Previously, we began looking at the topic of innocent spouse relief, and the conditions under which it is available. As we noted, an important requirement that for innocent spouse relief is that the spouse seeking relief must not have known or had reason to know of the errors. Innocent spouse relief cannot be applied to a spouse’s liabilities arising from such errors.
One important reason to work with an experienced attorney in seeking innocent spouse relief is to ensure that the IRS has all the facts and circumstances it needs to make an accurate determination about a spouse’s knowledge of tax errors.
When investigating a case, the IRS looks at a number of things to make an assessment about a spouse’s knowledge of tax misstatements. These include: the financial circumstances of both spouses; the spouses’ education background and business experience; to extent to which a spouse claiming to be innocent participated in activities resulting in tax errors; whether the spouse claiming to be innocent failed to reasonably inquire about items included or omitted on the return; the nature and amount of the errors; and whether the errors were a departure from what was regularly reported in previous years. If the facts and circumstances indicate that a spouse was only partially knowledgeable about a tax error, that spouse may be able to receive partial relief.
The IRS will also look at all the facts and circumstances of the case to determine whether it is fair to hold the spouse responsible for tax errors. A spouse who claims to be innocent is less likely to receive relief if he or she received a significant benefit from a tax understatement. Factors like whether the spouse was deserted by, divorced, or separated from the other spouse can also make a difference.
In a future post, we’ll look at other forms of relief the IRS may have available for those who are under investigation because of a spouse’s tax misstatements.