Generally, husbands and wives file joint tax returns while married. As joint filers, both parties are jointly and severally liable for any taxes, penalties and interest due as a result of those filings.
When parties are divorcing, one of the spouses may raise an issue with regard to the truthfulness of previous tax returns filed. For example, the wife may say that her husband owns a business, was in charge of all the finances, and she does not know whether he had reported the correct income on previous tax returns. If the IRS audits a return that was filed jointly and finds that there was an underreporting or an incorrect deduction taken of income, thereby causing an assessment of taxes, interest and penalties, the wife may be eligible for Innocent Spouse Relief.
In order to obtain Innocent Spouse Relief, the wife (or husband as the case may be) must file IRS Form 8857 to request the relief, which could be requested for more than one tax year.
The Innocent Spouse can be relieved from the responsibility of said obligations if:
- She filed a joint return which has an understatement of tax,
- The understatement of tax is due to erroneous items on the return reported by her spouse (or ex-spouse),
- At the time the Wife signed the return, she did not know there was an understatement of tax, and
- It would be unfair to hold the Wife liable for the understatement of tax.
As you might imagine, the IRS does not grant these requests easily. They reject approximately 40% of the applications made because it is determined by the IRS that the party requesting relief is ineligible.
If you believe you are entitled to Innocent Spouse Relief, you may wish to review IRS Publication 971, or feel free to contact me with any questions you may have. I’d be happy to meet with you here in my firm’s Lawrenceville, New Jersey office to discuss this matter in more detail.