innocent spouse relief | Saying nothing in particular

This is a continuation of a series of posts on Innocent Spouse Relief, a provision enacted to relief people from the the burden of an unfair tax debt. If you should find yourself needing to file an appeal with the tax board and you feel like you can satisfy all of their requirements, then:

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 – that your spouse hid information about joint finances from you. I had twenty-six letters from my divorce attorney. I called them “The Exhibits A-Z.”

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.

Do not be surprised if you 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.” Remember, they’ve assigned an attorney to defend their position. He’s not going to say “whoops, we made a mistake.”

Do not despair, as I did, it need not be the end.

Next – The court of last resort...

No, the court of last resort is not a heavenly intervention!

Back in the days when women wore a strand of pearls and high heels to make dinner. “My husband takes care of all our financial affairs!”

In the last post, Five Deadly Sins in the Eyes of the Taxman, I talked about how easy it is for innocent people to find themselves in the crosshairs of the tax man. You just have to commit the deadly sin of marrying and trusting the wrong person. However, because the tax code was written at a time when most married women worked from home and weren’t considered smart enough to understand finances, there was a provision added that allows a spouse to claim relief from a shared tax debt. All they have to do is prove their incompetence.

The ideal innocent Spouse Candidate

As you can imagine, it’s changed over the years.

In 1986 there were three “requirements” that had to be met before the tax review board would even consider 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 first condition is that you filed a joint tax return with your spouse for the year in question. If you filed separately thinking you’d be in the free and clear should your husband’s shenanigans come to life, think again. To the IRS, until the divorce is final, you are jointly responsible for community property or income acquired during your entire marriage. If you filed separately during the year in question, to the IRS that means you knew your husband was defrauding the government and didn’t turn him in. NO RELIEF FOR YOU!

Godfather, please make my husband come clean. Break his legs if you need to!

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 can’t prove that you’re too uneducated and inexperienced to understand finances, then NO RELIEF FOR YOU! However, if as a prudent taxpayer you can prove that you did everything in your power to get the information from your spouse but failed, then you might have a chance.

Honest Mr. Taxman – I had no idea my husband made so much money! Excuse me while I shuttle off to Bermuda for my spa treatments!

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!

Next, Secrets of a Kick Ass Tax Woman.

*All the images on this post are from Bing.com