By James W. Mallonee
When you signed your 1040 form, did you know what your spouse, partner or joint filer entered on the form? Although this should not be a question, the reality is that many joint filers are not fully aware of what was entered and filed on form 1040. It is not uncommon for this to happen when a couple divorces or there is a death of one of the parties. If this is the situation within your family and you get notification from the IRS about an audit, you may be open to considering the innocent spouse relief statute provided by the IRS.
It is hard to imagine that one of the parties signing their 1040 annual tax form has no idea what the other joint party is claiming nor what their income was for the past year. However, when it does happen, the innocent spouse could get caught up in years of litigation to prove their innocence and more importantly stuck with having to pay tax on items they had no idea existed.
There are three relief provisions available under Section 6015 of the IRS code. They are: 1) Full or partial relief; 2) Partial relief for those couples who are divorced or separated; or, 3) Equitable relief which serves as a catchall where nothing fits the typical situation for relief.
Under Full or Partial relief, the filer requesting relief must have filed a joint return; 1) the return has an understatement of tax; 2) the relief requesting spouse did not know nor had any reason to know of the understatement; 3) it would be inequitable for the innocent spouse to be held liable for a deficiency; and, 4) the innocent spouse’s request is timely. No doubt, the innocent spouse will have some heavy explaining to do on how it is he or she was unaware of what was filed with no knowledge of where all the income was coming from. In essence, the innocent spouse would have to prove that they had no reason to know of the understatement of income. The counter claim by the government is usually a duty by the innocent spouse to inquire as to what was filed on the 1040 return.
Under Partial Relief, the innocent spouse must have signed the IRS 1040 form and be divorced or separated at the time relief is being sought; and, it must not be any later than 2 years from the time collection is underway. The beauty of this relief is that it is up to the IRS to prove the innocent spouse had actual knowledge of the circumstances which made an item not allowable or was not reported. If found favorably for the innocent spouse, the IRS will proportionally distribute the liability between the two parties.
The last relief available is equitable, which provides the innocent spouse with relief where no relief is available. To qualify for this relief the following circumstances must be present: 1) the tax liability must be attributable to a taxable item of the non-innocent spouse; 2) relief is not able to be given to the innocent spouse; 3) no assets were transferred between the spouses in an attempt to create a fraudulent scheme; 4) the requesting spouse did not transfer disqualified assets to the non-requesting spouse; 5) there is no knowledge of participating in the filing of a fraudulent joint return; and, 6) the relief being requested is timely.
Under the last relief available (equitable), the innocent spouse would need to show that the two parties are no longer married, the innocent spouse will suffer economic hardship from their lack of knowledge, nor did they have any reason to know of the filed understatement. Generally speaking, it’s always good to remember that the innocent spouse bears the burden of proving they are entitled to relief which can be quite daunting when dealing with the government. As a result, be sure to keep good records of what you knew and what was a surprise to you.
When considering seeking relief under the innocent spouse Section 6051 of the IRS code, you need to think through the cost and time needed to file and seek relief. Seeking such relief may exceed any amounts that you might save. As a result, if you wish to seek relief, seek out the attorney of your choice who deals with the IRS and inquire whether it makes sense.
This article is intended for informational use only and is not for purposes of providing legal advice or association of a lawyer – client relationship.
James W. Mallonee (Jim Mallonee) is a graduate with a B.A. degree from the University of South Florida and a Master of Science degree from Rollins College in Winter Park, Florida. He obtained his Juris Doctorate from the University of the Pacific, McGeorge School of Law in Sacramento, California. Prior to returning to Florida to practice law, Mr. Mallonee was employed by Intel Corporation for 22 years in such locations as New Jersey, Florida and California.
In addition to being a member of the Florida Bar since 2003, Mr. Mallonee serves on the Charlotte Community Foundation Committee for asset allocation and teaches Business Law at State College of Florida. Mr. Mallonee is also on the Board of Directors for the Military Heritage Museum located in Charlotte County, Florida.
His firm practices law in the following areas: Probate, Wills & Trusts, Guardianships, and Litigation in the areas of Real Estate, Guardianships and Estates. The firm has two locations in Venice and Port Charlotte, Florida.
946 Tamiami Trail, #206
Port Charlotte, FL 33953
(941) 206-2223
871 Venetia Bay Blvd., #225
Venice, FL 34285
(941) 207-2223