strategies-init Archives - Page 65 of 75

S Corporation Reasonable Compensation

April 23, 2026December 16, 2013 by Brotman Law

There are categories of business entities responsible for paying shareholder-employee reasonable compensation. An S Corporation[1] is one such corporation. An S Corporation is defined as a type of corporation that elects to be taxed under a section of the U.S. Internal Revenue Code. “S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee” (IRS.gov, “S Corporation Compensation and Medical Insurance Issues,” 8/31/2013). The shareholder cannot receive an amount of S Corporation reasonable compensation that exceeds the amount the shareholder receives either directly or indirectly.

Key Takeaways

There are categories of business entities responsible for paying shareholder-employee reasonable compensation.
The IRS bases provisions with regard to S Corporations on multiple court cases.
Determining S Corporation reasonable compensation must first be established by evaluating what the shareholder-employee did for the S corporation.

IRS Innocent Spouse Relief Rules

April 23, 2026December 16, 2013 by Brotman Law

This article discusses the IRS innocent spouse relief rules. When couples file jointly, the law makes both parties responsible for the entire tax liability. Under tax law, this is called joint and several liability,[1] which is defined as two or more persons who share responsibility with respect to the same liability (i.e., event or act).

Key Takeaways

This article discusses the IRS innocent spouse relief rules. When couples file jointly, the law makes both parties responsible for the entire tax liability.
With this in mind, the IRS innocent spouse relief rules include both the time to file and reference collection activities.
The first of the IRS innocent spouse relief rules governing tax liability awareness is determined by the IRS “examining your return and proposing to increase your tax liability” and the second way is the IRS sending you a notice (“Instructions for Form 8857”).

IRS Innocent Spouse Relief Requirements

April 23, 2026December 16, 2013 by Brotman Law

IRS Innocent Spouse Relief Requirements – What is Innocent Spouse Relief?

You and your spouse are jointly responsible for paying federal tax due, interest accrued, and any applicable penalties under the IRS innocent spouse relief requirements. This is especially true if you and your spouse filed a joint return. However, if you believe that your current or former spouse should be solely responsible for a particular item or the underpayment of tax on the joint tax return, then you may be eligible for Innocent Spouse Relief.

Key Takeaways

You and your spouse are jointly responsible for paying federal tax due, interest accrued, and any applicable penalties under the IRS innocent spouse relief requirements. This is especially true if you and your spouse filed a joint return.
Taxpayers that have filed a joint return may qualify for Innocent Spouse Relief if they meet all three conditions as outlined in Publication 971, Innocent Spouse Relief.
Within this context, understated tax refers to the determination of the IRS “that your total tax should be more than the amount that was actually shown on your return” (IRS.gov, “Publication 971,” 8/26/2013).

IRS National Standards

April 23, 2026December 16, 2013 by Brotman Law

IRS National Standards

The IRS has developed IRS national standards as guides for taxpayers responsible for resolving their tax liabilities. The IRS national standards (or IRS Collection Financial Standards) are defined as five categories of necessary expenses developed and used by the IRS to calculate a taxpayer’s payment potential. The standards are used for the purpose of calculating repayment of federal tax liability. “IRS National standards have been established for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous” (IRS.gov, “IRSNational Standards: Food, Clothing and Other Items,” 8/25/2013). For example, under the category of food, the IRS allows for calculations of both food at home and food away from home. “Food at home refers to the total expenditures for food from grocery stores or other food stores. . . . Food away from home includes all meals and snacks, including tips, at fast-food, take out, delivery and full-service restaurants” (“National Standards: Food, Clothing and Other Items”).

Key Takeaways

The IRS has developed IRS national standards as guides for taxpayers responsible for resolving their tax liabilities.
The IRS allows taxpayers to calculate their respective IRS national standards by family size.
The IRS Collection Financial Standards are also extended to local territories.

Income and Expense Table and Future Income

April 23, 2026December 16, 2013 by Brotman Law

The IRS Income Expense Table

Key Takeaways

The IRS Income Expense Table
Future Income Potential

Similar to the asset/equity table, the IRS income and expense table (IET) outlines necessary living expenses, where the taxpayer lists both total income and expenses. The IRS income and expense table is divided into two major categories where the taxpayer eventually calculates the net difference multiplied by one or more amounts to get to “amount that could be paid from future income” (IRS.gov, “Income and Expense Table,” 8/25/2013).

IRS Offer in Compromise Rules

April 23, 2026December 16, 2013 by Brotman Law

IRS Offer in Compromise Rules – Salability of Assets

Salability, or marketability, is defined in terms of liquidity, “the ability to quickly convert property to cash or pay a liability” (IRS.gov, “Discount for Lack of Marketability: Job Aid for IRS Valuation Professionals, September 25, 2009, page 5” 8/25/2013). Under the IRS offer in compromise rules, liquidity is essentially the ability to convert an asset into cash without losing the principal. Conversion is not only specific to the term asset; it may include business, business ownership interest, and/or security.

