IRS Provides Small Escape Clause for Unwitting Spouses of Tax Cheats

The old saying goes that only two things are certain in life — death and taxes. This may be cliché, but it’s true — it can be extraordinarily difficult to escape tax liabilities, even if they were caused by a dishonest or abusive former spouse.

Married couples who file a joint tax return are "jointly and severally" liable for the taxes they owe to the federal government. This means that the IRS considers them both equally responsible for the couple’s taxes, even if the taxes are primarily related to only one of their incomes.

This is true even if the couple has since filed for divorce. But what happens to ex-spouses who suddenly find themselves being pursued for a tax liability they had no idea even existed?

Spouse Must Not Have Known of the Violations

The IRS will allow a small subset of individuals to escape responsibility for a spouse or former spouse’s tax liability under the "innocent spouse" rule.

The escape clause is available to individuals who did not know and did not have reason to know that their spouse was cheating on their taxes, either by failing to report income or by claiming a deduction or tax credit the couple did not qualify for. It is also available to victims of spousal abuse or domestic violence who were aware of the violations but who were afraid to confront their spouse for fear of retribution.

In determining whether a taxpayer should have known about their spouse’s misconduct, the IRS will look at the taxpayer’s education, business experience, personal financial situation and level of participation in the activities that led to the unpaid taxes. The IRS says it takes into account "all facts and circumstances of the case in order to determine whether it is unfair to hold [the taxpayer] responsible for the understated tax."

Spouses are not eligible for relief if they derived "significant benefit" from the cheating, defined as financial gain in excess of normal support. Further, spouses are also ineligible if the IRS finds that they purposefully avoided knowledge of the issue in order to shield themselves from liability.

Qualifying Can be Especially Hard for Abuse Victims

Qualifying for the innocent spouse rule can be very difficult, especially for spouses who have been the victims of abuse. The IRS requires taxpayers to invoke the clause within two years after a collection notice is issued. This deadline can be particularly challenging for abused spouses, since many of them are intentionally kept in the dark about their spouse’s finances.

Adding a further hurdle to the process, the IRS must contact the spouse accused of causing the non-compliance. There are no exceptions for victims of spousal abuse or domestic violence, even if they have an order for protection. In already tense situations, the fear of retribution may dissuade innocent spouses from filing for relief.

This is just one of the many financial issues that can result from a divorce. If you think your ex-spouse has not been honest about his or her financial situation, you would be wise to contact an experienced family law attorney in your area who can help advise you of your rights.