Money has often been the central issue of fights with couples. Married couples have often run into the worst of all money issues - tax problems. When a marriage fails, an "innocent spouse" can often be left holding the bag. The IRS has slowly, but surely, started implementing procedures to grant relief to the spouses. Now a tax court has bolstered the effort.
Marriage is a wonderful thing until it isn't. Unfortunately, statistics reveal that more than a few of them don't last. When marriages end in divorce, the proceedings are often acrimonious given the emotions involved. From a financial perspective, the issue of taxes is something that often isn't considered fully and it can really come back to haunt one of the parties to the divorce.
A married couple usually files taxes "jointly". This seems intellectually obvious at the time of filing since, well, they are married after all! The term, however, has major tax implications. The term "jointly" doesn't so much refer to the fact they are married as it refers to the fact that they are jointly verifying the tax information reported and the duty to pay the taxes for the time period in question.
As you might imagine, this can lead to problems down the road when tax issues arise. If the IRS determines taxes, penalties and interest are owed at a later date, both spouses are jointly responsible for the debt. This doesn't really matter if the couple is together, but it can be a major nightmare if a divorce has occurred as the debt is often used as a weapon by one spouse or the other.
The 'innocent spouse" doctrine was created to deal with this situation. It essentially says that a spouse is not jointly liable for the debt in question if they can prove a few things. This includes that the signing spouse did not know of the error in the tax return when they signed it and to hold them jointly liable for the debt would be inequitable. This relief can be granted only if the innocent spouse makes the request within two years of the IRS starting collection efforts.
The problem with the rule is the innocent spouse often wasn't aware there was a collection effort. The two year period would roll by and the spouse would end up being stuck with a debt that hadn't known even existed. A tax court has now granted relief in this situation. While the IRS is sticking to the rule, the tax court has now established that it will review cases on its own to determine if the two year limit should be enforced or not. This essentially takes the power out of the hands of the IRS and helps innocent spouses who were otherwise getting a raw deal.
How will the IRS react to this ruling? The agency appears to be receptive to it and has indicated it will soften its view of the time cut off as a weapon to be used against claims from innocent spouses. Whether this translates to real action is yet to be seen.
Richard A. Chapo writes about fighting the IRS other issues related to taxes for BusinessTaxRecovery.com.
