Awards & Recognition
Ordinarily, joint filing status for married couples brings a number of tax advantages including a lower tax rate, increased deductions, and additional available exemptions. In light of these financial incentives, it is not surprising that many, if not most, married couples file their taxes jointly. However, few married couples give much thought about the potential downsides of joint filing until they are already faced with the potential negative consequences of doing so. Perhaps the greatest drawback of filing taxes jointly with a spouse is by doing so you accept that each spouse will be jointly and severally liable for any tax, additional tax, or penalties related to that particular return. In short, it can often be advantageous to consult with a lawyer before deciding to file jointly, however few people take such a pro-active approach. However even if you are currently facing a tax problem due to your current or former spouse, working with an experienced innocent spouse relief lawyer to provide legal options to correct your unpaid tax problems or other tax compliance issues.
When to consider hiring an innocent spouse relief lawyer
If a couple filing taxes jointly runs into significant tax liabilities due to unpaid taxes, penalties, fines or other reasons, joint assets can be put at risk. This means that assets like joint bank accounts, vehicles, and even the family home can be put at risk. These assets may have been protected had a married, but separate, filing status had been used, but even still you may have additional options to protect your assets and property. One option can include a spouse filing for innocent spouse relief which sometimes also referred to as innocent spouse status.
More commonly however, the issue of an innocent spouse comes up when a couple is heading into divorce court and usually the less financially dominant spouse becomes suspicious that their spouse was cheating on the couple’s joint return that the less financially dominate spouse was dutifully signing without investigation or suspicion. Being granted innocent spouse status in this situation accomplished to things; 1 the innocent spouse is protected against criminal prosecution for the tax crimes committed by their soon to be ex-spouse, 2 the tax debt coming out of any criminal investigation of civil action is specially allocated to the tax cheating spouse. There are a multitude of consequences to a decision to pursue innocent spouse status in this scenario and this strategy should not be employed without obtaining competent innocent spouse relief lawyer guidance first.
What are the requirements to file for innocent spouse relief?
If your application for innocent spouse relief is accepted by the IRS, the requesting spouse will have their tax liability extinguished and only the remaining spouse will still have an unpaid tax obligation. Innocent spouse relief is generally available when a joint return has been filed and the affected couple is still married and is still living together in the same household. Aside from these initial requirements, there must have been an understatement, that is, a deficiency in reporting of the full tax amount owed. The under reporting of tax must be the responsibility of one spouse only. Typically, the attribution of the underreported tax to only one spouse is reflected in the audit report.
The foregoing constituted the typically more easily established elements of the innocent spouse defense, however, more must be shown to qualify for this type of relief. The filing spouse must also be able to establish that he or she did not have actual or constructive knowledge of the understatement. Furthermore, in light of the totality of the circumstances, the filing spouse must also be able to prove that it would be unfair to hold that spouse liable for the tax debt.
In short, filing for innocent spouse relief is often a difficult battle. Relief must be requested within two years of any collection action commenced by the IRS. The requirements to prove that such relief is justified are rather stringent and the IRS is reluctant to grant such sweeping relief to still married couples.
Separation of liability provides an option for former spouses
Separation of liability is an election that may also be available to taxpayers who are no longer married, who are legally separated, or who have lived apart for 12 months or more when the election is taken. Under this type of relief, the entire tax understatement will be assigned, as appropriate, to each former spouse. To illustrate, if 75% of the understatement was attributable to gambling winnings and 25% was attributable to interest on investments, the tax would be apportioned 75% to one spouse and 25% to the either. It can be instructive to think of this form of relief as structuring the tax liability, roughly, as it would have been had the former spouses filed married filing separate. Aside from the separation requirements discussed above, the general requirements to qualify include:
- The then-spouses filed a joint return
- The return contained an understatement of tax
- The spouse filing the election did not know of the understatement
- No fraudulent scheme involving the transfer of assets is involved
- The election must be taken within 2 years of the commencement of any collection action by the IRS.
While separation of liability can also be difficult to establish, the IRS may be more willing to provide this type of relief as it simply divides the tax liability among the responsible parties. If your application for spousal relief or separation of liability is denied, you may appeal the decision in tax court.
We offer strategic solutions to tax liability
The foregoing addresses only a few of the options that may be available to mitigate your tax liability issues. Tax Attorney and CPA, David W. Klasing, can provide essential insight and guidance regarding an array of thoroughly considered strategies to correct past tax compliance issues, even where tax evasion occurred, while minimizing the potential criminal issues and civil liability that can be created by coming back into compliance. To schedule a reduced rate innocent spouse relief lawyer tax consultation, call The Tax Law Offices of David W. Klasing at 800-681-1295.
