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Innocent Spouse Relief


Joint tax returns are frequently filed by married taxpayers. In addition to lower tax rates, filing a joint tax return has certain advantages. Taxpayers are responsible for any tax reflected on their tax returns as well as any penalties and interest. In the event of an audit, both taxpayers are equally responsible for any additional tax owed. If a joint tax return is filed, even if one spouse earns all of the income and the tax is solely their responsibility, both spouses are equally liable if the other spouse earns all of the income as well. Underreported income or a bad deduction caused by one spouse result in a joint tax liability whether it is the spouse who underreported or the spouse who made the bad deduction.

Generally, innocent spouse cases involve self-employed husbands who are paid in cash. Joint tax returns do not include all of the husband’s income. Also, the spouse did not receive any benefit from this unreported income. Separation or divorce follows. Tax issues are often not addressed in divorce decrees. Neither the IRS nor the husband have been able to locate each other. Taxpayers are later discovered to have unreported income, additional tax is assessed, and collection attempts are made with the taxpayer who is easiest to find.

Case study Deceased Spouse Leaves Surprise IRS DebtIn this case study, our taxpayer’s husband was killed in an auto accident. In the wreckage, the wife discovered a briefcase full of IRS notices. Until that moment, she did not know that they had an IRS problem. She immediately retained the IRS Trouble Solvers™ which was able to obtain innocent spouse relief for her. Despite the devastating changes to her life caused by her husband’s death, she can now move forward knowing that she is free of any IRS problems.

There are different types of innocent spouse relief that are available, including separation of liability or equitable relief. A discussion of each type of relief is set forth below:

  1. Innocent spouse relief.You may be eligible for innocent spouse relief if your spouse or former spouse failed to report income, reported income improperly, or claimed improper deductions on a joint tax return you filed with that spouse. A joint tax return containing an understatement of tax must be filed in order to qualify for innocent spouse relief. Your spouse must have made erroneous claims on that return to explain this understatement. Items that are incorrect include income that was not reported and credit or deductions that were made in the wrong way. It must also be established that the innocent spouse was unaware of, or had no reason to know about, the improper understatement of taxes. In your case, the IRS must determine that imposing liability on you for the understatement of tax would be unfair based on all the circumstances of your case.
  2. Separation of liability.You must be legally separated from your spouse and you must have filed a joint return to qualify for separation of liability:
    1. The spouse with whom you filed a joint tax return has separated or divorced you; or
    2. Either your spouse is deceased or you have not lived with that spouse for twelve months prior to filing for innocent spouse relief. Also, you must show that you were not aware that the tax return filed with the spouse you’re claiming an understatement on contained one. Separation of liability relief is not permitted if you knew about the problem when the joint return was filed.
  3. Equitable relief.. Equitable relief may be available if the individual is not otherwise qualified for innocent spouse relief or separation of liability. Unreported income or an unpaid liability may be eligible for equitable relief if they have not been paid. You may be entitled to relief from liability under this theory if holding you accountable for an understatement of taxes would be unfair. You will have the most difficulty obtaining this type of relief.

The Seattle tax lawyers at IRS Trouble Solvers™ has successfully negotiated many innocent spouse cases with the IRS since its inception in 1991. If you believe that you are an innocent spouse, please call us. We can help. Your BEST bet to resolve your IRS Debt!®

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