ON INNOCENT SPOUSE
RELIEF ...
who qualifies as an innocent spouse and how to request relief. It's been
approved for print and is now on the IRS web site. Go to:
http://www.irs.ustreas.gov/prod/cover.html
This announcement brings to mind a very real situation a couple of years
ago.
A woman, let's call her Anna, was referred to me by her ex-husband's
accountant, Mike. Naturally, he couldn't handle her problem. It would have
been a conflict of interest since he was representing the husband, Bob.
AH Feel Good!
Actually, Mike didn't really think I could help. He just thought that I
couldn't do any more harm than anyone else she'd gone to before. (Believe
me, I was truly encouraged by that vote of confidence!)
Well, Anna told me her problem. A few years back, she and Bob had gotten
divorced. Bob was a CPA and Anna was an accountant who used to work
with him in his practice.From the start, I know I am dealing with two
people who ought to know the tax laws and how to prepare and file tax
returns.
Making (it) Up
When they split up, it seemed they did not file the final tax return
for their last year together, 1984. Well, naturally, a few years later,
the IRS came looking for the return and when they got no response, they
created SFR's. (An SFR = Substitute For Return. The IRS uses the best
information they have available about income sources, uses a Single filing
status and no deductions.)
Anna responded immediately. She had a CPA prepare a tax return for the
1984 year. She filed as Married, filing separately and reported only her
own income and expenses. (They had not been living together during the
final year.) She ended up with a refund. Anna filed the return. But didn't
get her refund.
Meanwhile, Bob pulled together his information for 1984. He
prepared a Married. He filed a Jointly return and included Anna's income
and withholding the return he prepared. He filed that return for both of
them. His had a substantial balance due - over $10,000 plus penalties and
interest for several years. Bob was broke - he had no money.When the IRS
tried to collect from him, they found nothing to take.
Take it Away, Baby!
Ah, Anna! Well, Anna had a job, a bank account and other trappings of a
healthy life. So the IRS attached her bank account and kept taking her
refunds in subsequent years. You can imagine how upset Anna was! She had
filed a tax return. She would have had a refund. They ignored her return
and were taking money that really applied to her husband's irresponsible
financial management. This not only wasn't right, it was destroying her
life! It's awfully hard to hold a job as a corporate accountant and
explain to your boss that you are such a flake that the IRS has to attach
your wages!
Looking For Help In All The Wrong Places
Remember, Anna is no dummy. She knew that she shouldn't be held
accountable for her husband's follies. Heck, that's why she divorced him
in the first place! So, she went to her CPA and had him try to get the IRS
to stop bugging her. They filed for innocent spouse relief, using the
argument that she was not involved in his business that year and she had
no idea he had filed that return. They got nowhere.
She went to the IRS herself. When I ordered a copy of all the records and
correspondence from the IRS under the Freedom of Information Act, I found
copies of notes and memos from an IRS collections officer named Joan. Joan
was quite sympathetic to Anna's problem. She did everything she could to
try to get the assessment removed. No luck.
Anna wasn't giving up. She wrote to Congressmen, Assemblymen (yes,
there were no women in office then!) to have them help her get innocent spouse
relief. They tried to help - no avail. Nada. Zip.
The bottom line on the innocent spouse argument:
She was an accounting professional. She hadn't been responsible enough to
file her tax returns on time. She was stuck with the joint liability.
A Magic Touch
Then she came to me. After fighting this for about five years. I
listened. And listened. And listened. But I got annoyed. The whole situation made no
sense to me. By the time she came to me, she'd forgotten about the
original return she'd filed. Anna was so involved with fighting the whole
innocent spouse issue, she'd lost sight of the whole picture.
When I got all the Freedom of Information data, I found the original, but
late, Married Filing Separate tax return that she had filed. The one
with the refund. The IRS provided a copy of the return her husband, Bob
had filed. I looked it over carefully - it wasn't signed. Not by Bob, not
by Anna.
There was some correspondence from the IRS advising them this
was not a valid return without a signature, please sign this form and return it. I
didn't find one piece of paper that showed Anna's signature in relation to
Bob's return. Getting more bewildered, I called Anna. She didn't remember
signing anything. So I called the IRS's Problem Resolution Office (PRO)
folks (now Taxpayer Advocates). I got some young woman with little
experience. But she pulled her supervisor into the discussion. They were
bewildered. The PRO looked through all their records for the next couple
of weeks. They studied the situation from all sides and angles. And they
called me back. The PRO said, this is clearly a mistake. Really! This
should never have happened. Anna filed a valid return - and she never
signed Bob's. She's not responsible for his balance due.
Happy Ending
Anna got her money back. The IRS took off all their liens and levy's. Anna
was finally able to build a life, earn a living and do things you and I
take for granted.
The moral of the story? I don't know.
How about "Stop fighting - Sweat the Details - the Answer is in Your Grasp."
