My chronicle of how the IRS and Tax Court affect taxpayers' daily lives.

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Tuesday, November 24, 2009

Innocent Spouse Relief Denied

Arianel Torres and Franz Hurtado entered into a state a marrital bliss in August 1996 which ended with their separation in August 2001 and eventual divorce in May 2003.  Filing status on an individual's tax return is determined on their marital status as of December 31 of the tax year.  Accordingly, Ms.Torres filed a joint tax return with Mr. Hurtado for the tax year 2001.  The joint return showed community income of nearly $72k with an unpaid tax liability of $6,243.  Though the couple did not live lavishly, they did use the money to purchase a vehicle, loan money to Ms. Torres' mother, and make payments on her condo in Mexico. 

Ms. Torres petitioned the court for Innocent Spouse Relief stating that she did not sign the tax return and was unaware of the tax due.  Additionally, she stated that did not know of the balance due and did not have the ability to pay the tax due because she didn't have access to her husband's bank account.  Her court testiony was inconsistent, and she recanted these statements, which were signed under penalties of perjury. 

The government is allowed to relieve a spouse of the responsibility to pay a portion or all tax that is due on a jointly filed tax return, if the circumstances allow.  Factors that the IRS examines include economic hardship, knowledge or reason to know, legal obligation of the other spouse (what a divorce decree may say), and benefit of the underpayment. 

Ms. Torres stated that she would suffer substantial economic hardship if she was kept liable for the tax.  She did not submit any documentation that would prove this hardship, and instead proved the IRS' case by showing she had assets that were able to be liquidated against the debt.  Though the court sided with her concerning her lack of knowledge of the liability as well as her current compliance history, the court felt that since the divorce decree was silent as to the outstanding liability, that Ms. Torres received significant benefit from failing to pay the tax, and her inability to prove a hardship outweighed the factors in her benefit.  She is considered jointly and severally liable for the tax due.

Aaron's Take:  Married couples in most of the western states fall under community property laws.  This means that when you file a joint tax return, you will be considered 100% liable for the tax, even if your ex-spouse should have paid half.  You should consider very carefully if you should file jointly if you think your spouse has less honesty genes than you would like him/her to.  The IRS will go after the easier target, and if you are easy to find, thats you!

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Aaron Blau, E.A. is the Vice President of the Central Arizona Chapter of Enrolled Agents and a member of the Government Relations Committee of the National Association of Enrolled Agents. The opinions and ideas expressed here are in no way representative of the official position of the National Association of Enrolled Agents, Arizona Society of Enrolled Agents or the Central Arizona Chapter of Enrolled Agents.

For official comments, please e-mail NAEA Director of Communications at or Arizona Society president

"To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication (or any attachment) addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment). In addition, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS. This communication is intended solely for the person to whom it is addressed; no one else should rely on the tax advice provided herein. The person to whom this advice is addressed is under no obligation to keep the advice or matters related to the advice confidential."