The breakdown of a marriage can be one of the most difficult times in a person’s life. Sadly, this event is often compounded by unexpected income tax bills and collections. Fortunately, the Innocent Spouse doctrine can provide you relief.
The Innocent Spouse doctrine states, in a nutshell, that a spouse, innocent of their [former] spouse’s bad behavior should not share liability for that bad behavior. Married persons are jointly liable for their tax bills and divorce often leaves a person with half the bill for the penalties on their former spouse’s unpaid taxes. This is where a the Innocent Spouse doctrine can provide you relief.
To qualify for Innocent Spouse relief, a taxpayer must prove that 1) even though they signed a joint return, the taxpayer did not know and had no reason to know there was an understatement of tax liability; 2) it would be unfair to hold the taxpayer liable for the under-reported tax liability; and 3) there has been no transfer of property from the under-reporting spouse to the spouse claiming innocence in order to shelter those assets from IRS collections. As with many tax claims, the devil is in the details and expert representation will often be the difference between success and failure in asserting an Innocent Spouse claim.
Question of ‘fairness’ always pose traps for the unwary. Most taxpayers will understand why it is ‘unfair’ to hold an innocent spouse liable for the ‘guilty’ spouse’s underreporting of tax liabilities, but they neglect the other half of ‘fairness’: it has to be fair to the IRS as well. What is ‘fair’ to the IRS can be esoteric and seem shifty at times. An important factor is that the ‘innocent’ spouse must not have benefited from the underreporting: relieving an ‘innocent’ spouse of liability for unpaid taxes used to pay for that spouse’s car, vacations or lavish lifestyle won’t seem ‘fair’ to the IRS. This is one factor of the ‘fairness’ analyses that must be performed for a successful Innocent Spouse claim.
Given the difficulty of presenting a successful innocent spouse claim and the high value of success it is generally a good idea to consult an expert. If you or someone you know has received an IRS collection letter and are unable or unsure how to proceed contact me at 312 577-9405, or David@RatowitzLawGroup.com.