NCPA - National Center for Policy Analysis

"Innocent Spouse" Cases Load IRS Dockets

December 29, 1999

When the House passed the IRS Restructuring and Reform Act in 1998, the Internal Revenue Service figured a few thousand women would take advantage of the new "innocent spouse" clause. The change in the law made it easier for ex-spouses, virtually all women, to get out of paying back taxes incurred by former spouses who had cheated the IRS and stuck the women with the bills plus interest.

So far, however, more than 45,000 people -- 90 percent women -- have filed applications.

Another surprise for the agency: rather than being handled by lower-level auditors, the cases are now being handled by highly trained revenue agents who could sort out the tangled tax liabilities.

  • The IRS has pulled about 500 auditors -- more than three percent of its auditing force -- off hunting tax cheaters in business and assigned them to divorce.
  • In each of the 33 IRS districts at least one group of 10 to 15 auditors was told to stop investigating tax cheating by companies and wealthy individuals to deal exclusively with innocent spouse cases.

One problem facing auditors is trying to determine whether the applicant knew about the cheating, and is therefore not entitled to relief. Auditors' work is further complicated because they must determine which of three types of relief is applicable, even if the taxpayer only asks for one. Those include separate liability for people who are no longer married, separate liability for those who are still married and discretionary relief.

The reassignment of auditors is one reason that fewer that one in 300 individual tax returns will be audited in the current fiscal year, down from one in 217 two years ago and one in 83 twenty years ago. Critics note that the agency's own analysis shows it will collect only about a penny on the dollar of such old tax debts, making it hardly worth much investigative time.

Source: David Cay Johnson, "'Innocent Spouse' Claims to I.R.S. Soar In Wake of Change in Law," New York Times, December 29, 1999.


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