Domestic Relations Provisions of the IRS Restructuring and Reform Act of 1998

The IRS Restructuring and Reform Act of 1998 changed the rules for married couples who file joint tax returns. Before the changes, both spouses could be held responsible for the full amount of taxes owed, even if one spouse was not aware of the mistake. The new law allows one spouse to limit their liability for taxes to only the amount that is their own responsibility, not their spouse’s. This election applies to tax liabilities that arise after July 22, 1998, as well as any unpaid liabilities from before that date. The election period lasts for two years after the IRS takes action to collect the taxes owed. If you’re married and want to file your taxes separately from your spouse, you can do so if you are no longer married, legally separated, or have not lived with your spouse for the past 12 months. You have to make this decision within two years of the IRS starting to collect taxes from you. You can do this by filling out a special form from the IRS. If one spouse tries to hide money or property from the IRS to avoid paying taxes, the election is canceled for both spouses. And if one spouse knew about something on their tax return that was wrong, they can still be held responsible for it, unless they were forced to sign the return. Also, if one spouse gives money or property to the other to avoid paying taxes, the IRS can still go after that spouse for the taxes owed. If a married couple gets divorced, the things they each own will go to the person who originally got them. For example, if one spouse earned money from a job, that money is theirs. If the other spouse had investment income, that’s theirs. They might share some things equally, like deductions on their taxes. If one spouse didn’t report income, they’re responsible for the tax bill. If both spouses had different issues on their tax return, they’re each responsible for their own part. If you file taxes jointly with your spouse and there’s a mistake, you can ask the IRS to hold only one of you responsible for paying the extra taxes. You have to prove that the income and deductions on your separate portions of the tax return are correct. The IRS has to give your spouse notice and a chance to participate if you ask to be held responsible for only your share of the taxes. If the IRS doesn’t agree and you think they’re wrong, you can ask the U.S. Tax Court to review their decision. The Tax Court will also give your spouse notice and a chance to join in the case. If you and your spouse filed taxes together and there was a mistake that resulted in owing taxes, you may be able to get relief if you didn’t know about the mistake and it’s not fair to hold you responsible for it. You have to apply for this relief within two years of the IRS trying to collect the taxes from you. If you’re approved, you won’t have to pay the taxes that were because of the mistake on the tax return. If one spouse makes a mistake on their tax return and the other spouse didn’t know about it or had no reason to know about it, the innocent spouse can be relieved from part of the tax owed. This applies even if the innocent spouse knew about some but not all of the mistakes. The innocent spouse can only get relief if they filed a joint tax return with their spouse. If one spouse didn’t know about or couldn’t have known about tax mistakes made by the other spouse, they may not be held responsible for paying the taxes owed. This is called “innocent spouse relief.” The IRS looks at things like the innocent spouse’s education level, their involvement in the family’s financial matters, and whether they benefited from the mistake. If both innocent spouse relief options don’t apply, the IRS can still decide it’s unfair to hold the innocent spouse responsible. In most cases, it’s best for the innocent spouse to request separate liability for their taxes. It’s a good idea to include this in a divorce agreement, and both spouses should agree to share the information needed to figure out their separate tax liabilities. If you want to learn about old divorce tax rules, check out a book by Frumkes and Steinberg. There are also reports and sections of tax laws that you can look at. Robert S. Steinberg is a certified accountant and lawyer who specializes in family law. He is involved in different legal organizations. This article is from the Family Law Section, and it’s all about providing service to the public and improving the justice system.

Source: https://www.floridabar.org/the-florida-bar-journal/domestic-relations-provisions-of-the-irs-restructuring-and-reform-act-of-1998/