GAO Reports  
T-GGD-98-72 February 24, 1998

Innocent Spouse: Alternatives For Improving
Innocent Spouse Relief

GAO discussed its report on the innocent spouse provisions of the Internal Revenue Code, focusing on: (1) the universe of taxpayers potentially eligible for innocent spouse relief; (2) the Internal Revenue Service's (IRS) practices and procedures for handling requests for such relief; (3) whether the existing innocent spouse provisions provide the same opportunity for relief for all taxpayers; (4) the potential effects of replacing the joint and several liability standard with a proportionate liability standard; (5) the potential effects on IRS of requiring it to abide by the terms of divorce decrees that allocate tax liabilities; and (6) the potential effects of limiting IRS' ability to seize community income to satisfy the tax liabilities incurred by one of the spouses before the marriage.

GAO noted that: (1) under current law, only about 1 percent of couples who filed joint returns in 1992 had additional tax assessments that potentially met the dollar threshold for innocent spouse relief; (2) if only divorced taxpayers were counted, about 35,000 of the 587,000 couples with additional tax assessments of more than $500 for 1992 may have been eligible for innocent spouse relief; fewer would probably actually qualify; (3) the limited information available indicated that IRS received few requests for innocent spouse relief and denied most of them; (4) the current provisions may not ensure that all deserving taxpayers receive equivalent relief; (5) one way to address concerns with the innocent spouse provisions would be to replace the joint and several liability standard with a proportionate liability standard; (6) under this standard, each spouse becomes individually responsible for the entire amount of the tax associated with a joint return; (7) under a proportionate liability standard, couples would be responsible only for the taxes generated by their individual incomes and assets; (8) requiring IRS to be bound by divorce decrees is impractical for two major reasons; (9) first, federal tax matters are the exclusive jurisdiction of certain federal courts, while divorce matters are generally handled by state courts; (10) thus, there is currently no legal forum where IRS and the parties to a divorce could resolve issues relating to both tax and divorce matters; (11) second, this proposal could require IRS to become involved in every divorce settlement to ensure that the government's interest is protected; (12) in community property states, IRS can levy one spouse's income to satisfy the premarital tax debts of the other spouse because of the joint ownership of property in those states; (13) in contrast, IRS cannot levy the income of one spouse to pay the premarital tax debt of the other spouse in common law states because spouses do not have legal entitlement to each other's property; (14) since IRS does not maintain data on how often it levies community property to settle premarital tax debts, GAO could not assess the potential impact on IRS of changing the law to treat everyone the way it treats taxpayers in common law states; and (15) the Department of Treasury's report parallels GAO's report on identifying ways to improve the administration of the current innocent spouse provisions.

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