IRS Eases Up on Abuse Victims

Originally Published on forbes.com on January 27th,2012

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It is a real tragedy that someone can escape an abusive marriage, only to find themselves being pursued by the IRS for the abuser’s tax debts.  How does it happen ? Filing a joint return will usually result in a married couple having a lower federal tax than the total of two married filing separate returns (The total of the two returns as single might be even lower, but that is not an option if you are married).  It is rare for couples or their tax advisers to seriously consider filing separately even for the last year of a marriage.  I believe that this is a mistake.  Filing jointly, which is an irrevocable election, has a price – joint and several liability.  An irrevocable election is something you can choose to do, but cannot undo.  Joint and several liability means that the IRS can collect the entire amount of any deficiency from either spouse.  The deficiency can come either from an audit or from the return being filed without full payment. 

There is the possibility of relief for “an innocent spouse”, but it can be difficult to obtain.  The good news is that the IRS recently announced that it is going to make it somewhat easier particularly for spouses who have been abused.  That piece of good news came in Notice 2012-8, early this month:

Review of the innocent spouse program demonstrated that when a requesting spouse has been abused by the nonrequesting spouse, the requesting spouse may not have been able to challenge the treatment of any items on the joint return, question the payment of the taxes reported as due on the joint return, or challenge the nonrequesting spouse’s assurance regarding the payment of the taxes. Review of the program also highlighted that lack of financial control may have a similar impact on the requesting spouse’s ability to satisfy joint tax liabilities. As a result, this proposed revenue procedure provides that abuse or lack of financial control may mitigate other factors that might otherwise weigh against granting equitable relief under section 6015(f).

The analysis that is done in an innocent spouse case is a weighing of factors.  One of the factors that weighs against relief is knowledge (including what should be known) that the return is wrong or that the tax will not be paid.  Abuse is a factor that weighs in favor of relief.  What they seem to be saying is that abuse might cancel out the knowledge factor rather than just weigh against it.

There is additional relief concerning the effect of the community proper laws and the possiblity of granting relief even on tax attributable to the requesting spouse’s income when the other spouse ran off with the funds to pay the tax.

Here is the better news.  The Chief Counsel has ordered IRS attorniesto apply the new standards to all the cases that are in the pipeline.  If you are currently involved in an innocent spouse case it would be a good idea toprint out both those notices and wave them in front of whoever you are dealing with.  When you are having IRS trouble, there are three different faces of the IRS you might be dealing with.  CID carries guns and can arrest you and, knock on wood, in thirty years I have never had to deal with them.  From what I have heard of them, they think of themselves as law enforcement. Exams are the people who audit you and difficult as they may be, all they can ultimately do is send you a bill.  They are very similar to tax practitioners.  Innocent spouse cases are in the hands of collections.  They don’t carry guns, but they are authorized to request armed escort.  They can be a little hard nosed sometimes and although they can’t arrest you they can, after a greater or lesser amount of due process, actually take your stuff away from you or tell other people to pay them what they owe you.  They don’t always keep up to the minute on developments, which is why I recommend you print out the notices. One of the most gratifying moments in my blogging career was when someone wrote me and told me that they were able to close a deal after their attorney showed an IRS collections guy a notice they had learned about from my blog.  Who knows ? Maybe lightning will strike again.

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