Subtle Differences Between IRS and MRS Tax Relief Programs Abound
As part of my tax controversy practice in Bangor Maine, I often represent clients before the Maine Revenue Service. Both clients and others in my community are often surprised to hear that it is much more difficult to resolve an issue with the Maine Revenue Service than with the Internal Revenue Service. One of the reasons for the increased challenge representing clients before the MRS is that Maine* doesn’t publish as much guidance on how their collections and relief programs work.
*In my experience this is true of state taxing agencies in general.
Why Understanding the Differences Between IRS and MRS Tax Relief Programs Is So Difficult
To make matters worse, while Maine tax relief programs appear to mirror federal guidelines that perception is usually incorrect. State websites and state employees may say they mirror federal guidelines but in my experience, there are often both large and subtle differences between the programs.
For example, Maine Revenue gives taxpayers access to a variety of relief options. Those options include payment plans, offers in compromise, innocent spouse relief, injured spouse relief, garnishment release, some penalty abatement functions, and an inability to pay status. These programs have similar or identical names to the IRS programs. The only exception being “inability to pay status” which resembles CNC but is much harder to qualify for. Even though most of these programs are identically named or described Injured Spouse relief is the only program that operates functionally the same at both the state and federal level.
For taxpayers who owe back taxes, these programs offer much-needed relief while and give people time to reorganize their finances. However, being able to understand exactly what these programs do and how they work is vital to applying them correctly. Unfortunately, even professionals who practice in this area are sometimes in the dark about the internal review process employed and what standards, if any, employees adhere to. The lack of available information makes advising clients very difficult and means that people without professionals advisors are likely doing far worse. It also likely means Maine Revenue is answering far more frivolous claims than it needs to.
The Difference Between IRS and MRS Innocent Spouse Relief Programs
For example, while on the phone with the Maine collections division today I was told about a nuance of innocent spouse claims. An unpublished nuance that even representatives practicing solely in this area for more than a decade were completely unaware of. An employee relayed to me that while she saw most innocent spouse claims approved if the claimant filed a successful claim for relief from IRS back taxes first, there was a small portion of claims that were partially denied.
My immediate thought was this minor difference likely had to do with 6015(f) equitable relief claims.
Why Partially Rejecting Innocent Spouse Claims is Annoying But Might Make Sense
The only logical reason a small portion of claims would be partially denied is if the state disagreed with the IRS about an uncommon kind of relief. Equitable relief is the most likely kind of relief a coherent argument could be made for deviating from the federal treatment without appearing arbitrary. The reason for this is that the IRS or US Tax Court sometimes grant relief to the requesting spouse for both taxes attributable to the requesting spouse’s and the non-requesting spouse’s income.
While rare this can happen and is more common in cases of abuse, disability, and extreme hardship. In most cases, though innocent spouse relief simply relieves a requesting spouse of taxes attributable to their current or former partner’s income. If Maine were to draw a line in the sand and partially disallow a small portion of claims disallowing relief for tax related to the innocent spouse’s own income would make the most sense.
Does This Mean Maine Revenue Is Partially Rejecting All Claims Like this?
No, while the simplest interpretation of what I was told is that Maine Revenue is partially rejecting all equitable relief claims where a requesting spouse was relieved of taxes attributable to their income; that might not be the case. Maine Revenue usually reviews all requests for relief on a case by case basis, so it is possible that while the employee only saw these kinds of claims being rejected some were also being accepted. If this is the case discerning exactly what is going on will be much more difficult.
More Questions Than Answers, What’s Next, & Tax Planning Implications
In the coming weeks, I will be attempting to find out more about this unpublished nuance of Innocent Spouse claims at the state level in Maine. Depending on the answers I receive the tax planning implications will be significant for a small portion of taxpayers. If for example, Maine Revenue has a strict rule about never relieving a requesting spouse of their own liability; that would be an important factor for all taxpayer’s considering filing a claim. It would be especially relevant if the taxpayer was considering other factors such as tolling or relief options such as bankruptcy or an offer in compromise.