Innocent Spouse Relief

Did you know that you can be held liable for any tax debt incurred due to the misdeeds or fraud committed by your spouse? What if your spouse hides some income while you were married and you filed a joint return? What if your spouse committed other fraud while you were filing joint returns before you got a divorce? The IRS will come after the both of you, even if you had no knowledge of the wrongdoings. Even if you are innocent and were not aware of the deceit, you could be facing back taxes plus penalties and interest. Once you signed the joint tax return, you agreed and accepted that the tax return being filed with the IRS was a true reflection of your income as reported.

However, there is something called the Innocent Spouse Relief that was designed to alleviate unfair situations where one spouse was clearly the victim of fraud perpetrated by their spouse or ex-spouse.

If you qualify for Innocent Spouse Relief, you may not owe any tax. 

There are exceptions and unique circumstances. Maybe a spouse dies before the unreported income is found or a spouse filed for bankruptcy before the problem is discovered.

If you suspect that your tax return may be wrong, it is best NOT to sign the joint tax return and seek assistance from a CPA before filing your taxes. At Fajardo & and Associates we can assist you in exploring your options.

The “Innocent Spouse” and the IRS Restructuring and Reform Act

In 1998, Congress passed the IRS Restructuring and Reform Act which modified the tax code to make “innocent spouse relief” easier and more fair. The IRS Innocent Spouse Rule may provide a solution for many individuals.

Before 1998, the IRS had an innocent spouse relief rule to taxpayers that “qualified” under a complex set of rules. However most taxpayers were actually denied relief. After 1998, you can now qualify for the “general liability relief”, “allocated liability relief” or “equitable relief”. The changed rules are an improvement but spousal relief is not always granted.