by Brian Mahany
A kinder IRS? Maybe not but the agency has announced important relief for people burdened with the debts of their deadbeat ex’s. Until now, a spouse burdened by their partner or former partner’s tax debts only had two years to seek relief. The two year clock began ticking when the IRS first took collection action. Because the other spouse often hid the tax debt, many people were ineligible for relief even though they had yet to discover the tax debt.
Innocent spouse relief is available for married couples who filed jointly. Under the Internal Revenue Code, each spouse is jointly liable for tax debts. The tax code does provide relief for so called “innocent spouses,” however.
To qualify, one must show the following:
(A) a joint return has been made for a taxable year;
(B) on the return there is an understatement of tax attributable to erroneous one individual filing the joint return;
(C) the other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement; and
(D) taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement.
In layman’s terms, one must be able to prove that they did not know of the error nor should they. If you sign a joint return with your spouse year after year showing no income yet you live the life of luxury, your innocent spouse claim will likely be denied.
So what is the big change? As stated above, until now the innocent spouse had only two years to make the claim. The two years began when collection activity began, not when he or she discovered their spouse was cheating the IRS.
Congressional leaders and the Taxpayer Advocate have been lobbying for this change for quite some time.
The effective date of the new rule is July 25th. The IRS has adopted some transitional rules to help people who may have previously filed and been denied because of the 2 year rule. If you filed for innocent spouse and were denied on the merits there is probably no relief. But if the IRS or a court told you that your claim was barred because of the 2 year rule you may have a second bite at the apple. See a tax attorney or CPA.
Innocent spouse claims are still difficult to pursue without good representation. The IRS often takes the position that the although the so-called innocent spouse did not participate in the wrongful conduct, they enjoyed the fruits of that conduct and acquiesced in it or should have known about it.
The tax attorneys at Mahany & Ertl can help with a wide range of tax problems including innocent spouse, collections representation, offshore tax problems, audit defense and criminal tax investigations. For a no obligation consultation, call attorney Brian Mahany at (414) 704-6731 or by email at
Mahany & Ertl, LLC – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & San Francisco, California. Services nationwide.