A Dummies’ Guide to Innocent Spouse Relief

In the United States, the easiest way to escape an unfair tax debt is to show your death certificate to the tax man. If that’s not possible, you might have a chance if you can prove:

  • You were the preteen spouse of a polygamist cult leader forced to sign tax returns you have no way of understanding
  • You were in a coma during the year in question and your spouse forged your signature
  • Your spouse had all financials records sent to a PO box you can no knowledge of or access to.

    The ideal innocent Spouse Candidate

       

However, being able to prove any or all of the above doesn’t mean that the  tax man will take any mercy on you. For this reason the following should be written into the marriage vows:

Preacher to the groom:  “According to IRS Code, Section 40.01(c), Article 99, Rev. Proc. 2013-2014, do you, Chester Morton, promise to provide your wife with an audited set of financial records every quarter.” 

Groom:  I do.

Preacher to the bride: “And do you, Sally Murgatory, promise to fulfill your duty to the IRS as a prudent taxpayer, by scrutinizing all financial records and tax returns with the help of CPA and refusing to sign anything you do not completely understand?”

Bride: “Golly Preacher Man, shouldn’t I be obeying my man and making him feel like a king in his castle?”

Preacher to bride: “To blindly obey your husband constitutes willful avoidance, a crime in the eyes of the IRS!”

Granted it would probably take some of the romance out of a wedding, but it needs to be done.  According to the IRS, if you don’t know what your spouse is up to financially, you are “willingfully” avoiding that knowledge.  I don’t know which nincompoop politician came up with that idea but it is actually written into the tax code.

You might ask, how do you know?  Well, at one time I owed over $100,000 to the State Franchise Tax Board. They threatened to take my house and bank accounts and to attach my meager wages, leaving  me and the kids out on the street. They even verbally threatened my sixteen year old daughter over the phone because her father had dissolved her college savings plan and they expected her to pay the taxes due (six thousand dollars!). By that time I’d divorced my husband, leaving me with a mortgage, two children and a dog and cat to support on a minimum wage “temp” job.

During the tax year in dispute, I was a stay at home mom with no income.  A Make-a-Wish volunteer, girl scout leader and soccer mom.  So you might ask, what sin had I committed?

Well, according to the attorney who came to my rescue, I had  committed all five of the tax man’s deadliest of sins.

Sin Number 1:  Trusting your spouse.

Every taxpayer in the United States has what our government calls the “Duty of Inquiry.”  This means that if your spouse hands you a tax return and orders you to sign it, you must say the following:

“I can’t just sign this, honey.  It is my duty as a US citizen to affirm the validity of every, single line item on this return.  Failure to do so would be a crime called willful avoidance.  And I’m sure you don’t want to be married to a criminal, do you Honey Bunches?

To which your hubby may reply:  “Don’t you trust me?  Didn’t you vow to love, honor and obey me?”

As you can probably guess, refusal to sign every document your husband puts before you might cause a bit of stress in a marriage, particularly if the secretive spouse belongs to one of those religions to which the husband is always right. However, trust between spouses is not something your government condones.  Even though the politicians rail on about the sanctity of marriage and all that family values crap, it is written into tax code that prudent taxpayers must disobey their spouses should one or the other attempt to hide taxable assets. 

Sin Number 2: Believing a spouse when they say “It’s my money.  I earned it and can do with it what I want.”

No, no, no!  Not so fast!  According to the tax man, even if your spouse had all his income going to an account you did not have access to, or, in some cases, knew nothing about, you are as responsible as him (or her, let’s not be sexist), for whatever the heck he’s doing with “his” money so you better know where it is and what he’s doing!  Use whatever methods at your disposal to get your spouse to reveal his assets.  Tie him to an ant-hill! Hire a hit man!  Call 911!  Oh yeah, that’ll work.

Sin Number 3:  Believing you’re innocent until proven guilty.

There is one court in the United States where there is no presumption of innocence.  The tax court.  I’ve had this explained to me by not one but two lawyers and I still don’t completely understand, but it here goes…  The amount you owe is computed based on the many articles of The Code which is the tax man’s Holy Bible.  Once it’s spit out by one of their super computers, penalties and interest begin to accrue and if you don’t respond, they come after you with the assumption that you are guilty.  The so-called Innocent Spouse Relief is a misnomer.  What it really means is that after a long, drawn out often humiliating battle, the tax man has granted you either full or partial “relief” from a tax debt.  But you are still guilty as hell because of all that duty of inquiry crap.

