When married taxpayers file jointly, which is often done because of certain benefits available to couples filing jointly, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise from the joint return, even if their marriage is later dissolved. Joint and several liability means that each taxpayer is legally responsible for the entire liability.
Thus, both spouses on a married filing jointly return are generally held responsible for all the tax due even if one spouse earned all the income or erroneously claimed deductions. This is true notwithstanding the provisions of a divorce decree regarding a former spouse’s responsibility for any taxes due on previously filed joint returns. However, in rare cases, a spouse may obtain relief from joint and several liability.
One type of relief is Innocent Spouse Relief, which provides a spouse relief from additional tax owed if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
By requesting innocent spouse relief, your responsibility may be relinquished for paying tax, interest, and penalties related to tax returns in which your spouse (or former spouse) improperly reported or omitted items. Tax, interest, and penalties that qualify for relief can only be collected from the at-fault spouse. However, since you are still jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief, the IRS can collect these amounts from either you or your spouse.
You may also qualify for partial relief if, at the time your return was filed, you had no knowledge or reason to know of a portion of an erroneous item. You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion.
You must meet all of the following conditions to qualify for innocent spouse relief.
1. You filed a joint return;
2. There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or ex-spouse);
3. You can prove that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed, or the extent to which the understated tax existed;
4. In taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax.
Innocent spouse relief will not be granted if the IRS proves that you and your present or former spouse transferred property to each other as part of a fraudulent scheme (a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner).
Your tax is an understated tax if the IRS determined that your total tax should be greater than the amount actually shown on the return. The understated tax results from erroneous items which are either errors related to unreported income (any unreported gross income item received by your present or former spouse), or incorrect deductions, credits, and basis calculations.
Examples of erroneous items are expenses for which the claimed deduction was never in fact paid or incurred. Also, the claimed expense may not qualify as a deductible expense. For example, your spouse claimed a deduction of $1,000 that was for the payment of state fines, which are not deductible. Or simply a deduction is claimed for which no factual argument can be made to support the deductibility of the expense.
You knew or had reason to know of an understated tax if:
• You actually knew of the understated tax; or
• A reasonable person in similar circumstances would have known of the understated tax.
If you actually knew, or had reason to know, about an erroneous item that belongs to your spouse or former spouse, innocent spouse relief does not apply to any part of the understated tax due to that item. You and your spouse (or former spouse) remain jointly liable for that part of the understated tax.
The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. The facts and circumstances include:
• The nature of the erroneous item and the amount of the erroneous item relative to other items;
• The financial situation of you and your spouse (or formerspouse);
• Your educational background and business experience;
• The extent of your participation in the activity that resulted in the erroneous item;
• Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question;
• Whether the erroneous item represented a departure from a recurring pattern reflected in prior years’ returns.
The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. The following are examples of factors the IRS will consider.
• Whether you received a significant benefit (any benefit in excess of normal support), either directly or indirectly, from the understated tax;
• Whether your spouse (or former spouse) deserted you;
• Whether you and your spouse have been divorced or separated;
• Whether you received a benefit on the return from the understated tax.
If your spouse or former spouse has improperly reported income or made some other error in filing a tax return that you think may entitle you to innocent spouse relief, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