Key Takeaways

IRS Offer in Compromise Rules – Salability of Assets
IRS Offer in Compromise Rules – Current Assets: Cash and Cash Equivalents
IRS Offer in Compromise Rules – Monthly Cash Flow

IRS Financial Analysis

April 23, 2026December 16, 2013 by Brotman Law

IRS financial analysis is conducted by the IRS in order to both analyze and verifies financial information. When conducting an IRS financial analysis, the IRS evaluates the income and expenses of the taxpayer to calculate for disposable income. Disposable income is defined as gross income less all allowable expenses. During their IRS financial analysis, the IRS also analyzes assets to resolve balance due accounts. To do this, the IRS will request that the taxpayer makes full, immediate payment if their cash on hand is equal to the total liability. In addition, the IRS will identify key sources of funds, “liquid assets which can be pledged as security or readily converted to cash” (IRS.gov, “Part 5. Collecting Process, Chapter 15. Financial Analysis, Section 1. Financial Analysis Handbook,” 8/24/2013). Identification of key sources of funds is also extended to considering unencumbered assets, interests in estates and trusts, and lines of credit (“Section 1. Financial Analysis Handbook”). When analyzing assets to resolve balance due accounts, the IRS will also determine the priority of the Notice of Federal Tax Lien.

Key Takeaways

IRS financial analysis is conducted by the IRS in order to both analyze and verifies financial information. When conducting an IRS financial analysis, the IRS evaluates the income and expenses of the taxpayer to calculate for disposable income.
Part of the IRS financial analysis process, the IRS will also verify financial information by conducting interviews, asking pertinent questions, and documenting the results.
Under each major category, the taxpayer lists information concerning different types of assets.

IRS Form 433-A Breakdown

April 23, 2026December 16, 2013 by Brotman Law

IRS Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals is used to collect financial information about the taxpayer and the taxpayer’s ability to repay a current tax liability.

Key Takeaways

Section one of the IRS Form 433-A requests general information specific to the taxpayer. Request for information includes full name, marital status, address, and phone numbers.
Questions located in section three of the IRS Form 433-A center on other types of non-wage earning information.
In section five of the IRS Form 433-A , the taxpayer must disclose wages, salaries, pensions, and social security; net income from business; net rental income; other income (i.e.

Offer in Compromise Requirements

April 23, 2026December 16, 2013 by Brotman Law

Offer in Compromise Requirements- Choosing Between the Types of Offers

Lump Sum Cash Offer

A taxpayer may choose the lump sum offer, which is defined as an offer where the taxpayer makes five or fewer installment payments within 24 months after the offer is accepted. “If a taxpayer submits a lump sum offer, the taxpayer must include with the Form 656, Offer in Compromise a nonrefundable payment equal to 20 percent of the amount. This payment is required in addition to the $150 application fee” (IRS.gov, “Topic 204 – Offers in Compromise,” 8/22/2013). Under the offer in compromise requirements, the nonrefundable amount cannot be returned to the taxpayer if the offer is either rejected or accepted. Instead, it will be applied to the taxpayer’s liability.

Key Takeaways

Offer in Compromise Requirements- Choosing Between the Types of Offers
Lump Sum Cash Offer
Periodic Payment Offer
Appealing a Rejected Offer in Compromise
Offer in Compromise Requirements – Collateral Agreements

Pros and Cons of Offer In Compromise

April 23, 2026December 16, 2013 by Brotman Law

You must weigh the pros and cons of offer in compromise in light of the other options available to you. When considering whether to choose this option, you must also consider the advantages and disadvantages. The offer in compromise allows you the opportunity to reduce your tax liability relative to your current financial situation. However, settling with the IRS by way of offer in compromise might be the second-best option. For example, the requirements for accepting an offer in compromise are stringent. Taxpayers are required to have low monthly income and practically no assets. “Thus you may end up wasting time and money on trying to [settle] with the IRS when that effort could have been applied toward a better method of resolving your tax liability” (IRSSolution.com, “Pros and Cons of An Offer in Compromise,” 8/24/2013).

Key Takeaways

You must weigh the pros and cons of offer in compromise in light of the other options available to you. When considering whether to choose this option, you must also consider the advantages and disadvantages.
In addition, keep in mind several other keep in mind that the IRS cannot collect on your federal tax liability forever.
On the upside of the pros and cons of offer in compromise, choosing to pursue an offer in compromise may be worthwhile in terms of reducing your tax liability to a level that is consistent with your current ability to repay.