The Treasury Department rolled out plans Monday to grant “innocent spouses” relief from IRS collection actions prompted by tax problems caused by their mates.
The plight of innocent spouses also will be the focus of Senate Finance Committee hearings later week as the panel continues to work on a bill to overhaul the Internal Revenue Service. The panel plans to hear testimony from women who faced IRS collection actions due to tax problems of their former husbands.
Under the tax law, each spouse is equally liable for the full amount of income tax due on a joint federal tax return. That enables the IRS to pursue one spouse for payment of taxes if the other is unavailable.
In limited cases, the law provides relief for a spouse who showed he or she did not know the return contained an error or understatement of taxes. Such innocent-spouse relief is difficult to obtain, but the Treasury Department announced several initiatives Monday to improve the situation. Among them:
IRS workers will be better trained to recognize and assist innocent spouses, including informing taxpayers of their rights even if they are unaware of them.
A new form will be created to assist taxpayers applying for relief as innocent spouses. The IRS plans to process these forms in one location to ensure consistent treatment and will have employees specially trained to handle these issues over the agency’s toll-free telephone help line.
“The innocent spouse is a real fairness issue. And responding better to this is right at the center of what having a customer-oriented IRS is all about,” said Deputy Treasury Secretary Lawrence Summers. These administrative changes at the IRS will occur later this year.
The Treasury Department on Tuesday plans to issue a report - one year late - that was requested by Congress to examine legal issues surrounding innocent-spouses.
Congress sought the report to determine if, among other things, it should modify the current joint and several liability standard for joint returns to something along the lines of proportionate liability, in which spouses would be held responsible to the extent of their individual involvement. The Treasury report doesn’t recommend changing liability standards, officials said.
Donna Steele Flynn, a former House Ways and Means Committee staff member, said making such a change would be difficult and raise numerous tax policy problems.
“There are no ‘one-size-fits-all,’ truly good solutions to fix this problem,” said Flynn, now with the accounting firm Ernst & Young.