fill out Form 12153 – “Request for a Collection Due Process or Equivalent Hearing” and send it to the address displayed on your levy or lien notice. If you have received both a lien and a levy notice, you may appeal against both actions by checking the boxes in line 5 on the form. You must also identify the alternatives to the lien or levy action. Possible alternatives may include:

An Installment Agreement, Offer in Compromise or Currently Not Collectible Status
Discharge of lien
Withdrawal of Notice of Federal Tax Lien

After you request a CDP hearing, your case will be forwarded to Appeals. Appeals will schedule a conference with you in person, on the telephone or by written communication. Unless the IRS believes that the collection of taxes is in jeopardy, you are not subject to any levy action during the 30 days after the levy action or the CDP hearing. If you make a timely request for a CDP hearing, the 10-year period that the IRS has to collect the taxes will be suspended, until you request to withdraw your hearing in writing or the hearing is completed.

How to Appeal against the Termination of an Installment Agreement

Call the person or entity whose telephone number was mentioned on the termination notice, and explain that you want to appeal against the termination. Your appeal need not be in writing, unless the notice is sent by a Revenue Officer, in which case you need to request for an appeal using Form 9423. You will have 76 days from the day of the notice to file your appeal. Unless you appeal within 30 days from the date of the notice, the installment agreement will terminate automatically on the 46^th day. After the 46^th day, your right to appeal will continue for 30 more days. Your request for an appeal must be made on or before the 76^th day after the date of the notice of intent to terminate the installment agreement. You are entitled to file only a solitary appeal within the 76 day period.

How to Appeal against the Rejection of an Installment Agreement

Call the person or entity whose telephone number was shown on the termination notice, and explain that you want to appeal against the termination. Your appeal need not be in writing, unless the notice is sent by a Revenue Officer, in which case you need to request for an appeal using Form 9423. You must appeal against the rejection of your installment agreement on or before the 30^th day after the date of the notice of rejection.

You can also appeal against other collection actions like the rejection of Offer in Compromise, Trust Fund recovery penalties, and denial of request to suspend penalties.

Enrolled Agents

Would you like to become an Enrolled Agent? To become an Enrolled Agent an individual must pass the Special Enrollment Examination, also referred to as the EA Exam. The Special Enrollment Examination is a three-part exam administered by the IRS. The exam covers all areas of tax preparation including IRS Circular 230.

Before taking the Special Enrollment Examination you should prepare by getting an Enrolled Agent study guide or taking an Enrolled Agent review course.

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2011 Changes to the IRS Offer in Compromise

For any Attorneys, CPAs, or Enrolled Agents looking to pursue resolutions and offers in comprise for their clients or potential clients in 2011, large growth in the resolution industry is a possibility.

The law for offers in compromise, as of right now, requires taxpayers to make certain nonrefundable payments with any initial offer in compromise submission. This new provision was introduced in 2006 and required taxpayers who request certain lump-sum offers in compromise to pay 20% of the offer amount with the initial request. In the case of an offer in compromise involving periodic payments, the initial offer must be accompanied by a nonrefundable payment equal to the first installment payment, and the nonrefundable installments must be continued while the offer is reviewed by the IRS.

The offer-in-compromise program is designed to settle cases in which taxpayers have demonstrated an inability to pay the full amount of a tax liability. The current law creates an opportunity for taxpayers who would like to pursue an offer in compromise but are not willing or are unable to pay the initial sums due.

As written in the Administrations fiscal year 2011 revenue proposals. The new proposal would eliminate the requirements that an initial offer in compromise submission include a nonrefundable payment of any portion of the taxpayer’s offer. The proposal would be effective for offers in compromise submitted after the date of enactment.

With this change, Attorneys, CPAs, and Enrolled Agents will potentially see a large increase in taxpayers willing and able to begin the resolution process with the IRS. Continual changes such as this are why every Enrolled Agent should go through routine EA training or take an Enrolled Agent course that reviews IRS collection procedures at least once a year.

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Currently Not Collectible Status

The “currently not collectible” status is an Internal Revenue Service (IRS) provision through which you can make voluntary monthly payments towards your tax liabilities. Simply put, if the IRS agrees that you do not have enough income to pay towards your tax debts on a monthly basis, your accounts would be placed into a currently not collectible (CNC) status. Under CNC status there is no required payment to be made. Your tax accounts would remain in a CNC status as long as you cannot afford to make monthly payments. The IRS does, from time to time, review the status of your account and may conduct an audit of your financial information to determine if you are currently able to make monthly payments. If you are still unable to make monthly payments, the IRS will keep your accounts in the CNC status. The IRS will send a statement reminding you of an outstanding tax balance.

Prior to requesting CNC status, you should have filed your tax returns for all the years in which you were required to file. You must also be compliant with current year estimated tax payments or tax withholding and must agree to remain compliant in the future.

