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“Innocent Spouse” Rule Can Offer Tax Relief for Blameless Partners During Divorce

Article By John Ellsworth, IRS Attorney

Watch out, unpaid IRS taxes can be a huge “gotcha!” for the unwary divorce applicant.  Yet, it is almost a truism that certain spouses (too often the female spouse) suddenly find that they have signed tax returns that owed taxes that went unpaid, or worse, signed tax returns that were patently false.  But there is hope, even if you learn that you fall into one of these categories of innocent.  Fittingly enough, these are called the IRS the “Innocent Spouse” rules.  Here’s how they work.

Let’s start out by saying you filed a joint return with your spouse or former spouse which reported an understatement of tax as a result of erroneous items of your spouse or former spouse.  These could be anything from simple mistakes to outright fabrications (lies).

Now here’s your spouse’s part in all this.  You spouse reported less tax owed than should have been reported. Typically this might include omissions of income, understatements of income, overstatements of deductions, misstatements of basis in property, over-claims of exemptions and credits, and arithmetical additions, subtractions, and transfers.  An example of an erroneous item and an understatement of tax can be if your spouse worked as a waiter or bricklayer and they earned $70,000 over the period of a year and only reported $45,000.  This is a fairly common scenario, right?

Now here’s your part in all this, the part of the innocent spouse.  At the time you signed the joint return, you did not know, or did not have any reason to know, that there was an understatement of tax due to an erroneous item/items. In the example above, if you knew your spouse earned more than they actually reported, you will not be able to qualify for this type of relief. You must have had no reason to know and should be able to prove that you did not know.  Sometimes this is very real to people who find themselves at the end of a marriage at that point where spouses might be hiding income from each other.  For example, he thinks, “I’ll just report $45,000 so my child support/alimony is lower.”  Or she thinks, “I’ll leave off my tips, so I get more alimony/property settlement.”  Unusual you might?  Ask the seasoned divorce attorney how unusual this is.  You’ll find out it’s actually quite common.

Based on the circumstances, it would be unfair to hold you (the innocent spouse) liable for the understatement of tax. The unfairness is determined by the IRS based on your individual situation. Some examples of what the IRS will take into consideration when looking at your case are the following:

•If you received a considerable benefit from the understatement of tax.

•If your spouse/ex-spouse abandoned you.

•If you and your spouse have been divorced or legally separated.

•If you received benefit on the return from the understatement of tax.

If you think you are innocent and you have learned, to your great surprise, that taxes are understated on returns you signed, or that taxes are owed that you thought he or she paid, you just might qualify for innocent spouse relief.  Ask your divorce professional right away if this happens to be your case.

If you have any questions regarding spousal support and how tax issues might hamper your divorce, please call our offices at (602) 254-8880 for a free consultation. You can also email us by using our secure form.

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