Case in a Nutshell: Taxpayer petitioned the court to overturn the IRS rejection of her request for innocent spouse relief. She was jointly liable for taxes due on a return filed with her ex-spouse. The divorce decree designated the debt her ex’s however the IRS was keeping her tax refunds to offset the debt. Her ex was making timely payments on the debt and had reimbursed her for the refunds that were offset. The court found for the taxpayer after examining all the facts and circumstances against the 7 established tests for determining if it would be inequitable to hold the spouse liable.
- 1. One of the factors considered in these cases is whether on the date the spouse signed the joint tax return he/she did not know, and had no reason to know, that the taxes would not be paid. The petitioner testified that she thought, since the divorce decree made the debt her ex-husband’s, that the IRS could no longer hold her liable. This is not so. 1) The IRS, like most other creditors, does not care about what your divorce decree says. The decree may give you a legal right to get reimbursed by your spouse if the creditor collects from you. 2) The court was not impressed by this response and actually interpreted it as evidence that she knew her husband would not pay so that point fell against her.