Tax problems may be more prevalent than you may think, with approximately 26 million taxpayers currently facing a federal or state tax issue. However, many of these taxpayers are regular people with good intentions who are experiencing a tax issue that is beyond their control. For instance, they could be going through a divorce and are unsure how to file their taxes or who is responsible for the financial obligations.
For Federal Income Tax purposes, a taxpayer is considered married if he or she is legally married on the last day of the taxable year (December 31). They are unmarried if he or she is divorced prior to the last day of the taxable year. Many married taxpayers choose to file a joint tax return because of the benefits related to this filing status. However, when filing jointly, both of those taxpayers are jointly and severally liable for the taxes as well as any interest or penalties arising from the joint tax return – even if that couple later divorces. (Joint and several liability meaning that each taxpayer is legally responsible for the entire tax liability). This is true even if one spouse improperly claimed deductions/credits or if the couple’s divorce decree states that one spouse will be responsible for any amounts due on previously jointly-filed tax returns. But there is relief available, in the form of the Innocent Spouse Rule.
The Innocent Spouse Rule is a provision of U.S. tax law that allows a spouse/taxpayer to seek legal and financial relief from any penalties resulting from an error(s) made by the other spouse on their joint tax return. (Most commonly, that error is unreported income or inflated deductions). Separation of Liability relief provides for the separate allocation of additional tax owed between an individual and his or her former spouse (or current spouse they are legally separated from) when an item was not properly reported on a joint tax return. The individual is then responsible for the amount of tax allocated to them. This form of relief is only available after the taxpayer has an audit adjustment. Innocent Spouse Relief provides an individual relief from additional taxes owed due to the other spouse failing to report income, improperly reporting income, or improperly claiming deductions/credits on the joint tax return. To be eligible for this relief, the taxpayer must: 1) have filed a joint return with erroneous understatement of tax responsibility relating directly to his or her spouse, 2) have had no knowledge of this error, 3) apply for relief within two years of the IRS initiating collection, and 4) reach an agreement with the IRS that the error is verified and it is fair to relieve the taxpayer of the tax in question. Equitable Relief is the only type of innocent spouse relief an individual can obtain if the couple jointly filed a tax return but did not pay the tax obligations. It also may apply when an individual would not qualify for separation of liability or innocent spouse relief for item(s) the other spouse did not properly report on the joint tax return.
If you are facing tax, personal, or business debts and need help with your case, please contact Wiggam & Geer by calling (404) 233-9800 or by messaging us through our website. Our experienced tax attorneys can help develop a solution that works for you.