In 1789, Benjamin Franklin famously stated that the only things in life that were certain were “death and taxes”. Irrespective if one has obtained a divorce, is thinking about a divorce, wishes to stay with one’s partner, or is dealing with post-divorce issues, having to file and sometimes pay taxes is something that everyone must deal with on a yearly basis. Even though this certainty is fundamentally simple, in 2019, it can become difficult for a number of reasons. The main item that affects both married parties and separated parties alike is a failure by one party to file returns with either the Franchise Tax Board, or the Internal Revenue Service. Similarly, another issue that arises is when one party either fraudulently underreports income on joint returns, or prepares a return that is materially inaccurate on a number of levels. For many people, these issues can be ongoing for a number of years until either the Franchise Tax Board or the Internal Revenue Service send a notice regarding such returns.
Even worse, in cases where fraudulent returns are being submitted, the party submitting such returns may intercept the notices, which may lead to further consequences, including bank levies, garnishments, or liens by either of the taxing agencies. Whether it is by reading such notices, being the receiving end of government collection action, or learning things through the discovery process in a dissolution action, the other party usually is dismayed to learn that they are now legally responsible for liabilities that they had no knowledge of that have accrued interest or penalties.
Fortunately, there are remedies for these determinations that are better than death, which are known as “Innocent Spouse Relief”. Under Section 6015 of the Internal Revenue Code these provisions vary from specific joint and several liability relief; and equitable relief, which is commonly known as 6015(f) relief. In its legislative history, Congress intended for the Internal Revenue Service to exercise equitable relief authority under 6015(f) when a spouse “does not know and had no reason to know that funds intended for the payment of the tax were instead taken by the other spouse for the other spouse’s benefit”.H.R. Conference Report No. 599, 105thCong. 2d. Sess. 254 (1998). These provisions of the Internal Revenue Code are also mirrored in California State law.
While each innocent spouse case is fact-specific and requires specific application of the existing statutory law and case law to the facts, in general the Internal Revenue Service has provided a partial list of circumstances for which innocent spouse relief will be granted. These circumstances take into account the following: a) Marital Status, meaning that usually, the individual requesting relief must be separated or divorced from the non-requesting spouse; b) Economic Hardship, which is usually easy for the requesting party to meet in that if relief is not granted, the applicant would suffer financial hardship; c)Physical or Mental Abuse, which examines whether the individual requesting relief suffered some sort of domestic violence or criminal acts of abuse which amounted to duress, meaning that they could not appropriately examine the returns at issue or were forced to take actions based on the conduct of the non-filing spouse. As well, the Internal Revenue Service and the Franchise Tax Board will both examine whether the filing party had knowledge of the non-filed returns, or non-paid amounts, and whether such knowledge was excused by other factors.
As one can see, while taxes are certain – legal relief from such certainty is more complicated. Innocent spouse relief is a complex area which requires straightforward analysis and presentation of facts to the law. It is also important to realize that this legal doctrine applies whether one is a man, or whether one is a woman. If you feel that you are involved in a situation where you should not be held liable for taxes acquired during a marriage, you should contact our office today with any questions you have relating to this relief and whether it applies to you.
Christopher Sunnen, Esq. is a San Diego, CA based attorney specializing in family law and bankruptcy law.