Based on a recent IRS ruling, bankruptcy will become a more viable option for some innocent spouses who have signed joint tax returns and then discovered that their spouse has committed some type of tax fraud. I’m excited by a blog post that Georgia bankruptcy expert Jonathan Ginsberg has written on this topic (click here to read his blog post).
In his blog post, Ginsberg states that if you did not have any “knowledge, information or control over your spouse’s tax dealings, you can petition the IRS to declare you as an innocent spouse and reduce or eliminate your personal liability for tax payments, penalties and interest.”
In the past, if you waited more than two years from the date of the tax return to petition the IRS, you were out of luck. According to the Wall Street Journal, the IRS is suspending this two year rule.
As a Northwest Georgia bankruptcy attorney, I have seen cases where the IRS will plop themselves down on a Chapter 13 bankruptcy and demand that the entire tax debt be paid during the life of the plan. The problem is that for many debtors, this is impossible.
Imagine a case where the former husband was self-employed and failed to pay payroll taxes on his employees. Imagine that the wife stays home raising their kids and has absolutely nothing to do with the business. However, she signs a joint tax return with him. Thus, she is liable for his tax fraud. As things started heading south, he takes off and disappears. Unfortunately for some women, this scenario is real life.
I’ve seen some bankruptcy cases where the debtor really needed to file Chapter 13 to save their house or their only means of transportation. When the IRS plops down on the case and demands full payment of an enormous tax debt, the case becomes impossible.
I’m hoping that this new IRS ruling will provide relief for the spouses who were not responsible for the tax nightmare and did not discover it until after the two year period passed.