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Breaking Down the Innocent Spouse Rule


Back in his heyday, left-wing folk singer Pete Seeger didn’t like to know how much money he made, and he certainly didn’t like to know how much income tax he paid. So, his wife, who was also his business manager, covered the completed tax forms with a blank sheet of paper. When he picked up the pen, Pete had absolutely no idea what he was signing.

Pete was the prototypical innocent spouse. So, if his wife Toshi made unintentional or intentional mistakes, Pete may not be financially responsible for them. Other spouses often try to claim innocent spouse status. They don’t need to be as “innocent” as Pete, but they must be in that neighborhood. More on that below.

The innocent spouse application process is very complex. Furthermore, IRS adjusters almost always deny innocent spouse status, regardless of the facts. So, unless you have a determined Irvine tax settlement lawyer in your corner, it’s almost impossible to take advantage of this generous rule. Most other IRS programs require taxpayers to at least pay something. Innocent spouses can simply walk away.

Basic Rules

If approved, Form 8857 relieves a person of any tax, interest, and penalties associated with the account based on preceding errors. The following requirements must be met in order for IRS innocent spouse relief to be granted:

  • Joint return,
  • Understated tax,
  • Caused by a spouse’s error,
  • Absence of actual or constructive knowledge, and
  • Holding the innocent spouse jointly and severally liable would be unfair.

Joint and several liability basically means that both people who sign a tax return are 100 percent responsible for tax underpayment, which is usually caused by wrongfully claiming an exemption or understating income.

Usually in these situations, the IRS first targets the primary taxpayer. If the primary cannot pay, for whatever reason, the IRS targets the spouse.

Actual Knowledge

Quite simply, the IRS will not deem you an innocent spouse if you were aware of the tax deficiency at the time the return was filed. That knowledge, in the government’s eyes, would make you an accomplice to the understatement of tax. Some factors include:

  • Nature and amount of the erroneous item relative to other items,
  • Financial situation of you and your spouse or, more likely, ex-spouse,
  • Claimant’s business experience and educational background,
  • Extent of claimant’s participation,
  • Claimant’s failure to ask reasonable questions (this is usually the big one), and
  • Drastic year-to-year income variations.

Assume that, during 2022, Bob and Shirley, who are both former business school sweethearts, took a long European vacation, paid cash for two new vehicles, and still paid Junior’s Harvard tuition. Shirly signed a tax form which stated the couple earned $100,000 that year. Even though any reasonable person would know that income cannot possibly support that lifestyle, Shirly signs without asking questions. More than likely, that act destroys her eligibility.

Constructive Knowledge

Reason to know, or constructive knowledge, is often referred to as willful blindness in other areas of the law. The IRS will consider all the facts and circumstances surrounding a liability when determining whether innocent spouse relief should be granted.

Let’s change the facts of the above example. Assume Shirley, who was a high school dropout, had only been married to Bob, the corporate CEO, for a year. Most likely, as her Irvine tax settlement lawyer would surely point out, Shirley wouldn’t dare question Bob’s authority in this situation. The other actual knowledge factors probably wouldn’t apply either.

However, Shirley could still be liable for the tax underpayment if she should have known the tax return was fraudulent. Constructive knowledge is very subjective and nearly impossible to conclusively prove.

Reach Out to a Hard-Working Orange County Lawyer

Regardless of your financial problems, there’s usually a way out. For a free consultation with an experienced tax settlement lawyer in Irvine, contact The Law Office of Charles A. May.



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