Innocent Spouse: An Example of a Tax Provision to Consider as Part of Your Divorce Strategy
Being financially responsible for your spouse can be extremely frustrating if your spouse is prone to make bad decisions and lying about it. Imagine a situation where your spouse underreported income or did not pay taxes owing and now the IRS is coming after you.
Fortunately, the IRS does have an "innocent spouse" exemption for these cases – assuming you can provide evidence that you meet their criteria. These are:
1. You filed a joint return which has an understatement of tax due to erroneous items (defined below) 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.
4. A request for innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner
http://www.irs.gov/individuals/article/0,,id=129862,00.html
Until recently, the IRS placed a two-year restriction for innocent spouses to apply for relief under certain circumstances. The change is retroactive, which means if you were denied relief because of the 2-year limit, you may now qualify for relief.
Approximately 50,000 people apply for relief under the innocent spouse provisions each year. Applying for relief as an innocent spouse may save you money and reduce your stress by getting the IRS off your back.
To protect yourself from liability consult a lawyer to arrange your taxes and filing of taxes to protect your interests. For example, if you are contemplating getting a divorce and you are concerned about your spouse you may wish to consider filing separate tax forms as soon as possible.
Considering tax issues such as whether you qualify for various forms of tax relief should be an important component of the legal advice you receive from an experienced divorce lawyer.A good divorce lawyer should identify taxes issues and either advise you or refer you to an appropriate tax specialist. Knowing the options available to you to lower your tax liability is an important divorce strategy.