IRS innocent spouse relief can provide protection from dishonest spouse

In most circumstances, it is better financially for a married couple to file a joint tax return, rather than separate individual returns. Because filing jointly exposes each spouse to joint and several liability, if one spouse suspects that the other might omit income, claim credits wrongly, exaggerate deductions or otherwise complete the return in a way that ends up understating income or underpaying taxes, filing separately may be a smart decision.

Joint and several liability means that each signer alone is entirely liable for the tax bill, rather than splitting the liability down the middle with half assigned to each spouse. If one spouse unbeknownst to the other contributes false information to the return or pushes tax rules to questionable interpretation such that the return ultimately understates the tax due, the other is responsible for the entire liability, plus interest and penalties, which can be unexpectedly significant.

This could mean that future federal or state tax refunds of the innocent spouse could be applied to the tax bill by the IRS. The innocent spouse may be subject to IRS collection efforts that could include putting a lien on his or her property, which has a negative impact on his or her credit rating. The IRS may seize of income, accounts, retirement income and even Social Security payments.

Even if the couple has divorced and the divorce decree states that the innocent spouse will not be liable for taxes on the joint return, the liability will not be extinguished.

Unfortunately, filing separately may not even occur to many spouses who completely trust their better halves and sign joint returns in good faith. When those innocent spouses are burned by their less-than-forthright husbands or wives and become unexpectedly liable for additional taxes, federal tax law provides innocent spouse relief in three situations:

  • Innocent spouse: When the tax deficiency is completely the fault of the other spouse and the innocent spouse did not know and had no reason to know, the liability will be extinguished if fairness supports forgiveness.
  • Separation of liability: If an item was misstated on a return resulting in additional tax, the innocent spouse did not know about the item and the couple has since become separated or divorced, or the at-fault spouse has died, the liability can be split between the two spouses.
  • Equitable relief: Relief may also be granted if the innocent spouse is not eligible under either of the other bases and it would be fair under the circumstances.

One unfortunate aspect of the innocent spouse laws is that the other spouse must be notified when the innocent spouse request relief from the IRS, even if the dishonest spouse has a history of threats or abuse.

Deadlines apply to requests for these kinds of relief from the IRS and written applications must be submitted. This is just an introduction to a complicated area of law, so it is wise to consult with an attorney for assistance and representation.

The lawyers at The Peck Group, LC, in Atlanta, Georgia, represent taxpayers in innocent spouse cases and individual and business clients in a wide array of tax matters, both before the IRS and in court.