Innocent Spouse Tax Relief – An Important Tax Tool During Divorce

 Posted on May 20, 2016 in Divorce

The default rule is that married couples filing joint returns are liable for the taxes owed. However, sometimes one spouse will erroneously file an incorrect return in which the other spouse is unaware. Erroneous returns can either not include taxable income or events, or incorrectly claim a credit or deduction to which that the taxpayer is not entitled. If your spouse engaged in some of these activities without your knowledge, whether you were together or separated, you may be able to apply for “Innocent Spouse Tax Relief” and your liability will be forgiven and your ex-spouse will have to pay the taxes out of his or her own separate pocket.

Joint and Several Liability

When you are married and filing joint returns with your spouse, you are jointly and severally liable for those returns. Therefore, you are both, and each, liable for the whole amount. For example, if as a couple you owe $1,000, the IRS can go after each of you for $500, or they can make you alone pay the $1,000, even if it is your spouse or ex-spouse that made the mistake. This is true even if in your divorce decree you agree that your ex-spouse is liable for the whole amount. No matter what the divorce paperwork says, the IRS can still go after you for the full amount owed. However, if you did not know about these erroneous entries you may be able to escape liability for the additional tax charged; still, you have to meet certain criteria first.

Innocent Spouse Tax Relief

In order to qualify for innocent spouse tax relief, you need to meet four conditions:

1. Your spouse—or ex-spouse - is the one who is responsible for the errors on the tax return: This element means that you were not the one responsible for the error. The errors also need to result in more tax being owed to the IRS, because otherwise there would be no taxes from which to be relieved;
2. You had no knowledge or reason to know the return was erroneous: This includes not only actual knowledge that there was an error, but also if you should have noticed something was strange about this return (for example, if for the last many years your taxes looked one way, but all of a sudden there was a new large deduction even though the laws did not change and your situation did not change). Even if you did not know for sure about the errors, you should have suspected that something was wrong;
3. It would be unfair to hold you responsible: The IRS needs to find that, looking at all the circumstances, it seems unfair for you to be held liable; and
4. You and your spouse or ex-spouse did not engage in fraud: The IRS will not allow innocent spouse tax relief if the parties have engaged in fraudulent schemes or property transfers.

DuPage County Divorce Attorneys

Divorce has a lot of different elements and complications. A skilled divorce attorney can help you take advantage of all your rights and opportunities for relief. The experienced DuPage County divorce attorneys at Davi Law Group, LLC can help make sure you are not held responsible for the actions of your ex-spouse when relief is available.

Sources:

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Innocent-Spouse-Relief

http://www.investopedia.com/terms/j/joint-and-several-liability.asp