IRS Gives 'Innocent Spouses' More Time to File for Tax Help

It's a phone call nobody wants to get: one from the Internal Revenue Service, letting you know that you owe money because your spouse or ex-spouse failed to file or pay the taxes. The IRS comes across many of these so-called "innocent spouses," for whom tax trouble comes as an unwelcome surprise.

This week, the IRS changed its policies to help these innocent spouses, in part by extending the length of time they have to seek relief.

"In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief," IRS Commissioner Doug Shulman said in a press release. "This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and today's change will help innocent spouses victimized in the past, present and the future."

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Jointly and Severally Liable

The heart of the issue is this: When you sign IRS forms with your spouse, you are held jointly and severally liable, which means that if the IRS comes after you for back taxes, there's no such thing as splitting the blame. If your spouse is unable to pay, you may be responsible for the entire amount, unless you can prove innocence as defined by the IRS. And previously, you only had two years to start that process.

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The reason the two-year window was a flawed rule is the same reason that some spouses are innocent in the first place. If you don't know an underhanded game is being played, you can't possibly know the clock has started on your requesting relief. And if your spouse or former spouse lied from the beginning and kept all the IRS notices to themselves, you would never know there was an IRS issue.

If you're separated or divorced, hiding the notifications can be even easier if all the mail is going to the malefactor's new address.

Sparing the Innocent

Paul Talbert, a partner at the matrimonial law firm Chemtob Moss Forman & Talbert, spoke with DailyFinance about the dynamics. "The IRS doesn't give a damn about your divorce agreement," he says. "They don't care who pays."

Even with the most robust clauses indemnifying ex-spouses from future liabilities, they may still be held responsible for one another's past taxes, he says. But he thinks the change in the regulations should help.

How can someone be innocent of involvement in their spouse's fraud? "Often one spouse has little to no understanding of the family's finances," Talbert says. "He or she is not complicit in the fraud. Often he or she has no reason to know about any tax fraud until a divorce is started and he or she is in a lawyer's office reviewing financial documents. This change in the law allows the IRS to go after the people truly responsible for the fraud and spares the innocent victims."

Sometimes spouses may be intimidated into signing tax forms. Abused women may be strong-armed into signing, while other partners may be left in the dark for other reasons. "Maybe your spouse had a gambling problem for years and you had no idea he had an issue, or that he hadn't declared the winnings," says Gregg Wind, an accountant in Los Angeles.

In a Forbes blog post, San Francisco lawyer Robert W. Wood describes the IRS changes as "kinder and gentler," and spells out some of the criteria required to qualify as an innocent spouse. Most notably, spouses have to prove they didn't know -- or have any reason to know -- there was a tax issue, or didn't know the extent of the issue.