Innocent Spouse Claims are Hard to Win

The IRS will let an “Innocent Spouse” off the hook for unreported taxes created by their not-so-innocent spouse. To qualify the innocent spouse must prove that they:

  1. had no actual knowledge of the understatement, or
  2. had no reason to know of the understatement, and
  3. they received no significant benefit from the under-reported taxes.

As you can guess, proving that you “had no reason to know” can be very subjective. Factors that the IRS will consider include:

  • Educational background and business experience.
  • The extent to which the spouse participated in the business.
  • Whether or not the spouse asked reasonable questions at the time the return was prepared.
  • Whether there was a departure from the trends of prior tax returns.

Showing that the innocent spouse received no significant benefit is also problematic.  The IRS looks for evidence that the under-reported taxes were transferred to the innocent spouse in some manner. This could be cash or it could be payment of country club dues that were beyond the normal support needed for the spouse.

All these factors are hard to prove definitively, one way or the other. The result is that you need to plan on a trip to Appeals whenever you make this claim.

Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

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