Information Required for a CNC Status Request

To request a currently not collectible status from the IRS, you must demonstrate that you cannot make monthly payments. What you need to do is to gather the following information for the IRS authorities:

Copies of your latest pay stubs
Copies of your most recent statements showing other means of income like Social Security benefits, pension income, spousal support, etc
A copy of the most recent real estate tax bill for all the properties owned by you
Copies of your latest utility bills, like bills for electricity, gas, telephone, etc
A copy of your lease or mortgage statement showing your monthly rent or mortgage payments
Copies of your latest credit card statements
Copies of the most recent property tax bill for every car you use
Proof of any other assets that you may own, such as stocks, bonds, etc
Proof of any other monthly expenses you incur, such as food and other necessities, daycare, court ordered payments, medical expenses, etc

Form 433 A – A Brief

After you have gathered the required documents you now must complete Form 433 A or 433 F for submittal to the IRS. Form 433 F is an abbreviated copy of Form 433 A and is only accepted by the IRS under certain circumstances.

Completing the IRS Form 433 A is a crucial step in submitting a successful request for CNC status. Form 433 A, “Collection Information Statement for Wage Earners and Self-Employed Individuals” is the form used to document your financial situation. The IRS uses this form to determine your Reasonable Collection Potential (RCP) on your tax debts. If your RCP is greater than $0.00 then you will not likely qualify for CNC status. Here is a brief description of the form:

Form 433 A, Section 1: This section is used to enter your personal information, like your name, address, marital status, social security number, date of birth, home phone number, work phone number, driver’s license details and spousal information.

Form 433 A, Section 2: This section is used to enter your employment information, like the name and address of your employer, your spouse’s employer and address, contact details, duration of employment, occupation type, pay period, and number of exemptions claimed on Form W 4.

Form 433 A, Section 3: This section is used to enter other financial information, like details of current lawsuits, if any, bankruptcies, insurance policies, any anticipated increase/decrease in income, and whether you have resided outside the United States in the last 10 years for a period of 6 months or more.

Form 433 A, Section 4: This section is used to enter personal assets, like bank accounts, money market accounts, government benefit cards and safe deposit boxes. You also need to include the full name and address of the financial institution or credit union where your assets are deposited. Other information you are required to furnish are total cash in hand, 401 K, IRAs, stocks, bonds, mutual funds, etc. In addition, you need to reveal the amount of equity you hold, including credit cards, and any transfers of assets in the past 10 years. In the last portion of this section you must furnish monthly information for income and expenses.

Form 433 A, Section 5 and 6: You are required to complete these sections only if you are self-employed. The information required is the name of your business, EIN, type of business, number of employees, average gross monthly payroll, frequency of tax deposits, total equity, credit cards used, loans, business assets, etc.

Once you have completed Form 433 A, you must follow the instructions on the form and attach all required documentation. If the required documentation is not attached, your request for CNC status will likely be denied.

A CNC status can be difficult to acquire from the IRS. If you wish to pursue CNC status it may be a good idea to hire an Enrolled Agent to assist and represent you. Enrolled Agents are licensed by the IRS and can practice throughout the United States. In order to become an Enrolled Agent an individual must pass the Enrolled Agent Exam which tests their knowledge in all areas of tax preparation and representation of clients.

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Injured Spouse Review for Enrolled Agents

During the preparation of tax returns or representation of a client for an Internal Revenue Service (IRS) issue, Enrolled Agents should be aware of the Injured Spouse Allocation. The Injured Spouse Allocation is used to protect one spouse’s share of an overpayment (IRS refund) from being applied to a past-due obligation. Enrolled Agents should use this tool before considering an offer in compromise if there is a possibility a client’s IRS refund may be offset.

An injured spouse claim arises when a joint tax return is filed, the return shows an overpayment of tax, and one of the spouses has a legally enforceable past-due obligation for which the IRS refund could be offset. Legally enforceable past-due obligations include federal tax, state income tax, child or spousal support, or a federal nontax debt, such as a student loan. An injured spouse claim should be filed when there has been or is expected to be an offset for a past-due obligation.

An injured spouse, the spouse that does not have the past-due obligation, can submit a claim by filing IRS Form 8379, Injured Spouse Allocation. Form 8379 can be filed with the original submission of the jointly filed income tax return, with an amended tax return or by itself. An injured spouse claim should be filed with the original income tax return or amended tax return if an overpayment offset is expected. If an offset was not expected prior to submission of the original or amended tax return, the claim can be filed by itself after the offset has occurred.

Form 8379 is used to properly determine the amount of tax owed and overpayment due to each spouse. The form allocates exemptions, income, deductions, credits, tax and tax payments as if each spouse filed separately. Each item should be properly allocated based on which spouse would have reported the item if separate returns were filed. Certain items that do not clearly belong to either spouse should be divided equally. If the taxpayers live in a community property state additional rules on allocation may apply. Form 8379 does not calculate the allocated refund as this is determined by the IRS. Once the IRS determines the amount, the injured spouse’s share of the overpayment will be refunded and the non-injured spouse’s share will be offset against the past-due obligation.

