Subtle Differences Between IRS & 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 Differences Between IRS & 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 employees may say they mirror federal guidelines. 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. It 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 levels. For taxpayers who owe back taxes, these programs offer much-needed relief.
They give people time to reorganize their finances. However, understanding exactly what these programs do and how they work is vital to apply 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. That means that people without professionals advisors likely do far worse. It also likely means Maine Revenue answers far more frivolous claims than it needs to.
The Difference Between IRS & MRS Innocent Spouse Relief Programs
While on the phone with the Maine collections division today, I heard 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 An unpublished nuance that even representatives practicing solely in this area for more than a decade were completely unaware of.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 said that while they 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 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 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. It is more common in cases of abuse, disability, and extreme hardship.
In most cases, innocent spouse relief simply relieves a requesting spouse of taxes attributable to their current or former partner’s income. If Maine partially disallowed a small portion of claims disallowing relief for tax related to the innocent spouse’s own income, it would make the most sense.
Does This Mean Maine Revenue Partially Rejects All Claims Like this?
No. The simplest interpretation of what I was told is that Maine Revenue partially rejects all equitable relief claims where a requesting spouse was relieved of taxes attributable to their income. However, that might not be the case.
More Questions Than Answers
Maine Revenue usually reviews all requests for relief on a case-by-case basis. While the employee only saw these kinds of claims rejected, some were also accepted. If this is the case, discerning exactly what is going on will be difficult.
In the coming weeks, I attempt 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.
Tax Planning Implications
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 considering filing a claim. It would be especially relevant if the taxpayer considered other factors such as tolling, relief options such as bankruptcy, or an offer in compromise.