Married couples often file tax returns together. In fact, it is relatively common for one spouse to handle the process of preparing income tax returns, while the other simply signs the return. In such cases, the other spouse may have very little knowledge about the household’s financial circumstances.
If the Internal Revenue Service (IRS) alleges that an underpayment of taxes occurred, it may seek to collect on the unpaid balance or take additional enforcement actions. The spouse who did not prepare the tax return and who was unaware of inaccurate information might be eligible for innocent spouse tax relief.
Was one spouse unaware of the inaccuracies?
The IRS recognizes that one spouse may have falsified information without the other’s knowledge. Those who were unaware of inaccuracies or omissions on a joint tax return could be eligible for innocent spouse relief if they live in community property states, including California.
Provided that they were unaware of the issues with the tax return and that they have not signed an offer in compromise or closing agreement with the IRS, the spouse who did not file the income tax return can seek protection from financial responsibility and other penalties. If the IRS grants the relief, the spouse who did not prepare the return is exempt from efforts to collect on the past-due tax debt.
Innocent spouse relief persists even if the spouses divorce later. It can protect the financial future and reputation of the spouse who did not provide inaccurate asset valuations or fail to report income to the IRS.
Learning about a spouse’s financial misconduct may inspire people to take action to protect themselves, including communicating with the IRS and considering divorce. Innocent spouse relief is one of several options available for people embroiled in an income tax controversy caused by filing a joint tax return with a spouse.