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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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Are You an "Innocent Spouse"?

Posted on in Internal Revenue Service

innocent spouse, tax law, Chicago Tax AttorneyYour ex-husband, either accidentally or deliberately, failed to report income and the IRS caught it.  Now, you have a letter demanding that you owe the Service several thousand dollars in tax, penalties and interest, even though you had no income of your own that year and have since divorced the bum.  Is there any relief for spouses who had nothing to do with the issue that has now blown into a full-fledged tax controversy?  Perhaps.

Joint-and-Several Liability

When you file a joint tax return with your spouse, each one of you is "jointly and severally" liable for any understatement or underpayment of tax in connection with that return.  This means that each taxpayer is responsible for paying the

When you file a joint tax return with your spouse, each one of you is "jointly and severally" liable for any understatement or underpayment of tax in connection with that return.  This means that each taxpayer is responsible for paying the entire tax debt (though the IRS cannot collect more than the total amount of the liability).  Even if you had nothing to do with the preparation of the tax return, with the omission of the income or the overstated deduction, or even with the IRS audit, both you and your spouse are on the hook for the whole thing.

Innocent Spouse Relief

The only way out is "innocent spouse" relief, a Congressionally-created exception from the joint and several liability imposed simply because you filed a joint tax return. However, qualifying for relief under these provisions is difficult, as they are narrowly drawn, and judiciously applied. To qualify for innocent spouse relief, you must generally be able to show that:

The only way out is "innocent spouse" relief, a Congressionally-created exception from the joint and several liability imposed simply because you filed a joint tax return. However, qualifying for relief under these provisions is difficult, as they are narrowly drawn, and judiciously applied. To qualify for innocent spouse relief, you must generally be able to show that:

  • You filed a joint tax return where the error was solely your spouse’s fault;
  • You did not know, at the time of filing, that there was an error on the return; and
  • Given all relevant circumstances, it is unfair to hold you liable for the error.

Why is this so difficult?

  1. It is incredibly hard to demonstrate to the IRS’ satisfaction that you did not know – or have reason to know - about the understatement or underpayment of tax.
  2. In general, you have to file your request for relief within two years from the time the IRS sends its first "collection notice" (though there are exceptions to this requirement).
  3.  If you are separated or divorced, it is likely that your ex will fight bitterly so he or she is not solely liable for the debt – a classic "he said/she said" dispute.
  4. The IRS will deny your claim for innocent spouse relief if you benefited at all from the error your spouse made. If your spouse's misfiling means you ended up upgrading your car or taking a vacation, that's beyond normal support and the IRS won't hesitate to reject your claim on "equity" grounds.

In short, you have to have every 't' crossed and every 'i' dotted if you hope to obtain Innocent Spouse Relief, and be prepared for all the IRS scrutiny and interrogation. Last year, there were more than 50,000 applications for this relief, and only 17,000 were approved. At Chicago-Kent Tax Clinic, one of our primary areas of focus is Innocent Spouse Relief cases. With almost thirty years of tax litigation experience, our skilled Chicago tax lawyers have in-depth knowledge of the process and what it will take to get out from under the unfair tax debt your spouse/ex stuck you with. For a free no obligation consultation with one of our attorneys, contact our office today at 312-906-5041.  

Sources:

http://www.irs.gov/taxtopics/tc205.html

http://www.irs.gov/pub/irs-pdf/f8857.pdf

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