A Better Tax Statute for Innocent Spouses

Married couples often enjoy a number of tax benefits by filing a joint return, most notably tax benefits for families that can only be received by joint filing. One of the drawbacks, however, is that this makes both spouses liable for any errors or perceived fraud found in the tax return, even if the IRS begins to pursue an investigation after the spouses have divorced. In some cases, this can be especially unfair to one of the spouses—if the other is chiefly responsible for the offense, the IRS may still charge both for missing taxes or fines.

Traditionally the “innocent spouse” can avoid liability for unpaid tax and penalties if the following requirements are met:

  • A jointly filed tax return purposely or erroneously understates the amount due to the government.
  • That understatement can be attributed solely to the actions of one of the joint filers.
  • The “innocent spouse” did not know or have reason to know of the understatement when they signed the return.

The IRS has offered innocent spouses the chance to make a case that they should not be linked to the wrongdoing of their ex-partner, but until recently the window was small—you had only two years from the time the IRS began collection to plead for relief from the tax liabilities. However, as of August 2013, this opportunity has been increased fivefold to ten years. Additionally, a taxpayer whose request was previously denied solely due to the two-year limit may reapply.  This follows a recent trend by the IRS to ease punishment of innocent spouses.

It’s important to remember, of course, that even though an innocent spouse may have more time to put together a case, they still have the burden of proof placed upon them. Unless the spouse is able to put together a convincing argument that they were unaware of the transgressions of their partner, the IRS will continue to act as though both signers of the joint return are liable for the additional tax, interest and penalties. Remain conscientious of what you and your partner file…it will save you a good deal of legal trouble down the road.

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