An injured spouse claim should not be confused with a claim for innocent spouse relief. An injured spouse claim only allocates an overpayment, where as a claim for innocent spouse relief can relieve part or all of a joint tax liability. A taxpayer may qualify for innocent spouse relief if:

There is an understatement of tax because their spouse omitted income or claimed false deductions and the taxpayer did not know or have reason to know of the understatement
There is an understatement of tax and the taxpayer is divorced, separated, or no longer living with the spouse,
It would not be fair to hold the taxpayer liable for the tax.

Overall, if you are an Enrolled Agent that provides tax preparation or tax resolution services you should be familiar with injured spouse and innocent spouse relief claims. If you would like to learn more about these topics you should consider taking an Enrolled Agent course that focuses on taxpayer representation and the IRS collection process.

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IRS Return Tax Preparer Rules and Regulations to Begin September 2010

The IRS plan for return tax preparer registration is scheduled to begin September 2010 and will affect nearly every professional tax preparer in some way. Paid tax preparers must register with the IRS to obtain a Preparer Tax Identification Number, pass an IRS exam and satisfy annual continuing education.

The definition of a professional tax preparer or paid tax preparer is as follows: all individuals, Attorneys, Certified Public Accountants and Enrolled Agents who are compensated for preparing, or assisting in the preparation of, all or substantially all of a federal tax return or claim for refund or who sign, or are required to sign, a federal tax return or claim for refund as a paid tax return preparer. Any individual falling under this category must obtain a Preparer Tax Identification Number (PTIN). All paid tax preparers must obtain a PTIN in order to sign any federal tax returns or forms. The PTIN they obtain will be valid for three years. Testing of these preparers who hold a PTIN will not be implemented until after registration and mandatory PTIN usage are in place. Employees of a business who fill out their employers return will not be required to obtain a PTIN.

All paid tax preparers including Attorneys, Certified Public Accountants and Enrolled Agents who obtain a PTIN will potentially be placed within a national public database. Other information about which paid tax preparers and what information would be included is not yet available.

As of right now, the only paid tax preparers who will not have to pass the new IRS competency exam are Attorneys, Certified Public Accountants and Enrolled Agents. Paid preparers in states such as California, and Oregon who have to pass their own states’ individual criteria must still pass the IRS exam. Credential holders of organizations like the Accredited Council of Accountancy for Taxation (ACAT) will also have to pass IRS competency exams and take the continued competency testing. Across the board, regardless of any private or state accreditation, if you are not an Attorney, Certified Public Accountant or Enrolled Agent you must obtain a PTIN, pass the IRS competency exam, and take continued competency testing in order to be paid to prepare federal tax returns as a registered tax preparer.

Attorneys, Certified Public Accountants and Enrolled Agents who prepare all or substantially all of a federal tax return or claim for refund will also have to obtain a PTIN and pay the fee associated with obtaining a PTIN. However, they are not subject to the new IRS testing or additional educational requirements if they are active and in good standing with their respective licensing agencies.

Looking at this brief outline of a few of the rules and regulations proposed by the IRS, simply becoming an Enrolled Agent will potentially help you avoid 90% of the proposed rules. Of course, it remains to be seen how quickly the IRS can implement these changes or if all the changes they desire will be seen to fruition.

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The Advantage of Becoming an Enrolled Agent

With the major changes to the tax code coming in 2011 due to tax law sunsets and renewals, health care legislation, and the new laws governing tax preparers, passing the EA Exam and becoming an enrolled agent has become an even more attractive option.

Changes in the tax code for 2011 include the reinstatement of the estate tax, gift tax rate reductions, gift tax expansion, new tax preparer regulations and health care regulations. These are just a few changes in the coming tax year.

Competency tests will be administered for all paid preparers other than attorneys, CPAs and Enrolled Agents. The rules will also mandate ongoing continuing professional education and extend Circular 230’s ethics rules to all paid preparers. The new rules apply to all tax return preparers, not just those who sign tax returns. Enrolled Agents will be exempt from the competency test requirement.

To become an Enrolled Agent an individual must pass the Special Enrollment Examination, also known as the EA exam. The process itself is very simple. You must first, apply to take the three-part Special Enrollment Examination, pass the three-part SEE exam, and then apply for enrollment and pass a background check.

With the tax code becoming more and more complex everyday and regulation, oversight, and compliance checks from the IRS becoming more insistent, the natural progression for any serious tax professional is to take the Special Enrollment Examination and become an Enrolled Agent. The exam covers all areas of tax preparation as well as Circular 230 guidelines. If you choose to pursue becoming an Enrolled Agent you should consider taking an Enrolled Agent review course or purchasing an Enrolled Agent study guide.

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