Sin Number 4: Thinking government service attracts compassionate people willing to go the extra mile to help you out (the Jimmy Stewart complex)

I’m sure there are many people who go into government service for altruistic reasons however, for most it’s a nine-to-five job with benefits and a retirement package.  People who uphold the Holy Tax Code are particularly lucky in that they aren’t expected to make any decisions. The Code makes life easy. If a taxpayer says: “Can’t you see that I’m just barely making it, that I’m not defaulting the government?”

The tax collector can respond with a clean conscience: “I’m only upholding the Code.”

It’s not that they don’t care about their fellow human beings, or give to charity or volunteer but they have sworn to abide by a complex set of rules mandated by the Congress.  You know, those family values folks who’ve decided trusting your spouse is a crime when it comes to the revenue stream paying their salaries, their retirement, etc.

I have to admit that I did run into one particularly lovely agent (a woman) who helped me get relief from the federal government however that didn’t help me at all when dealing with the henchmen hired by the state of California.

Sin Number 5: Thinking you can win a battle against the tax man.

They want you to believe it’s impossible to win a battle against them.  It’s not for the faint of heart but if you’re persistent, you can do it. 

Some background:

The tax code was written at a time when “housewife” was the number one profession for women and men were expected to handle all the finances. 

I can’t bother my pretty head with all those numbers! I gotta make a three course dinner for my family, in my pearls no less.

If the husband defrauded the government, the whole family suffered the consequences.  Over the years, several appeals resulted in Congress enacting a provision to protect women whose husbands either died or fled the country leaving them with an enormous tax debt.  The provision was expanded to include divorced women but only if they met certain criteria.  In 1986, when I began battling the tax man, there were three “requirements” that had to be met before the tax review board would even look at an appeal.  On the surface they sound relatively straight forward but they’re not.  And the tax man is very strict about these requirements – if they don’t think you’ve satisfied all three, your appeal will go unanswered. 

The Three Not so Easy Pieces

  1. The first condition is that you filed a joint tax return with your spouse for the year in question.  If you filed separately because you knew hubby was up to no good and you wanted to be financially free of him:  NO RELIEF FOR YOU.  According to the IRS, until the divorce is final, you are jointly responsible for community property or income acquired during your entire marriage. Besides, if you were financially astute enough to know he was up to no good, you should have forced him come clean by whatever means possible. 

    Please Godfather, beat the information out of my hubby if you have to!

  2. The second condition addresses knowledge and the duty of inquiry.  How much knowledge did you have of your ex-husband’s financial situation and how much you should have known, based on your education and experience.  If you’ve got a third grade education and never worked outside of the home, then you’ve got a good chance of getting relief.  Otherwise: NO RELIEF FOR YOU!  

    Honest Mr. Tax Man. I didn’t know my husband had all that money. Excuse while I fly down to our island in our Lear Jet.

     

  3. The third condition is the one that sinks most appeals.  For me, it was the easiest to prove but apparently many women drive around in Ferraris, shop on Rodeo Drive and winter in Aspen all the while unaware their husbands have money. Then, after being confronted by the taxman, they try to claim innocent spouse relief.  I have to point out that the tax man doesn’t care if at the time of the appeal you’re working a minimum wage job, living in a trailer park and supporting three kids.  If, during the year covered by the questionable tax return, you and your spouse lived a very lavish life style NO RELIEF FOR YOU!

If you think you can satisfy all of their requirements, then the next steps are to:

  • Complete a form (8857) that lists your assets, your income, and debts.
  • Beg three of your long time neighbors to write letters attesting to your meager and miserable lifestyle during the year in question.  (Good luck to you on that one.  Most people are very squeamish about getting involved with the tax man) 
  • Provide proof – as much as you can get ahold of – that your spouse hid information about finances from you.
  • Finally bundle up the whole shebang and send it to The Franchise Tax Board.  They will assign an attorney to review your appeal and get back to you.  In under a year, if you’re lucky.    

Months later you will probably get the following response:

“It is clear that appellant has failed to meet her burden of overcoming rebuttable correctness of respondent’s determination.”

This is taxman speak for “your appeal has been rejected. Pay up or go to jail.”  Don’t despair as I did.  Try to keep in mind that their attorney is defending their decision.  Unless they really fucked up, this is the response most appellants can expect to receive. But,  it need not be the end.  There is a higher authority you can appeal to. 

 When my lawyer first told me about the Board of Equalization I felt like Dorothy in the Wizard of Oz.  Somewhere in the valley fog between the coast and mountains of California was a wonderful group of human beings just waiting to save me from a crushing tax debt with a wave of their magic wands!  I couldn’t wait to plead my case, to tell them what I’d been through, and to have them severely chastise the evil taxmen who’d been hounding me unmercifully.  

Of course, I had a ton of apple strudel in my noodle. 

From the book Willful Avoidance (written from the POV of an exasperated tax attorney) 

“The Board of Equalization? What is it?” Maya asked.

