Becoming an innocent spouse.

• Author: Schnepper, Jeff A.
• Position: Economic Observer - Brief Article

EVERYONE THINKS the U.S. Tax Code was written just to raise revenue, but that's not really so. There are lots of sources of the agonies that you're put through each year. As author T.S. Elliot noted, "April is the cruelest month."

Many code provisions were drafted for economic stimulus. That's the reason for accelerated depreciation, investment tax credits, and "rate reductions" to put more cash into the economy. Others were created for social reasons. For example, there is the deduction for charitable donations to encourage contributions, "family friendly" provisions such as the child credit, and special tax breaks like the Coverdell education accounts and Section 529 plans to encourage savings for education. In another era, we might even have called these Code provisions "tax shelters."

Some Tax Code provisions are purely political. Do you think the "extra standard deduction" went only to the blind and not to the deaf because the "blind" lobby was stronger than the "deaf' lobby? Or, perhaps, someone whose vote was needed on another issue had a friend or relative (or maybe a big donor) who was blind?

The Tax Code is the last place I'd look for absolution. Nevertheless, once and a while, it comes up with a change that actually makes sense. The politicians must have missed this meeting, because the Tax Code now has a special provision that affords some long-needed protection to an "innocent spouse."

As a married man, I find the very concept of a truly "innocent" spouse slightly less probable than my winning the Irish sweepstakes. Nevertheless, if the IRS has an "Innocent Spouse" rule, I want to know how I can qualify. A little research dashed most of my hopes for absolute and universal absolution. The innocent part is real, but it just applies to Federal taxes--and only under certain limitations.

Here's my problem. If you're married and file a joint tax return, both of you are liable for any taxes due. The lawyers call it "joint and several" liability, which means that the IRS can go after both spouses or either one for the money owed. Let's say my wife is playing the stock market behind my back. She had a $10,000 short-term profit that she didn't tell me about. We file our tax return without showing the gain, and the agency's computer picks it up. As a result, I get a bill for $2,750 (in the 27.5% bracket) plus interest and penalties. Then, to bring complete joy and nirvana into my life, the IRS takes all the money out of my account. The...