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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
When one spouse fails to pay joint taxes
Tax Talk

Relief for innocent filer
 

Dear Tax Talk:
In 2005 my ex and I filed jointly. We were still legally married, but we were separated. This year I got a letter from the IRS stating we owe because she didn't file her (two) W-2s from that year. I had no idea she didn't do it till the letter showed up. I called, and the IRS said we would both have to pay, but that I can file an injured spouse form and they would go solely after her. Is this true? If so, is there any other option I can take so I make sure they don't come after me?
-- Jason

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Dear Jason,
When you file a joint return you become jointly and equally liable for the tax on that return and any subsequent tax the IRS may assess relating to that return. Last week I explained that you can separate a spouse's prior debts, such as for taxes and child support, so that your share of a refund doesn't get offset against these debts. This is known as injured spouse relief. A similar concept exists for situations like yours and is known as innocent spouse relief.

By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return.

You must meet all three of the conditions listed below to qualify for innocent spouse relief.

Qualifications for innocent spouse relief
1. You filed a joint return which has an "understatement of tax" due to "erroneous" items of your spouse (or former spouse).
2. You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax.
3. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.

An erroneous item is usually the omission of income or overstatement of deductions by one spouse.

The IRS will consider all facts and circumstances in determining whether you had reason to know of an understatement of tax due to an erroneous item.

IRS considerations for knowledge of understatement
The nature of the erroneous item and the amount of the erroneous item relative to other items.
The financial situation of you and your spouse (or former spouse).
Your educational background and business experience.
The extent of your participation in the activity that resulted in the erroneous item.
Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question.
Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns.

If the W-2s were a substantial part of your joint income, you'll need strong evidence to overcome the actual knowledge requirement.

Unfairness is usually assumed when the spouses have subsequently divorced. Form 8857 is used to request innocent spouse relief. Publication 971 explains innocent spouse relief. The IRS also provides a question-and-answer session to help you determine eligibility.

Bankrate.com's corrections policy -- Posted: Feb. 15, 2008
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