Innocent Spouse Tax Issues Rise As COVID Restrictions Ease

Posted on May 19, 2022

The end of COVID-19 restrictions requiring families to shelter in place has led to an uptick in the number of abused spouses heading for shelters and bringing their tax problems with them, advocates for abuse victims and tax experts say.

The end of COVID-19 restrictions requiring families to shelter in place has lead to an uptick in the number of abused spouses heading for shelters and bringing their tax problems with them, advocates for abuse victims and tax experts say. (AP Photo/Gregory Bull)

While no stranger to dealing with financial coercion from their spouses, many abuse victims only discover the full scope of their tax problems when visiting Volunteer Income Tax Assistance sites run in partnership with the Internal Revenue Service to file returns, advocates said.

Instead of qualifying for pandemic tax relief such as the economic stimulus payments, earned income tax credits or the advance child tax credit, many victims learn that their abusive spouses have already filed joint tax returns without their consent, committed identity and employment theft using their Social Security number or left them owing the IRS unpaid tax balances, they said.

Nancy Rossner, a senior staff attorney at the Community Tax Law Project in Richmond, Virginia, said economic concerns are a big factor when abuse survivors try to find safe living spaces. Rossner’s organization provides free legal help to low-wage families and individuals experiencing economic harm from tax problems. Stimulus checks have become almost a tool for abusers to exert power and control on the survivors, Rossner said during a recent webinar on how to represent domestic violence survivors in IRS disputes.

“The $1,400 economic impact payment could be a security deposit on an apartment [or] a couple of plane tickets for them and their children,” Rossner said.

“It might be that they had some sort of agreement that they would file jointly, and then the abuser was supposed to give them their portion of the refund from the stimulus,” she said. “Or, it could be that a return was filed without their knowledge, without their permission, without their consent. And, therefore, it was fraudulent.”

The widespread financial instability caused by the pandemic served as a trigger for both physical and financial abuses, such as limiting a partner’s access to money, jobs and public benefits, said Teal Inzunza, program director for the Economic Empowerment program at Urban Resource Institute, which bills itself as the nation’s largest provider of domestic violence residential services.

“The constant close proximity of sheltering in place together that we saw during the height of the pandemic created very few opportunities to stow cash and important documents in a safe place as we usually recommend as part of safety planning,” Inzunza told Law360, noting that financial abuse is all about exerting power and control over another person.

Once victims escape domestic abuse, they can find it very difficult to change their address and bank account information with the IRS, she said.

“When survivors attempt to contact the IRS, they often are not able to speak with someone who is knowledgeable about the ways in which domestic violence, economic abuse and taxes intersect; therefore [they] are not adequately helped,” she said.

Rossner added that when abuse survivors contact the IRS to prove they were supposed to get the economic impact payment or that the advance child tax credit was fraudulently claimed by a spouse, the agency can make adjustment to jointly filed returns. But it runs the risks of alerting the other spouse of the changes.

Abuse survivors can request that the IRS add a domestic violence indicator on their account when they request relief from joint and several liability. The indicator alerts the IRS of the potential for future identity theft and lets staffers know to be sensitive to sharing the taxpayer’s location information and personal identifying information, she said.

Affordable housing industry groups also said the IRS should be doing more to meet the housing needs of domestic abuse survivors.

Jennifer Schwartz, director of tax and housing advocacy for the National Council of State Housing Agencies, said the organization is pursing a dual strategy in Congress and with the IRS to protect the rights of abused women who are tenants in apartment units developed using the federal low-income housing tax credit program.

“While the housing credit has been a covered program under the Violence Against Women Act since 2013, the IRS has never issued guidance to clear up outstanding questions about VAWA implementation in regards to the credit,” Schwartz told Law360.

In March, President Joe Biden signed the VAWA Reauthorization Act of 2022 as part of this year’s $1.5 trillion omnibus spending bill.

In addition to asking the IRS to issue regulations, the National Council of State Housing Agencies is pushing for Congress to address the tax-related problems through the Affordable Housing Credit Improvement Act, Schwartz said. The housing credit bill, H.R. 2573 in the House and S. 1136 in the Senate, has 157 co-sponsors in the House and 33 in the Senate.

Among its provisions, the bipartisan legislation would require all housing credit long-term use agreements to include VAWA protections and clarify that an owner should treat a tenant who has their lease bifurcated due to violence covered under VAWA as an existing tenant. It would also not recertify the tenant’s income as if they were a new tenant at initial occupancy. Under housing tax credit rules, recertifying a tenant’s income can change the type of apartment a tenant can rent.

Former National Taxpayer Advocate Nina Olson told Law360 that the IRS staffers working with domestic abuse survivors need better training, including intensive education sessions conducted by advocates who work with this group of taxpayers.

For example, Internal Revenue Code Section 6015 codifies tax relief for innocent spouses, but disputes over the relief have ended up in U.S. Tax Court.

“If you go back through some of the published opinions involving Code Section 6015 in the U.S. Tax Court, sometimes you wonder why the case was actually tried and not conceded or settled by Chief Counsel,” said Olson, executive director of the Center for Taxpayer Rights.

Olson also criticized the IRS for the way it handles critical administrative records under Section 6015(h).

“The IRS is lousy at maintaining an administrative record that is coherent or complete; it varies from employee to employee, what they enter and how they record what they considered,” she said. “Taxpayers, especially these taxpayers, may not understand what they need to submit. The IRS employee’s goodwill is key to eliciting full information in an empathetic and understanding way.”

An IRS spokesperson did not respond to a request for comments about how it works with victims of domestic abuse.

The Treasury Inspector General for Tax Administration has included a review of the innocent spouse program in its 2022 Annual Audit Plan. TIGTA wants to determine whether the IRS is effectively working cases in accordance with Section 6015, according to the audit plan.

Elizabeth Brownback, an attorney who works in the legal education and advocacy program at Urban Resource Institute, said economic abuse is at the forefront in nearly 99% of crime victim advocacy cases she works on. Most victims are women of color, ranging from low-income workers to those with advanced education degrees who left the workforce to raise children, she said.

Most find out about their tax problems after they try to straighten out their credit or get tax refunds to help rebuild their lives, Brownback said.

“Sometimes we can use the courts to get an order, especially in the matrimonial field,” she said. “In a divorce, the court has a little more power to look into it and order the husband to give the client some money. But it’s definitely not easy to get the money back.”

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