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IRS lifts appeal deadline for tax cheats' spouses

By Doug McMurdo

LAS VEGAS REVIEW-JOURNAL Posted: Aug. 1, 2011 | 6:38 p.m.


After bipartisan pressure from Congress and tax advocates, the Internal Revenue Service last week gave so-called "innocent spouses" of suspected tax cheats a reprieve by lifting a two-year deadline in which they can seek relief.


Out of the 50,000 innocent-spouse claims filed each year in the United States, about 2,000 are barred from getting relief because of the two-year rule.


The timing couldn't be better for a growing number of Nevadans, Las Vegas lawyer Derek Hatch of the Tax Law Center said. "Nevada has by far the highest divorce rate in the country," he said. "This change will be of great assistance to Nevada divorcees."


Hatch said his business is good when the economy is booming, but it's great when it free-falls.


"The economic storm means many people have experienced severe financial reversals," he said.


But it is the often-ugly nature of divorce that has affected innocent spouses the most. The tax cheats deliberately refrain from telling their former or soon-to-be-former spouse of their tax troubles, knowing that if they file joint tax returns, they are both liable.


More and more, small-business owners are making desperate efforts to stay afloat and keep employees on the payroll, Hatch said, and in so doing they neglect to pay all sorts of taxes, cut corners and generally dig deeper financial holes.


Sometimes, the amount in question is extreme.


The Tax Law Center has been able to absolve a client of a $1 million tax lien and another of a $2 million liability. In all, attorneys at the center have removed $33 million worth of IRS headaches for about 30 innocent-spouse clients, and with the two-year window now closed, they expect to help even more.


The IRS touts the change as a new benefit designed to right a wrong. But the revenue collection agency was never supposed to include a statute of limitations when the legislation was enacted in 2002, said David Cherry, a spokesman for Rep. Shelley Berkley, D-Nev.


In a House Ways and Means Committee letter to IRS Commissioner Douglas Schulman signed by some 50 lawmakers, the IRS was reproached for including the statute of limitations when Congress never authorized the provision to be included in the law.


Berkeley is a member of the Ways and Means Committee. Innocent spouses,


Hatch said, tend to be women who filed joint income tax returns with the husbands they are divorcing or have divorced. In many cases, he said, innocent spouses didn't know they were in trouble with the IRS for years.


The IRS should expect its mailboxes to be crowded now that the law has passed. The change will be retroactive, meaning about 18,000 people who were barred from getting help because of the time limit can request help anew.


To its credit, Hatch said, the IRS in response to the current economic climate has been "very willing" to work out deals with innocent spouses.


Contact reporter Doug McMurdo at dmcmurdo@reviewjournal.com or 702-224-5512.