What Is IRS Innocent Spouse Relief?
If you’re married, you probably filed a joint tax return. While some couples file separate tax returns, the majority will choose to file together. That begs the question: What happens when one spouse commits fraud on their tax return? The IRS will basically assume that you are a willing accomplice in the fraud especially when the fraud benefits you. Yet how can you be found guilty of a crime that you not only didn’t commit but had no knowledge of?
In this article, we’ll explore that very question. If you’ve been targeted by the IRS because of actions your spouse is responsible for, Midwest Tax Relief can help you. We will try to show that you were not involved with the alleged fraud and mitigate any criminal or financial penalties that may accompany the charges.
Understanding IRS Innocent Spouse Relief
There are precious few reasons that the IRS will let an individual off the hook for unpaid back taxes. This is particularly true when the person who filed hid income streams or assets from them. Innocent spouse relief is one of them. As an innocent spouse, you will be required to prove that the tax debt was incurred without your being aware of it. This can be difficult because the burden is on you to show that you did not know something.
Nonetheless, innocent spouse relief is granted but the bar for proof is high. Generally speaking, it makes sense to claim innocent spouse relief when there is no way that you could have known about. In these cases, it helps if your spouse not only hid the assets from the IRS but also hid these assets from you as well. But in cases where a spouse receives the benefit of an income stream, it can be very hard to convince the IRS that another otherwise innocent spouse wasn’t in some way complicit.
In addition to proving that there was no way that you could have known about the income stream that wasn’t reported, you will also have to prove that one of the following is also true. Your spouse:
- Failed to report the income;
- Underreported the income; or
- Claimed deductions illegally.
To sum it up, there are two elements that you must prove: 1) your spouse committed some form of fraud, and 2) you knew nothing about it. Since you are required to sign off even on jointly filed tax forms, the burden of proof can be extraordinarily high.
Could You Have Known About the Fraud?
It often happens in fraud cases that a spouse simply signs the bottom of a jointly filed tax form and goes about their merry way. While perhaps being ignorant of the fact that tax fraud was committed, the IRS can (and will) hold you responsible if you made no effort to look over the forms or otherwise ignored the process altogether. It becomes easier to prove your case when you received no benefit from the alleged tax fraud. In other words, if you turned a blind eye to what was going on, the IRS can simply turn around and say that you should have known about the tax fraud. To put it another way, the IRS will determine whether you had “reason to know” about the alleged tax fraud. In order to make that determination, they will look at several factors. These include:
- The kind of fraud/error made on your taxes;
- The amount of the discrepancy;
- Your financial situation compared to your spouse’s;
- Whether or not you are divorced, divorcing, or separated;
- Your level of education; and
- Whether or not there is a pattern of underreporting income.
To put it bluntly, the IRS will scrutinize you, your educational background, the income that was omitted from your tax return, and whether or not you were in a position to know about the fraud.
Is It Unfair for the IRS Hold You Liable for the Fraud?
There are those who would argue that because you signed off on the tax forms, you should be held liable for the fraud. Fortunately, the IRS does not take such a hardline stance. On the other hand, you are going to be in the position of accusing your spouse of defrauding the IRS of their own accord and without either your knowledge or consent. Essentially, you are claiming that it would not be fair, under the circumstances, to hold you liable for the alleged tax fraud.
The IRS will look at two key factors when determining whether or not you were complicit. The IRS will take evidence that your spouse repeatedly lied or deceived you as evidence that you were not aware of the fraud. Additionally, they will try to determine whether or not you personally benefited from the fraud.
In cases where you personally benefited from the fraud, it becomes more difficult (though not impossible) to argue that it would be unfair to hold you liable. These factors, however, could bolster your case:
- You are divorced or have filed for divorce;
- Your spouse has a history of deception; or
- You gained little from the tax fraud.
Additionally, when there is a major discrepancy between the two spouses in terms of educational background, the spouse with less education may argue that they could not have known their spouse was committing fraud. If you are a tax attorney, an accountant, or otherwise have enough education to fill out a tax form, it becomes nearly impossible to claim ignorance.
Talk to an Omaha NE Tax Attorney to Learn More About IRS Innocent Spouse Relief
If your spouse has committed fraud against the IRS and you are now on the hook, you may have several options open to you, including innocent spouse relief. At Midwest Tax Relief, we can help you appeal your case to the IRS. Contact us today to speak to an Omaha NE tax attorney.