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Innocent Spouse Relief Indications of Unfairness Explained

Filing for Innocent Spouse Relied can be a bit murky and rather frustrating and the IRS is very particular about the qualifiers.  The IRS takes into consideration all of the facts and circumstances in your case in order to determine whether or not it is unfair to hold you responsible for your spouse’s understated tax.  Simply claiming ignorance won’t cut it people. So pay attention.  The following examples are some of the main factors that the IRS takes into consideration:

 

  • Whether you received a significant benefit (defined below), either directly, or indirectly from the understated tax.
  • Whether your spouse or former spouse deserted you.
  • Whether you or your spouse have been divorced or separated.
  • Whether you received a benefit on the return from the understated tax.

 

Significant benefit defined:

 

A significant benefit is any benefit in excess of normal support.  Normal support depends on a taxpayer’s particular circumstances.  An example of evidence of a direct or indirect benefit consists of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax.

 

Example:

You receive money from your spouse that is in excess of normal support.  Let’s say that your spouse won a large sum of money gambling.  The money received by you can be traced back to the gambling winnings that was not reported on the joint tax return.  You will be considered to have received a significant benefit from that income.  Even if your spouse gives you the money several years after he or she receives it, thisprevious statement of the income being considered a significant benefit still will remain true.

 

Spouse or former spouse deserted you.

If your spouse has deserted you, this means that he or she has left you to fend for yourself.  If your spouse has deserted you, then you can convincingly argue that you were innocent of any tax fraud.

 

You or your spouse have been divorced or separated.

 

The more bitter and litigious, the better.  These actions can also help your claim.  Especially if it can be proven that your spouse has a prior history of abuse and fraud.

 

Situation Where You Would Not Qualify for Innocent Spouse Relief

You received a benefit on the return from the understated tax.

In a nutshell, you and your spouse received a larger refund than you were entitled to.  You both split the refund amount 50/50. The larger refund amount was due to income not being reported on the joint tax return, therefore reducing the tax liability below zero.  Both you and your spouse were aware that the income was not reported because it was your intentions to receive a larger refund.  In a situation like this, the spouse was not in fact innocent, and also knowingly committed fraud.  Therefore, he/she is just as culpable as the spouse.

 

Example.

Jerry and Lynn filed a joint tax return for tax year 2015.  During tax year 2015, Lynn won $10,000 from XYZ Sweepstakes.  Even though Lynn received a Form W2-G, both she and Jerry decided that they were not going to report that income because they needed to receive a larger refund than they would have received had they reported the $10,000.  At the time, they were in the process of remodeling their home and needed additional income for the project.  The additional refund amount is the benefit on the return from the understated income/understated tax.

 

 

Wrapping it up

The IRS does look at these factors closely.  If you know what their rules are, you should be able to successfully deal with the IRS regarding this matter and other matters as well.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.