married taxpayers file a return, they may elect to file that return
jointly with their spouse. Sometimes that is a mistake – a big one!
When filing a joint return, the Internal Revenue Code provides that both
spouses will be jointly and severally liable for the tax, penalties and
interest. This blog has reviewed the various options available to
spouses requesting that they be relieved from liability on the return.
Just click on “Innocent Spouse Relief” under “Posts by Category” for a
general review. Lately, we are seeing the IRS take action to update
their analysis of Innocent Spouse Applications.
guidelines provide that understatements of tax may qualify for relief
under so-called “innocent spouse” or “separation of liability”
provisions, while underpayments may only qualify under “equitable
relief” provisions. All three of these are under the umbrella of
“innocent spouse relief” provided by the Internal Revenue Code.
note, earlier this year, the IRS updated internal guidance. One change
made to internal guidelines earlier this year was to clarify provisions
relating to actual or constructive knowledge of the understatement of
tax. Basically, in order to qualify under this particular type of
Innocent Spouse relief, it is necessary to show that the requesting
taxpayer did not know about the understatement and had no reason to know
of the understatement. If this requirement isn’t met, then the
requesting spouse doesn’t qualify. However, if the requesting spouse
can establish that he or she was the victim of domestic abuse prior to
the time that the return was signed, but did not sign the return under
duress, and as a result of the prior abuse, did not challenge any of the
items on the return for fear of retaliation, then the IRS will not
review the requirement of showing that the requesting spouse did not
know or did not have reason to know of the understatement.
the IRS will review the following factors to determine if the
requesting spouse knew or had reason to know of the understatement,
absent a showing of abuse: 1) the nature of the erroneous item and the
amount of the erroneous item relative to the other items, 2) the
couple’s financial situation, 3) the requesting spouse’s educational
background and business experience, 4) the extent of the requesting
spouse’s participation in the activity that resulted in the erroneous
item, 5) whether the requesting spouse failed to inquire, at or before
the time the return was filed, about items on the return or omitted from
the return that a reasonable person would questions, and 6) whether the
erroneous item represented a departure from a recurring pattern
reflected in prior year’s returns.
The IRS has pending the
finalization of procedures that weigh abuse in a spousal relationship
more heavily in the analysis of relief under Innocent Spouse
provisions. Some of the changes mentioned here are based in internal
guidelines associated with working applications for relief and
acknowledge the proposed official guidance. Should you have questions
about Innocent Spouse relief, don’t hesitate to contact our office.