Readers may know that both assets and debts of the marital estate must be divided when a couple is going through a divorce. That approach reflects the general principle that a court views a married couple’s income and liabilities as jointly owned or owed, respectively. In Connecticut, the division of the marital estate must also be equitable, or fair.
However, fairness does not always dictate a 50-50 split of the marital estate. In fact, a debt that resulted primarily from one spouse’s misbehavior or wrongdoing might actually qualify for innocent spouse tax relief. Best of all, that relief might be available regardless of whether an individual is married or going through a divorce.
Our tax law firm has helped both souses and former spouses in this situation. Although one or more joint tax returns may have been filed concerning the tax debt at issue, the IRS will apply several factors to determine whether an individual should be relived of liability, leaving the other spouse or former spouse with the sole obligation for paying the tax debt.
The specific IRS provision is called innocent spouse relief, which relieves a spouse or former spouse from additional tax arising from unreported or improperly reported income, deductions or credits on a joint tax return. To qualify, three conditions must be met. First, a joint return reflecting an understatement of tax must relate solely to the other spouse’s erroneous or omitted item. Second, the individual must not have known or had no reason to know of the tax understatement at the time the joint return was filed. Finally, the totality of facts and circumstances must indicate that it would be unfair to hold the individual accountable for the tax deficiency.
There may also be other options. The IRS offers two other types of relief from joint and several liability arising from a joint tax return: separation of liability relief, and equitable relief. Separation of liability relief allocates any additional tax owed between an individual and his or her current or former spouse. Equitable relief is a final catch-all, applied when the outcome would otherwise be unfair.
If the above requirements sound complicated, our law firm can help you with the process. In addition, we can review an individual’s situation to determine if other tax strategies are available. We will review each client’s circumstances to determine which form of relief should be pursued.
Source: “Topic 205 – Innocent Spouse Relief (Including Separation of Liability and Equitable Relief),” copyright 2016, Internal Revenue Service