Let’s say
that a couple divorces. The divorce decree stipulates that liability for
previous federal taxes will be split 50:50. They had always filed jointly The
IRS audits one or more of those earlier years and assesses additional taxes.
Question: what
is each spouse’s liability?
Your first
thought might be 50:50, as that is what the divorce decree says.
Our protagonists
this time would find out.
Mae Asad and
Sam Akel filed joint returns for 2008 and 2009. The IRS audited those years,
looking at rental losses. They disallowed the losses and assessed over $30,000
in taxes and penalties.
Mae filed
for innocent spouse.
Later Sam
filed for innocent spouse.
NOTE: Filing for innocent spouse status means that a spouse
(probably an ex-spouse, but I had a client who was still married) has been
assessed taxes for which he/she does not believe he/she is responsible. The
classic case is the stay-at-home spouse, the other self-employed spouse, and
the stay-at-home has no participation in or knowledge of the other’s business. Think
Carmela Soprano.
The IRS
bounced both requests for innocent spouse.
Both
ex-spouses filed with the Tax Court.
Before the
hearing, the IRS conceded that Mae was responsible for 28% of the 2008 tax and
41% of the 2009 tax. Sam of course was responsible for the balance.
Seems to me
that Sam might not like this deal.
I do not
know how, but Mae agreed to a 50:50 split. She did not have to, mind you.
The courts
have been consistent that a divorce decree is not binding on the IRS, as the
IRS is not party to the divorce. A joint
return means that both spouses are liable, and the IRS can go after one … or
both, to the extent the IRS desires. The decree may provide for a former spouse
to seek restitution against the other, but it has no impact on the IRS.
The Court accepted
the IRS previous concession to Mae of 28% and 41%. It did not have to observe
the divorce decree and it did not.
Then the
Court reviewed the penalties of over $5,000.
But there
had been a fatal flaw,
You see, Mae
and Sam had filed pro se with the Tax Court. Pro se means one is going in
without professional representation (not exactly correct, but close enough). It
happens with small tax cases. The paperwork to get to Court and the procedural
rules once there are more lenient for small cases.
Sam and Mae
had not included the penalty in their petition to the Court.
The Court did
not have authority to review the penalties.
But it did provide
us a clear example of the downside to representing oneself pro se.
