Are you responsible for additional federal income tax due to a fabrication, error or omission by your spouse on a joint tax return? Maybe not. You don’t have to pay the piper if you qualify as a so-called “innocent spouse.”
Strategy: Seek relief under the “innocent spouse” rule. The request for such relief is often made in the wake of a separation or divorce. If you qualify, you are exempt from the usual rule that both spouses are jointly and severally liable for any unpaid federal taxes. Under this rule, the IRS can come after either spouse for the full amount due for a joint-return year, even if you are now divorced. However, innocent spouse relief isn’t automatic.
Here’s the whole story: Generally, married taxpayers benefit by filing a joint tax return on the federal level, especially if one spouse earns significantly more than the other. Filing jointly may also help the couple maximize certainand credits. But joint filing status comes with a catch: Each spouse is jointly and severally responsible for any tax, interest and penalties attributable to the return. This liability continues to apply if the couple gets a divorce.
In other words, the IRS may try to collect the full amount due from one spouse—even if all the income reported on the joint return was earned by the other spouse.
Under the relief rules for innocent spouses, you may not be liable for any unpaid taxes and penalties, despite having signed the joint return. To qualify:
- You must have filed a joint return that has an understatement of tax.
- The understatement of tax must be due to erroneous items of your spouse.
- You must establish at the time you signed the joint return that you did not know, or have reason to know, that there was an understatement of tax.
- Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understatement.
For this purpose, “erroneous items” are defined as any deduction, credit or tax basis incorrectly stated on the return, as well as any income not reported on the return.
Caution: The IRS and the courts have traditionally tended to be stingy about granting innocent spouse relief. Also, be aware of possible tax repercussions under state income tax laws.
Tip: Innocent spouse relief is after-the-fact damage control. The best approach is to fully understand your tax return before it is filed.