Are you liable for your spouse’s tax mistakes and fraud?

| Jan 27, 2020 | Uncategorized |

Taxes can be very stressful, and many people will do just about anything to limit how much they have to pay. There is a fine line between tax avoidance, a legal effort to minimize your tax obligations, and tax evasion, the illegal avoidance of taxes you have a responsibility to pay. Cases of tax evasion often involve fraud, inappropriate deductions or the intentional under-reporting of income.

However, not everyone implicated via an inaccurate tax return knowingly commited any kind of tax fraud or evasion. It is common in married couples filing joint tax returns for one person to assume responsibility for filing the taxes and maintaining all the financial records related to those filings.

If you haven’t been the person itemizing deductions and calculating your total tax liability, you may feel totally shocked when your loved one receives notice of a substantial tax deficiency or gets arrested for tax related offenses. Whether the Internal Revenue Service (IRS) accuses your spouse of tax fraud or tax evasion, provided that you did not know about the fraud and did not play a role in it, you may have the right to seek Innocent Spouse Relief.

Did you sign a tax return that turned out to be inaccurate?

If your spouse has always handled the responsibility of filing the taxes, you might not know the details of how they calculate your adjusted income or your total tax liability. You might glance briefly at the numbers and assume that everything is correct before signing the return.

It is common for one spouse to have no knowledge of their partner’s intentional misrepresentation of their financial circumstances to the IRS. Provided that you can show that when you signed the return you didn’t know and had no reason to suspect that your stated tax liability was less than what you owed, the IRS may extend Innocent Spouse Relief to you.

Innocent Spouse Relief can help you avoid criminal charges or financial liability for the actions of your spouse. The one major exception to this protection is if the IRS can show that you and your spouse transferred property between the two of you to avoid tax liability.

Joint tax filings and bank accounts can create joint liability

There are many circumstances in which the IRS could try to hold you responsible for something that was done by your spouse. Fraudulent tax returns can cause problems for both spouses.

If the IRS can claim that you would reasonably know the taxes filed by your spouse were inaccurate or if they can show that you benefited substantially from the tax evasion or tax fraud, even without knowing about it, they may hold you partially responsible for the actions of your spouse.