Christian Debt Recovery

Debt Proof Your Marriage

January 4th, 2010 |

Author: Gavin

Tax Preparer or Marriage Counselor?: Enrolled Agents and Innocent Spouse Relief

How Leveraging Innocent Spouse Relief Can Help At Tax Time

In their role as a registered tax return preparer, enrolled agents often find themselves wearing many hats. Offering up suggestions for mitigating a bad marriage is not exactly something that would qualify as a typical function of anenrolled agent. But the IRS has incorporated a number of features into tax law that make this scenario more than possible, a subject covered in most tax CPE courses on marriage and taxation. One such scenario is dealing with IRS tax liability under what is called the “Innocent Spouse Program.”

Typically, a husband and wife assume equal liability when it comes to income tax on a joint return. However, if one spouses intentionally commits fraud without the other partner’s knowledge, then that individual, known as the “innocent spouse” in this relationship, may not be liable.

By requesting what the IRS deems “Innocent Spouse” consideration, spouses in this predicament can be excused from their obligation to paying taxes, interest, and penalties.

What Makes a Spouse Innocent?: IRS Criteria

According to the IRS, the following conditions must be met before the IRS will consider agreeing to grand someone Innocent Spouse relief:

(1) Taxpayer must have filed a joint return containing incorrect information relating to the spouse

(2) Taxpayer is able to establish that, at the time of signing the joint return, they had no reasonable knowledge of either an error on the return or intentional fraud

(3) After considering the totality of the fact, the IRS believes it would be unfair to hold the taxpayer responsible for these errors or fraud

For the purposes of qualifying for the innocent spouse program, errors on the tax return could pertain to unreported income or a specific incorrect deduction or credit. As outlined in most EA CPE courses on the subject, common errors include fabricating business deductions or failing to report 100% of an individuals’s income.

Rigorous Standard of Proof

In situations where a spouse had knowledge of the error, or fraud, when the return was prepared and filed, Innocent Spouse Relief is not an option available to them, according to the IRS. In such cases, both spouses will remain equally liable for all of the taxes as well as the penalties and interest that flow from this infraction. Furthermore, the IRS considers a spouse’s reasonable knowledge of this offense grounds for dismissal of this relief. However, by the same token, the IRS assures taxpayers that it always considers the complete range of facts and circumstances in this decision-making process. These factors include the nature of the error, as well as its size; a taxpayer’s unique financial situation, educational background and business knowledge; the degree of a spouse’s actual participation in the fraud, including whether the so-called innocent spouse failed to question the return manner fitting a “reasonable person.”

Likewise, the IRS will consider a number of other question to calculate whether holding the innocent spouse accountable for the error is a fair act or not. Among these include:

Did the innocent spouse derive a significant benefit, either directly or indirectly, from the error?
Has “bad” spouse abandoned the “innocent” spouse?
Is the couple divorced or separated?

Divorce Not a Given for Acceptance

Not all divorced or separated taxpayers will qualify for Innocent Spouse Relief. However, if the innocent spouse successfully demonstrates no prior or direct knowledge of the incorrect tax filing, the law may offer them some relief from IRS debt.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

About the Author

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