A special tax return is triggered if you give a gift and exceed the gift tax limit.
The Internal Revenue Service (IRS) usually holds that both signers of a joint tax return are individually liable for the entire tax due, plus penalties and interest. Under the innocent spouse rule, a spouse may claim not to be jointly liable if he or she did not know about errors or erroneous items on a joint return.
The innocent spouse rule is designed to protect a spouse and his or her assets from the ramifications of the other spouse’s misleading or erroneous tax filings. This rule is applicable for married, separated, or divorced spouses.
To qualify for relief under the innocent spouse rule, all of the following qualifications must be met:
- One spouse filed a joint return that understated tax due because of an erroneous item or deduction.
- The other spouse was unaware of this understatement when he or she signed the return.
- An analysis of the circumstances and evidence reveals that it would be unfair for the innocent spouse to pay the tax.
- The innocent spouse applied for the relief within two years of the initial IRS tax collection attempt.
An erroneous item is qualified as anything misreported or knowingly misrepresented. The innocent spouse rule applies only to tax adjustments based on this type of error and does not apply to spousal failure to pay taxes that are due.
Innocent spouse rule example
Vladimir discovered that his spouse, Estragon, misrepresented their joint tax information, and the IRS is seeking payment stemming from this error. Vladimir wanted to invoke the innocent spouse rule, because he was not aware of the misrepresented tax information when he signed the filing.
The court examined the circumstances and evidence, and found that while Vladimir truly had not known about Estragon’s misrepresentation, given the circumstances he certainly should have known about it (records presented in the case showed that Estragon and Vladimir had discussed issues related to the defect). In this case, Vladimir did not qualify for relief under the innocent spouse rule.
Curious what you’ll owe next tax season? Use our tax calculator to estimate your future taxes.