Joint and Several Liability: A Need for Legislative Reform
By Deborah J. Muhlbauer
Internal Revenue Code §6013(e) contains the "innocent spouse" rules of the Code that provide relief, in very limited circumstances, from the often harsh affects of joint and several liability. Although gender neutral on its face, the provisions of IRC §6013(e) have a disproportionate effect on women. In 1994, approximately 89% of the reported innocent spouse cases involved claims raised by women who were seeking relief from the tax liabilities of their husbands or ex-husbands. The numerous possible explanations for this disparity are beyond the scope of this article. Suffice to say, for social, economic, and/or biological reasons, women are approximately nine times more likely to seek innocent spouse relief, and thus are nine times more likely to be affected by its provisions. As such, for purposes of this article I will refer to the taxpayer seeking innocent spouse relief with a female connotation. In nine out of ten cases, this assumed connotation will be correct.
As a tax practitioner, I am often contacted by women who are being pursued by the Internal Revenue Service for tax liabilities that resulted from their husbands' or ex-husbands' employment or business activities. Their stories are generally the same. They either did not work at all during the period in issue, or they worked, but did so either on a part time basis or for substantially less wages than those contributed to the family by the husband. When asked if they filed a joint return with their husbands their answers are almost invariably the same. "Yes we filed a joint return, but I didn't work at that time, none of the income was mine" or "yes, we filed a joint return, but I only made $5,000.00 working part-time and my employer withheld from my wages". My response is always the same. "The problem is that you signed a joint return so you are jointly and severally responsible for the tax shown on the return, as well as any deficiency that is later determined to be due by the Service."
The magnitude of my response is rarely, if ever, initially comprehended by my clients. When I investigate further as to the source of the liability, i.e. whether or not it was reflected on the return or later determined to be due by the I.R.S., I must for the first time introduce some of these women to one of the most litigated provisions of the Internal Revenue Code; the "innocent spouse" rules contained in IRC §6013(e). I say that this is introduced to some and not all of my clients because the "innocent spouse" provisions of the Code are not available to women whose husbands correctly filed the returns in issue but simply failed to pay the tax due. For these women, I can only offer them the possibility of an installment agreement, or if they have little or no assets and little or no income, an offer in compromise.
For those women who might be entitled to innocent spouse relief, explaining the requirements for such relief is nothing short of a challenge. This task is even more difficult in disallowed deduction cases. Midway into my explanation I am inevitably interrupted by my client who tells me that she is definitely an innocent spouse because she never had anything to do with "the taxes" ("I never even looked at the return.") For those of you who are familiar with §6013(e), you understand the difficulty of articulating the distinction between a lay person's definition of innocent and the Tax Court's definition of "innocent spouse". For those of you who are not familiar with this provision, I will attempt to briefly explain.
WHO IS AN INNOCENT SPOUSE?
INCONSISTENCIES, OBSTACLES & CONTRADICTIONS
JOINT & SEVERAL LIABILITY
ABA PROPOSAL FOR SEPARATE LIABILITY
CONCLUSION
In the end, I must confess that I have some guilt for referring to the "innocent" spouse only in the female connotation because the statute is gender neutral on its face and thus applicable to both male and female taxpayers. However, both my experience and research has shown that women are far more likely then men to be adversely affected by joint and several liability and the very limited relief provided by IRC §6013(e).
Male or female, however, the issue is fairness. The self-professed mission of the IRS is to "collect the proper amount of tax revenues at the least cost to the public, and in a manner that warrants the highest degree of public confidence in our integrity, efficiency, and fairness." Joint and several liability is not fair, nor is it the only efficient manner for collecting tax revenues. It should be repealed and replaced with separate liability.
Bluestein & Muhlbauer, P.C.
333 International Drive
Williamsville, NY 14221
716.633.3200
