TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, May 29, 2011

WSJ: A New Push to Protect Innocent Spouses

Wall Street Journal, A New Push to Protect Spouses, by Laura Saunders:

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:

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Sen. Grassley was there, so he should have put the 2-year rule into 6015(f) just like the 2-year rule is in (b) and (c) relief. This is a classic example of statutory interpretation "expressio unius est exclusio alterius" (the express mention of one thing excludes all others). The Tax Court is simply trying to expand the reach of a clear statute to help "women who have been taken advantage of."

Please, this is the 21st Century. Stop treating women like it was 1950. It is demeaning. And where is all this compassion in CDP cases? Compare Innocent spouse with CDP. In innocent spouse cases the Tax Court bends over backwards to help women in need. In CDP cases, the court is mostly brutal against taxpayers (with a few notable exceptions, but most of those have been reversed on appeal). Why do women in need get so much compassion but general taxpayers in need get none (no "stretching" the law well beyond its limits)?

6015 was a reaction to 6013 (the old innocent spouse statute) and Congress chided the Tax Court for not giving more relief. Of course, Congress enacted 6013 with the high bar and all its restrictions and then blamed the Tax Court for applying the law as written by Congress. Once again Congress is shifting the blame to the Court (and the IRS) for its own mistakes. RRA 98 was a mess for a whole host of reasons, and this sliver of RRA 98 is just one example of how poor a law Congress drafted.

If Congress cares so much, do what it did for Ms. Ewing. Of course, Karen Hawkins in the director of OPR for the IRS so she cannot champion this cause and use her power to influence Congress. But instead of moaning and groaning about it, why noy do what you are supposed to do Congress: legislate. Change the law, I assure you that the IRS and courts will follow, just like in Ewing.

Now go do your do or stop complaining about the lousy statute you wrote.

Posted by: tax guy | May 30, 2011 5:29:31 AM