I have always loved the term “innocent spouse.” Its usual context in a divorce case is tax delinquency. Married tax payers who file a joint return with their spouse are generally liable for the taxes of their spouse. However, there are exceptions to this rule. The following are the general requirements:
You must have filed a joint return which has an understatement of tax;
The understatement of tax must be due to erroneous items of your spouse;
You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understatement of tax;
Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understatement of tax; and
The IRS has recently made changes to the requirement that you must request relief within 2 years after the date on which the IRS first began collection activity against you. See AP story in July 26, 2011 AZ Star http://tiny.cc/cdm726
When mediating we generally have language that spells out the parties tax liabilities but the IRS does not recognize this and will go after both parties. Hold harmless and indemnification agreement helps but still requires action to collect. Having “innocent spouse” status helps a lot.
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