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Tax Problems Following a Divorce? Innocent Spouse Relief May Be an Option

Tax Problems Following a Divorce? Innocent Spouse Relief May Be an Option

There are a few advantages for married couples who file their tax returns in a joint manner, instead of separate filings. This is because of the many tax loopholes from the IRS that give relief to married couples. For example, couples get a low tax rate, increased charitable deduction possibilities, benefits related to retirement accounts and protection for an estate.

There are also some downsides to filing joint tax returns while you are married. This is especially true if a marriage ends in a separation or divorce. The reason is that a joint tax return means that both parties are accepting joint liability if anything is incorrect in the tax return. If one spouse was doing all the tax returns for many years, and the IRS found something wrong in the forms, both parties are liable for this mistake.

If such a situation occurs, there is the option of one party filing an innocent spouse relief application. This relief is only applicable if a couple is going through a divorce or already divorced. In addition, the relief applies in circumstances where one spouse (the one filing for relief) had a very minimal role in preparing the couple’s taxes. There are many cases where one spouse does not even look at the tax return forms, but simply signs them and trusts that their partner filled them correctly.

It may turn out that the partner filling out the forms was underreporting income or committing some other type of tax fraud. If the couple is still together, they are both liable for any punishment that comes from the IRS. However, if the couple is divorced, it is possible for the unaware spouse to apply for innocent spouse relief to the IRS. They must file a detailed form with the IRS that describes the situation and asserts the reasons why the party is innocent of the tax crimes of their former spouse from when they were together.

The spouse must tell the IRS what type of role they played in filing taxes, whether they were aware that income was being underreported and if they had any knowledge or inkling that their spouse was “doctoring the books” before submitting their taxes.

Whether relief is granted by the IRS is determined on a case by case basis. If you find yourself in such a situation, it makes sense to contact a tax attorney and go over your case with them.