Sunday, May 29, 2011
In an era of high-profile financial crime, [Lantz v. Commissioner, No. 09-3345 (7th Cir. June 8, 2010)] and other cases are prompting calls for revision of the tax code's innocent-spouse rules, which define when the signer of a joint return won't be held responsible for a partner's tax misdeeds. While National Taxpayer Advocate Nina Olson has pushed for rule changes for years, recently lawmakers from both parties in Congress have taken up the issue. ...
Some 50,000 taxpayers a year ask the IRS for innocent-spouse relief. Most are women under financial pressure, and some come from privileged backgrounds. ... The IRS denies about 2,000 of those cases because, like Ms. Lantz, the applicants missed the agency's two-year deadline.
IRS critics say Congress never meant that two-year deadline to apply in all cases. When lawmakers last addressed the issue in 1998, they included two rationales for innocent-spouse relief with such a deadline but added a third without a deadline, giving the IRS leeway for special cases.
The IRS, however, has applied the two-year deadline to all requests since then—despite the disapproval of lawmakers like Sen. Charles Grassley (R., Iowa), who was on the Finance Committee when the revision passed. Tax Court judges have repeatedly held in taxpayers' favor on this issue, although two appeals courts have overturned the Tax Court. More appeals cases are underway.
While the outcome of possible changes is unclear, experts have advice for spouses with current worries:
- Those suspecting their partners of tax misdeeds should avoid signing a joint return. ...
- Ex-spouses should know the IRS can legally disregard a divorce decree. ...
- Get help from a tax professional for filing IRS Form 8857 for innocent-spouse relief. ...
- Taxpayers who can't or won't take action because of fear of reprisal or threats made by their partners should keep a diary or share fears with someone else.
(Hat Tip: Francine Lipman.) Prior TaxProf Blog coverage:
- IRS Publishes FAQs on Innocent Spouse Litigation (May 25, 2005)
- WSJ: IRS Makes It Tougher to Qualify for Innocent Spouse Relief (Mar. 15, 2006)
- TIGTA: IRS Mishandles 27% of Innocent Spouse Cases (Mar. 19, 2007)
- Beck: The Failure of Innocent Spouse Reform (Oct. 19, 2007)
- CPA's Ex-Wife Denied Innocent Spouse Relief (Apr. 17, 2008)
- 9th Circuit: Taxpayer Must File Joint Return to Get Innocent Spouse Relief (Apr. 22, 2008)
- Tax Court Grants Widow of Former S.F. Mayor Innocent Spouse Relief (Aug. 2, 2008)
- Divided Tax Court Invalidates Innocent Spouse Reg (Apr. 4, 2009)
- The Innocent Spouse Manual (Apr. 27, 2009)
- 7th Cir. Reverses Tax Ct., Upholds 2-Year Deadline on Innocent Spouse Claims (June 8, 2010)
- A Dissenting View on Lantz (June 9, 2010)
- Camp: Lantz, § 6015, and Statutory Silence (Aug. 2, 2010)
- Tax Court Refuses to Follow 7th Circuit, Again Invalidates Innocent Spouse Reg (Sept. 23, 2010)
- Smith: Gaps in the 7th Circuit's Innocent Spouse Opinion in Lantz (Sept. 30, 2010)
- Schumacher: The IRS's Administrative Process in Innocent Spouse Cases (Jan. 7, 2011)
- 3d Cir. Joins 7th Cir. in Reversing Tax Court and Upholding Innocent Spouse Reg (Jan. 20, 2011)
- Critiquing the 3d & 7th Circuits' Approval of the 2-Year SOL Innocent Spouse Reg (Feb. 12, 2011
- A Practitioner's Guide to Innocent Spouse Relief (May 4, 2011)
- McMahon Presents An Empirical Study of Innocent Spouse Relief at Cincinnati (May 25, 2011)