When married, it is nearly always financially advantageous to file a joint tax return. However, what was once a benefit can become a disaster if you divorce and are later audited.
When you and your spouse file jointly, each of you becomes individually liable for the full amount of any taxes due, including interest and penalties.
Unfortunately, this means that you may be held responsible for the full amount of any unpaid taxes even if your spouse earned all of the income and claimed improper deductions or made other errors on your joint income tax return. According to the IRS, this is the case “even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns.”
If you are divorced and living on one income, it can be incredibly frustrating to learn that you are suddenly liable for errors that your former spouse made on a previous joint return. This is hard-earned money that you could surely use to provide for yourself or your children.
The good news, however, is that you may be able to get relief.
The IRS offers Innocent Spouse Relief, which can free you of any financial liability for taxes if your former spouse failed to report income, reported income incorrectly, or claimed improper deductions or credits.
To qualify for Innocent Spouse Relief, you must meet all of the following conditions:
• You and your spouse filed a joint return
• The tax you owe is completely attributable to an error that your spouse made
• At the time you signed the return, you didn’t know (and had no reason to know), that there was an understatement of tax
• It would be unfair to hold you liable
You must request this relief within two years of the IRS attempting to collect taxes from you. To find out more about Innocent Spouse Relief, visit the IRS FAQ.
During and after divorce, it’s important to protect your financial security. If you are concerned about the impact that a divorce could have on your taxes, business, or finances, you should contact a Charleston, SC divorce attorney or a CPA. To learn more about tax issues arising from a divorce, please review my Divorce Tax Guide.
If you would like to discuss divorce, taxes, or the Innocent Spouse Rule, please call me. I will be glad to answer your questions.