When a couple gets married, they file their taxes together. This means that both spouses are responsible for paying the correct amount of taxes, even if one spouse didn’t earn much money. If one spouse makes a mistake on their taxes, the other spouse is still on the hook for it.
If the couple separates or gets divorced, it can be even more complicated. The IRS will still expect both spouses to pay any taxes owed, even if one spouse didn’t know about the incorrect reporting.
To help protect spouses who didn’t know about the mistake, there is a rule called the “innocent spouse” rule. It was first created in 1971 and has been changed over the years to be more fair.
In 1998, new laws were passed to give even more help to innocent spouses. But there are still questions that need to be answered by Congress. Before 1998, the tax law required an innocent spouse to prove that a joint tax return was filed, that the tax understatement was caused by the other spouse, that the innocent spouse didn’t know about the understatement, and that it would be unfair to hold the innocent spouse responsible for the tax deficiency. The innocent spouse had to prove all of these things. The tax understatement had to be at least $500 or a certain percentage of the innocent spouse’s income. If the income was $20,000 or less, the percentage was 10%, and if it was more than $20,000, the percentage was 25%. If your spouse makes big mistakes on your joint taxes, like not reporting income or claiming deductions they shouldn’t, you might be able to get innocent spouse relief. But if you should have known that the taxes were wrong, you might not qualify. This could depend on things like your education, how involved you were in the family’s finances, and if your spouse was hiding things from you. Living a fancy lifestyle might also make it harder to get relief. If you miss the deadline to ask for relief, you might still be able to go to court, but you have to pay the taxes first. In 1998, Congress changed the tax law to make it easier for an innocent spouse to seek relief from joint tax liabilities. The new law removes certain requirements and gives innocent spouses a two-year window to request relief. If the innocent spouse can show that they didn’t know about the tax understatement and it would be unfair to hold them responsible, they may not be liable for the taxes owed. The new law also allows for flexibility if the innocent spouse knew about some, but not all, of the tax understatement. If you’re divorced or legally separated, there are different tax rules for you. You can choose to have your tax liability only apply to the portion of the deficiency that’s your responsibility. If you choose this option, you have to prove what part of the deficiency is yours. The IRS has to prove if there was a plan to cheat the IRS or if you didn’t know about something on the tax return. If you were forced to sign the tax return, then it’s okay if you didn’t know about something on it. Spouses who are still married and living together can’t use these rules. If you owe taxes after getting divorced, you can choose to only be responsible for a portion of it. You have to make this choice within two years of the IRS starting to collect the taxes. You’ll have to prove which part of the taxes are your responsibility. If you try to avoid paying taxes by transferring money or assets to your ex, the IRS can increase the amount you owe. If a married person files joint taxes and their spouse made a mistake, they can ask the IRS for relief from paying the taxes. The rules for this relief have changed to make it easier for innocent spouses to get help. The IRS will now consider each spouse’s responsibility for the mistake, and the innocent spouse can go to Tax Court to ask for relief if the IRS doesn’t grant it. Overall, it’s now easier for innocent spouses to get help with taxes if their spouse made a mistake. The new tax laws for divorced or separated people are complicated. If one spouse makes a mistake on their taxes, the other spouse might not have to pay for it if they didn’t know about the mistake. But if they continue to live with their spouse, it’s harder to prove they didn’t know. There are also rules about how to divide up the tax debt between the two spouses. The government needs to make clearer rules for how to handle these situations.
Source: https://www.floridabar.org/the-florida-bar-journal/the-innocent-spouse-rule-variations-on-a-theme/
Leave a Reply