Avoiding Back Taxes

By Staff Writer

Divorce attorneys routinely advise their clients to speak with a tax expert. This is important, not only to analyze the possible tax consequences of your divorce settlement, but to ascertain whether your spouse’s tax problems can come back to haunt you. It is a frightening and surprising prospect for many individuals to learn that, even after a divorce, the IRS may be able to hold them liable for tax problems caused by their former spouse during the marriage. A divorce will not free you from liability for joint returns filed during your marriage.

The IRS has a policy known as “joint and several liability”. In essence, this means that they can seek to recover back taxes, interest and penalties from both parties, or either individually. Even if the tax misstatement or underpayment was caused by your former spouse and even if your ex spouse was the only party who earned the income, the IRS may be able to come after you if you signed the joint return.

Recognizing the inherent inequities of holding parties liable for their former spouse’s wrongdoing in all circumstances, no matter what, the Internal Revenue Code offers three types of relief from liability: (1) innocent spouse relief, (2) separate liability and (3) equitable relief. This article will only concentrate on the first type of relief, that of the “innocent spouse”. You should, of course, consult with your attorney or tax expert to explore all of the forms of relief to which you may be entitled under the Internal Revenue Code if you fear that you may be held liable for the tax wrongdoing of your former spouse.

You may qualify to make an innocent spouse election if you can meet three requirements: (1) that there was an understatement of tax on a joint return because of an omission or error involving income, deduction, credit or basis, (2) you can show that when you signed the return you did not know and had no reason to know of the understatement and (3) taking into account all the facts and circumstances it would be unfair to hold you liable for the understated tax.

The IRS will carefully review the facts of your case. A key factor in its determination will be whether you received any substantial benefits or later was divorced, separated from or was deserted by the other spouse. If innocent spouse relief is granted, you will be relieved from the tax liabilities caused by your former spouse.

If you feel that you may qualify for innocent tax relief, you should consult with your accountant or attorney to ascertain if the provisions of the Internal Revenue Code are applicable to your situation.