In most marriages, the spouses will have a “division of labor” for the necessary tasks and chores associated with running a household and handling their affairs. It is not uncommon, for example, for one spouse to be mainly in charge of handling the parties’ finances, including filing taxes. However, as anyone knows, taxes can be confusing and mistakes are sometimes made. In some rare cases, the spouse filing the taxes may have even intentionally falsified information on the tax return. When the IRS discovers the error or fraud, significant back taxes, interest, and penalties may be owed. If the spouses filed jointly, then both spouses are responsible for the debt. It is possible, though, for one spouse to claim innocent spouse relief.
To claim innocent spouse relief, you must demonstrate that you meet several conditions. First, you must show you filed a joint return that has an understatement of tax because of erroneous items, such as incorrect deductions or unreported income. You will also need to show that when you signed the joint tax return, you did not know that the taxes were understated. You must also show you had no reason to know the taxes were understated. This means that you cannot claim innocent spouse relief simply because you failed to actually read the tax return before you signed it. You will need to show that it would be unfair to hold you liable for the understatement. Unfairness can be shown by factors such as whether you received a significant benefit from the incorrect tax return or whether you and your spouse have divorced or separated. Finally, you will have to show that you and your spouse have not transferred property between you as part of a fraudulent scheme to defraud the IRS or another party, like a business partner or other creditor.
The party seeking innocent spouse relief will need to file form 8857 with the IRS for them to determine whether you qualify for relief under the law. Keep in mind that it is possible for you to be found responsible for part of the underpayment and therefore part of the penalties and interest.
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