A disabled widow, after her husband’s death, discovered his financial mess. Her wealthy attorney / politician husband of 20 years had handled all the family finances. All bills, including tax, were sent to the Post Office, where he maintained a mailbox. By the time of her final resolution, the tax liability totaled $1,985,511! [Alioto v. Commissioner, 96 T.C.M. (CCH) 63]
After selling her home to pay off the tax debts, the poor widow had to move into a trailer. Still she could not pay off the tax balance. Fortunately, the Court concluded she was innocent and considered requiring her to pay the tax balance to be an unfair economic hardship and stopped collections.
Here are five things to keep in mind about innocent spouse relief.
“Joint and Several Liability”
Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows them. When filing jointly, both taxpayers are ‘jointly and severally (separately) liable’ for the entire tax liability, including the tax, interest, and penalties that arise from the joint return, even if the couple divorces later.
Abuse Can Be a Factor
Some women are so severely abused or lack education that they are scared to question their husbands when it comes to the couple’s income tax return. Even after divorcing, erroneous income tax returns filed jointly during the couple’s marriage can still follow an abused spouse if income was not included or tax was understated on returns filed while the couple were married.
A Divorce Decree Means Nothing
Even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns; ‘joint and several liability’ still stands. The IRS says that it is not a party to divorce proceedings, since there is nothing in a divorce proceeding to protect the government’s interests. The act of allowing divorce or separation agreements to allocate liability for federal tax purposes would permit state law to trump federal law and create a situation that goes against the best interest of the federal government.
An Application Must Be Filed
To seek innocent spouse relief, separation of liability relief, or equitable relief, one must submit to the IRS a completed Form 8857, Request for Innocent Spouse Relief, which a person signs under penalties of perjury.
The 8857 Form requires specific questions to be answered and boxes checked before filling. We at the Sodowsky Law Firm can help a person tell the story that he/she would like the IRS to consider.
Refer to Publication 971, Innocent Spouse Relief, for more information.
Spouses Will Be Notified
By law, the IRS must tell a taxpayer’s spouse (or former spouse) that innocent spouse relief has been requested. The spouse or former spouse then has the right to tell his or her side to the IRS and, in turn, get limited information from the agency about his or her partner’s tax-relief request. Groups that work with battered spouses say that this contact by IRS often escalates the cycle of violence.
The IRS is hoping to short-circuit escalating abuse by asking worried filers to indicate on Form 8857 that he or she was an abused victim and fears that innocent spouse consideration could produce retaliation.
Contact Us Today
Innocent spouse rules are complicated. Proving one is eligible for relief can be difficult. Therefore, if you know of someone who feels they may qualify for Innocent Spouse Relief, you should strongly encourage them get the help of a tax attorney who can evaluate the situation. The Sodowsky Law Firm can advise a person on the requirements and evaluate his/her options in applying for Innocent Spouse Relief. They simply need to call 703-968-8000 for an appointment.