Innocent Spouse Relief
Married taxpayers typically file a joint federal income tax return to maximize tax benefits and minimize heir tax liabilities. This is generally the best strategy and when tax payments are made on time and all income is reported, times are good. In other cases, one spouse will under report income or over report deductions, leaving the other spouse on the hook for unpaid taxes when the marriage, and tax compliance, goes downhill. Often one spouse will feel blindsided by the other spouse’s behavior. While the IRS may sympathize, it generally will still hold the blindsided spouse liable for the joint tax debt. Where a spouse is innocent of wrongdoing and unaware of the misreporting on the tax return, the innocent spouse may be relieved of paying the tax debt and related penalties and interest.
The starting point is understanding the rules for married taxpayers taxpayers filing jointly. Upon making the joint filing election, married taxpayers will have joint and several liability with respect to the income tax liability. This means that each spouse may be held liable to the IRS for the full amount of any unpaid taxes, penalties and interest. This is true even if the IRS requests payment from the other spouse first Or if one spouse does not earn any of the income reported on the return. The IRS can go after either spouse, meaning generally the spouse who is in a better position to pay in full. The IRS will not settle for half just because taxpayers get divorced after the return is filed.
Next, the IRS holds both spouses responsible for the accuracy and completeness of the return. This means the IRS assumes a taxpayer has reviewed the return prior to filing. Many spouses will not do this but instead just make sure someone filed the return. If the guilty spouse says the CPA filed the returns, the innocent spouse often assumes it is fine. In other cases, a spouse may forge a signature to avoid disclosing unreported income to the other spouse. Often when everything seems fine, the innocent spouse will just assume everything is fine.
Innocent spouses may request relief from the burden of paying the taxes, penalties and interest related to the spouse‘s income or deductions if they meet certain requirements. There are special rules for taxpayers who live in community property states where each spouse is automatically treated as earning half of the family income and liable for half of the tax liability. In community property states, a spouse may be liable under the rules even when separate tax returns are filed.
If you have questions about innocent spouse relief or believe that your spouse's actions have resulted in the IRS demanding payment for tax debts, contact Michigan tax attorney Andrew Steiger at Steiger Tax Law for a free consultation to see if you qualify for tax relief. Call today!