One person that often gets caught up in the whirlwind of tax levies, seizures, and audits is the innocent spouse. Many married couples file their income tax returns jointly. Both are jointly and individually responsible for paying the correct amount of taxes on the taxable income. A spouse that doesn’t have very much income will be held liable if the other spouse does not pay the correct amount of taxes and falls into default.
This situation changes if the couple divorces or separates. In this case, one or the other may not be aware of the amount of taxes owed. During the year of the divorce or separation, both partners are required to file jointly and this results in paying lower taxes. The divorce or separation agreement usually includes a tax indemnification, which means that neither is held responsible for the other’s tax liability. Unfortunately, the IRS will come after the other spouse if the one owing the money is unable to pay, whether the couple is still together, divorced, or separated.
Working with a tax attorney will greatly alleviate much of the stress often experienced in this type of situation. A tax attorney is extremely skilled and knowledgeable in this area and will be able to file all necessary paperwork and adhere to any requirements given to you, on your behalf. It is advisable to seek the advice of a tax attorney as soon as possible, when dealing with a messy tax situation following a separation or divorce.
An innocent spouse provision was added to the Internal Revenue Code in 1971 and was further modified in 1984, but there was only a limited amount of relief provided. There is no escape clause for a spouse that signed a tax return that had an underpayment of taxes, an understatement of income or an over calculation of deductions for the purpose of not paying the correct amount of taxes.
In 1998, more relief was made available with the restructured Act and made the old rules more flexible. An innocent spouse can now claim one or more types of relief with specific forms:
It relieved spouses in certain circumstances from any liability of a tax return filed jointly as well as relief from the penalties and interest. The innocent spouse has to provide the proof that he/she was not responsible.
The criteria that a person must meet in order to qualify as an innocent spouse are:
There are also new rules for separated and divorced taxpayers. The tax code now includes special sections for these taxpayers, such as the separation of liability option. If one spouse qualifies for this option, his/her liability for any deficiency in the taxes cannot exceed the portion of the deficiency allocated to each individual spouse. The innocent spouse still has to provide proof that he/she did not take part in any scheme to defraud the government.
Neither of these absolves the innocent spouse from owing any of the delinquent taxes. This falls to the equitable relief option. Once a spouse applied for this option, he/she has to have all the proof needed by the IRS to determine that this person is not responsible for paying back any of the tax money owed. A Request for Innocent Spouse Relief has to be sent to the IRS Center in Cincinnati, Ohio or sent to the specific IRS agent handling the case. The applicant has to provide a detailed letter explaining why he/she should not be held responsible for the tax bill of the spouse. However, this option is not part of the state law of many states.
The IRS will weigh many factors in determining whether a spouse is innocent or not. It will look at whether repaying the tax will impose undue financial hardship on this person, whether the spouse was the victim of abuse in the marriage and whether or not there is a divorce decree stating that the spouse had to repay any back taxes.
Clearly, this can be quite confusing to the person involved in such a situation. Working with a tax attorney can greatly benefit you as you would have someone on your side working with your best interest in mind.
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