“It’s a them. You vote for them every four years.” It was amazing to him how many people had no idea how tax laws were enforced and adjudicated. No idea. Living each day blissfully ignorant and apathetic about tax laws that could destroy them for the slightest of infractions. Voting every four years for a representative to the Board of Equalization with no idea why, their bios and statements of policy and intent ignored or used to line bird cages. “Among other things, the Board of Equalization is the court of last resort for the taxpayer. There are five members of the board. Four are elected separately—from each of the four different districts of California,” he explained. How much of this did she really want to know, he wondered. Despite her many insecurities and her tendency to overdramatize, she seemed intelligent, “The fifth member is always the state controller. He or she generally serves as the chairman of the board.”

As in the book, my lawyer quickly deflated my bubble of optimism.  There was no wizard hiding behind the curtains in Sacramento. Just a group of career politicians who probably wouldn’t even read my twenty-six pieces of evidence but instead hand the appeal over to a first year law student to read and summarize. However, if mine was one of the appeals they decided to hear, we would be in a good position to negotiate that 100K+ debt down to something reasonable for a woman in my position to pay off over the course of her lifetime.  Lawyers, I soon learned, will do anything to avoid going to court.

Box of Appeals which I still keep

 

I’m happy to say that, despite my lawyer’s well-meaning efforts to save me, I held firm and insisted on going to court. The following scene from Willful Avoidance takes place outside the courtroom before the hearings were set to begin and is written from the perspective of the clerk for the Board of Equalization.

The battle was about to begin: the Invincible Tax Men versus the Appellants. Each side would have their moment in the ring, unless an Appellant cried “uncle” after arm-bending, threats and promises for leniency were made in last-minute deals. Fully versed on all new laws and decisions, the Tax Men had the home court advantage. The Appellants, especially the small-scale divisions with no direct plan (just an overwhelming belief in the humanity of their story) had little chance. But it all rested ultimately in the hands of the judges, the mighty BOE, now sharpening their pencils (metaphorically) as they prepared to play Solomon. On this day they would need to appear kindly but judicial, full of wisdom but not easily conned. All opinions rendered were, of course, of public record and therefore available for scrutiny by the voting public.

The hall outside the boardroom held all the merriment of a morgue. Four or five groups stood in nervous circles negotiating with FTB lawyers. They rattled their sabers quietly, in hushed tones as though at any moment one of the illustrious members of the BOE came through the boardroom door.

The appellants for the two cases Roberta knew were doomed to fail already sat in the back of the boardroom confidently. Their summaries were astonishingly brief, they had no exhibits to speak of, no legal representation, just some sort of rambling notion that they were in the right or that their current economic condition would get them out of an FTB debt. One appellant had even sent his cousin to plead his case because he couldn’t get off work. That would be a costly mistake. At nine thirty she walked over to the two groups still remaining in the hall. One was the Ravel Stone & Gravel gang with the Very Important lawyer.  The other, a woman and two men, one of whom Roberta knew quite well. Mark Slattery, an attorney better suited for Vegas than Sacramento.

It was time to go into the boardroom, she explained to both groups. “Even if your case isn’t scheduled until eleven, the board requires all litigants to be in attendance for opening remarks. After the board begins hearing cases, you can move your negotiations out to the hall again. But,” she cautioned, as Ravel Stone & Gravel sulked away, “keep in mind that the BOE rarely needs the allotted thirty-five minutes to decide a case. After they hear one case, they continue right on to the next one without taking a break. If your case is called in court and you do not respond, you will lose your chance to appeal.”

“What would we do without you, Robbie?” Slattery chuckled, putting an unwanted hand of her shoulder.

“Cut the bull.” He flirted with her as young men often do with women they consider mother figures, only Slattery wasn’t that young, and Roberta wasn’t that old.

“You must be Maya Bethany,” she said, reaching over to shake the hand of the woman standing across from Slattery. She was a gentle-looking woman with wavy auburn hair pulled back into a ponytail, soft grey eyes, and the high cheekbones of someone of Slavic descent. Other than a hint of lipstick, she wore no makeup and she’d dressed conservatively in slacks and a crisp, white blouse. Bravo, Roberta thought. It was the perfect look—neither flashy nor too casual. Over the past year she felt she’d gotten to know Maya Bethany, having read her appeals to the board. And now, here she was. Almost exactly as Roberta had imagined.

I don’t think I have the energy to publish that book again but if you’d like to read about the scene inside the courtroom, let me know and I’ll publish it on this blog.

May your journey through this tax season be merciful!  And remember, don’t commit the five deadly sins like I did. 

You mean it’s against the law to blindly obey this old coot?