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Innocent Spouse Relief
Filing your taxes with your significant other can offer many financial benefits. For instance, a married couple’s choice to file their tax return using married filing joint status can often save the couple money because the married filing joint tax rates are lower than married filing separate tax rates, the standard deduction is higher, and additional exemptions may apply that would not apply if the couple chose to file separate returns.
Other times, filing a joint tax return can create problems. If you are married and file a joint return, this means that both parties are jointly and severally responsible for the tax liability, even if one person contributed more or all of the taxable income. If the IRS makes the determination that there was a tax deficiency, it can go after each spouse individually for payment of the tax liability. Unpaid joint tax liabilities put joint assets such as houses, bank accounts, and cars at risk. Furthermore, if one spouse dies, the IRS is still free to collect from the surviving spouse.
Therefore, married taxpayers should carefully consider whether married filing joint status is the proper filing status for their particular situation.
If only one spouse has income, and the tax cannot be paid, the proper legal strategy might be to have the spouse with income file a return using married filing separate status. While this may result in a higher tax liability than if the taxpayers filed together using married filing joint status, the spouse filing the return using married filing separate status would be liable for the tax shown on the return, unless the taxpayers live in a community property state).
Filing separate tax returns using married filing separate status may not always be an option, however. For instance, if a tax return was already filed using married filing joint status, you cannot file amended returns using married filing separate status. It is also possible that the return was already filed, and the tax liability is already due.
Fortunately, relief from joint and several liability for tax may be available under certain circumstances where a joint tax return is filed. Under certain circumstances, one spouse on a joint return can file for relief from joint and several liability (a/k/a “innocent spouse” relief) and, if the IRS grants the requested relief, the requesting spouse will be relieved of the liability and only the non-requesting spouse will remain liable for the outstanding tax debt.
Generally, there are three types of relief commonly referred to as “innocent spouse” relief. Each has its own legal requirements. Also, it matters whether the tax liability is an “understatement of tax” or an “underpayment” of tax.
An understatement of tax, or tax deficiency, occurs when the IRS makes changes to a filed tax return, usually as a result of an audit or examination, and determines that there was unreported tax on the return as it was originally filed.
An underpayment of tax occurs when the filed joint tax return reported tax due, but that tax was not paid.
If the taxpayers are faced with an understatement case, then “innocent spouse” relief is available under all three types of relief. If the taxpayer faces an underpayment case, then only the “equitable relief” type is available.
Innocent spouse relief can be very difficult to obtain from the IRS, and in fact, many cases are denied due to error or misrepresentation. That’s why it is important to have an experienced IRS tax attorney in your corner to make sure that your rights and your assets are protected.
A tax attorney at the Politte Law Offices can analyze your case for Innocent Spouse protection and structure a comprehensive plan to protect you from a negligent spouse. We will speak with the IRS on your behalf, and help you protect yourself and your assets from a tax liability you did not cause.
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