Innocent Spouse Election

By Staff Writer

If you have filed joint tax returns with your spouse and are in the midst of a contentious divorce case, you may be concerned about your potential tax liability to the IRS. Many, who have entrusted the preparation of tax returns to their spouse, become fearful that, their spouse was less than honest in preparing the returns and that, as a result, they may face the consequences. This fear is well founded. The general rule for tax liability is that parties who file joint tax returns are “jointly and severally” liable for any taxes. This means that the IRS can seek to collect from either or both spouses irregardless of fault for past due taxes, interest and penalties.

The IRS, however, does offer some relief from liability if you can establish that you are an “innocent spouse”. If you meet the IRS qualifications for establishing that you are an innocent spouse, the IRS will not seek to collect under-reported taxes, interest and penalties from you. The IRS does not, however, offer innocent spouse relief if taxes were not paid on items which were properly reported on the tax return. Rather, the protection exists for spouses who would normally face IRS liability due to the dishonest tax filings of his or her other spouse.

In order to qualify for innocent spouse relief, you must meet three requirements. You must first show that the understated tax on the tax return at issue was attributable to an “erroneous item” of the other spouse. An erroneous item is defined as an item of gross income that was not reported by your spouse on the tax return or a claim made by your spouse for an improper tax deduction, credit or property basis. The second requirement for innocent spouse status is a showing that, at the time you signed the tax return, you did not know and had no reason to know that there was an understatement of the taxes actually due. Finally, to qualify as an innocent spouse, you must show that, taking into consideration all of the facts and circumstances, it would be unfair to hold you liable for the understatement of the tax.