As tax season is upon is, the issue of whether to file joint returns is upon us as well.  i previously blogged about the topic of innocent spouse relief and the fact that the innocent spouse form that the IRS has published for those seeking innocent spouse status has many traps for the unwary. 

Today, I read an interesting article by the accounting firm Smolin Lupin "Spouses are Guilty Until Proven Innocent – Tax Liability Shared by Both." 

The article reminds that you are generally liable for paying the tax due, plus interest and any penalties. Moreover, even if the income and/or unreporting is attributable to your spouse, since the filing of a joint return creates joins and several liability, your wages can be seized by the IRS.

The article further reminds that one may qualify for "innocent spouse" relief if that taxpayer can prove:

  • There is a substantial understatement of tax attributable to the grossly erroneous items of your spouse or ex-spouse.
  • The hidden income belonged to your ex-spouse and you didn’t benefit from it.
  • You didn’t know or have reason to know about the understatement.
  • It would be inequitable to hold you liable.

The article closes with the following excellent piece of advice:

Don’t count on innocent spouse relief if you know your spouse is cheating. Consider filing separate tax returns — especially if you’re in the process of a divorce. It may save you a bundle in the future.
 

As noted in my prior entry on this topic, since the innocent spouse form has to be signed under penalty of perjury, a wrong answer not only could preclude granting of Innocent Spouse Relief, but also could be used to assert – if not prove – tax fraud given a person’s knowledge and involvement when the returns were filed.  As such, the bottom line is that great care should be taken when completing this form. A person seeking to do so should consult with an attorney and tax advisor, in advance, so as to not incriminate themself.

2 Responses to A REMINDER ABOUT THE ILLUSION OF "INNOCENT SPOUSE" RELIEF

My ex wife earns more than what she claims on her tax returns. She works for her parent’s beauty salon and most of what she earns is not reported as earned income. By her claiming to earn less than she actually earns, I would imagine that I end up paying more in support. The New Jersey Family Court judges in the past have questioned her income since her expenses are more than what she earns and receives from me. The judges have suggested we come to some agreement as to her income, yet the ex wife refuses a compromise and holds to her poverty-level income figure. If the IRS were to audit her, how far back can the IRS go when searching her tax returns? Can the IRS go back more than 10 years? Thank you

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