Seeking Relief Under the Innocent Spouse Rule

Many are beginning to prepare their taxes now and will soon file jointly with their spouses even if they are undergoing a divorce. Frequently, one spouse primarily relies on the other spouse’s representations about his or her income when filing taxes.

Before signing any joint tax returns, spouses should be aware of the responsibilities and the possible ramifications related to filing taxes as the divorce proceeds. For example, counsel should discuss how liabilities will be paid and refunds will be split. As a general rule, the couple is jointly and severally liable for taxes, interest, and penalties that result from the return.

Where the understatement of income can be traced to one spouse’s error or omission and the other taxpayer can establish that he or she did not know, and had no reason to know of such understatement, proportionate relief may be available to the “innocent spouse.” The IRS will consider various factors including but not limited to the innocent spouses education, whether he or she received a significant benefit from the error, or if it was reasonable for him or her to suspect there was an understatement of income and thus, had a duty to inquire.

Problems can potentially be avoided by carefully reviewing future returns. When it comes to prior returns, spouses frequently agree, for settlement purposes, that they will be individually responsible for any liabilities attributable to his or her error or omission.

 

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