This post is a continuation on the dreary subject of taxes, specifically something called Innocent Spouse Relief, a law enacted to protect women from enormous tax debts incurred by their husbands. It was established at a time when most women worked from home, allowing their husbands to take charge of finances. As you can imagine, it’s changed over the years because there just aren’t that many stay-at-home moms.
Currently there are three “requirements” which anyone filing for Innocent Spouse Relief must satisfy. On the surface they sound relatively straight forward but they’re not. And the tax man is very strict about these requirements – if they don’t think you’ve satisfied all three, your appeal will go unanswered. It’s like that famous scene from the movie Five Easy Pieces…. No substitutions!
The first condition is that you filed a joint tax return with your spouse. Now this may sound like a silly requirement because if you were leery enough of your spouse’s financial shenanigans to file separately, why would you need innocent spouse relief?
The complications arise if you live in one of the nine “community property” states in America where all property acquired during marriage (except for gifts and inheritance) is considered jointly owned and thus both spouses have a 50/50 liability for taxes due no matter who brought in the majority of the loot. According to TurboTax, most people filing separately are going through a divorce, however, they warn that if your divorce is not final by the end of the tax year you’re still considered married by the IRS no matter how long you may have been separated. Thus, filing separately in a community property state is not guaranteed to protect you should the taxman throw one his famous penalty flags. Plus, if you file separately you lose your ability to file for relief should your soon-to-be ex flee the country leaving you holding the bag.
The second condition addresses knowledge and, my favorite bug-a-boo, the duty of inquiry. How much knowledge did you have of your ex-husband’s financial situation—and how much you should have known—based on your education and experience and on the lifestyle you were enjoying. As I mentioned in the previous post, the IRS position is that it’s your duty as a prudent taxpayer to get the information you need from your spouse in order to understand tax returns before you sign them, using whatever means at your disposal. Works best if you’ve got buddies in the Mafia.
The third condition is the one that sinks most appeals. For me, it was the easiest to prove but apparently many women drive around in Ferraris, shop on Rodeo Drive and winter in Aspen all the while unaware their husbands have money. Then, after being confronted by the taxman, they try to claim innocent spouse relief. I have to point out that the tax man doesn’t care if at the time of the appeal you’re working a minimum wage job, living in a trailer park and supporting three kids. If, during the year covered by the tax return, you and your spouse lived a very lavish life style you cannot apply for innocent spouse relief….
*All the images on this post are from Bing.com