The IRS allows application for three kinds of innocent spouse relief.
Unfortunately, sometimes a married person engages in improper activity behind his or her spouse's back. Especially problematic is when the secretive behavior involves the completion and filing of joint tax returns. For example, the corrupt spouse may underreport income or improperly take deductions or credits for which he or she is not eligible, ultimately resulting in underpayment of tax. The innocent spouse, trusting that the joint return is above board, signs it, unknowingly exposing him or herself to tax liability plus potentially expensive interest and penalties on the unpaid taxes.
When a spouse signs a joint return, he or she is jointly and severally liable for all taxes related to the return. This means that he or she is individually liable for the entire amount of tax, interest and penalty (as is the other spouse). However, this is especially problematic when the innocent spouse becomes liable for amounts assessed because the other spouse underreported on the sly.
The IRS may initiate tax collection attempts against the innocent spouse that can include keeping future federal or state tax refunds; getting a tax lien against and seizing his or her property; or levying bank accounts, wages, retirement or Social Security benefits. A delinquent tax debt can also hurt the spouse's credit rating.
The IRS allows relief to this kind of innocent spouse in three different scenarios:
- Innocent spouse: relief from the tax may be available when the erroneous item on the return is completely the fault of the other spouse, the innocent spouse did not know or have reason to know, and it would be unfair to enforce the liability against the innocent party
- Separation of liability: division of the tax liability between the two parties may be available when the parties are divorced, separated or the innocent spouse is widowed and the innocent spouse did not have knowledge of the erroneous item when he or she signed the joint return
- Equitable relief: equitable relief may be available if the spouse does not qualify under the first two types of relief, if the circumstances would make liability inequitable
Divorce does not impact the joint and several liability of a previously filed joint return nor can a divorce settlement agreement or court order saying the innocent spouse will not be liable for such tax protect the innocent spouse.
When innocent spouse relief is requested of the IRS, the agency must by law contact the other spouse (or ex-spouse) to participate in the investigation and resolution of the matter. Even if the underreporting spouse was physically, emotionally or verbally abusive to the innocent spouse, the agency still is legally required to involve the abusive husband or wife, an obvious safety concern.
This area of law is very complicated and factually intensive, so consultation with an experienced tax attorney is important to understand liabilities and properly assert rights and defenses. In addition, deadlines apply to innocent spouse relief requests and other kinds of relief, so seeking legal counsel as early as possible is a good idea.
Missouri lawyer Lance R. Drury and his legal team of Lance Drury Law with offices in St. Louis, Columbia and Ste. Genevieve, Missouri, represent taxpayers in innocent spouse matters and in many kinds of disputes with the IRS or the Missouri Department of Revenue.