If a husband and wife sign a joint tax return, then both spouses are jointly and severally liable for the full amount of the tax shown due on the return or later determined to be due. If one of the spouses who signs the joint tax return does not believe he or she should be liable for the full amount of the tax liability, that spouse may seek relief from liability under the innocent spouse rules. The Internal Revenue Manual and case law addressing issues affecting entitlement to relief are continuously changing so constant research is necessary to be aware of new developments that are beneficial in representing a client.
- The innocent spouse must establish that when he or she signed the return he or she did not know (and had no reason to know) of the understatement of tax.
- Taking into consideration all of the facts and circumstances, it is inequitable to hold the innocent spouse liable for the joint tax deficiency, penalties, and/or interest.
- The spouse claiming relief elects the benefits of innocent spouse relief not later than two years after the date the IRS begins collection activities.
- Separate Liability Election – the understatement of tax is allocated between the taxpayers