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The IRS has an innocent spouse rule

by | Jun 10, 2020 | Divorce |

Financial issues are a common area of disagreement among spouses who file for divorce. This separation can also unearth financial improprieties, such as a spouse not paying bills, diverting money to pay for an addiction, or conduct other forms of financial abuse. It can also be a conscious or mistaken effort not to meet a family’s legal tax obligation when filing a joint tax return. Common examples of this include an inflated amount of deductions or under-reported income.

The IRS is aware of the phenomenon where a spouse was unaware of a husband or wife filing an inaccurate joint return, and refers to it as the Innocent-Spouse Rule.

Who qualifies for Innocent-Spouse Relief?

Taxpayers must meet the following conditions to be eligible:

  • The joint tax return includes an erroneous understatement of tax obligations that are directly attributed to the other spouse.
  • The innocent spouse must have no knowledge of the filing error.
  • The IRS must agree to relieve the innocent spouse of the tax obligation in question.
  • The application for relief (IRS form 8857) must occur within two years of the IRS initiating collection.

If the couple finalized the divorce after the erroneous filing, or the spouse who filed the inaccurate return has since deceased, the taxpayer may apply for separate election liability. While the burden of proof usually falls upon the IRS, the claimant must prove that they are innocent.

A complicated situation

Some divorces involved complicated finances that can include debt, business valuation, complex estates, or bankruptcy. Those with questions about how the Innocent-Spouse Rule or other financial concerns can impact their divorce settlement may wish to speak with a Board-certified Family Law specialist expert attorney in Collin County, Dallas County, Denton County Midland County, Ector County, and surrounding areas of Texas. These attorneys can help protect the innocent spouse against financial indiscretions or improprieties of the other spouse during the divorce process.