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What Is the Innocent Spouse Rule?

For married couples often one spouse is self-employed and does not pay their taxes and the other spouse has no clue about the delinquent taxes. What the IRS does not tell you is that only the self- employed spouse may held liable for the taxes.

This is the basic situation that I have come across very often in my practice. I will meet with a couple who are delinquent in paying their taxes to the Internal Revenue Service. One spouse (assume the man) is self-employed and does not pay his taxes. The other spouse (wife) has a regular W2 job and taxes are withheld from her paycheck. Yet the IRS is going after not only her husband for the delinquent taxes but also her.

This may be a classic situation were the wife may qualify for an Innocent Spouse Determination which means that she will not be liable for the taxes. More importantly is that the IRS cannot lien or garnish her bank accounts or assets to satisfy the tax debt.

To qualify for an Innocent Spouse Determination, a person must adequately demonstrate to the taxing authorities that they had no control over the tax return preparation. For example, in our situation the man (who we will call John) is the sole proprietor of his business and has the check signing authority. John picks out the accountant and is the only one to meet with the accountant.

John is the person who provides all the bank information and other tax deductions to the accountant. John is also the person who answers all the questions that the accountant has in regards to preparing the taxes. Finally John is the person who picks up the completed tax return and pays the accountant.

The wife (Jane) had no control or input over the tax return preparation process. Also Jane has no control over her husband's business and the taxes that are owed to the IRS can be directly traced to John's self-employment income. Under this scenario, Jane would be considered an Innocent Spouse according to the IRS and held not liable for the delinquent taxes.

In trying to settle delinquent taxes with the IRS for a married couple, the Innocent Spouse Determination is a very powerful tool to use for a married couple. However determining whether a spouse qualifies can be very time consuming and it may take the IRS over a year to rule on a persons application. Therefore it is very important for a person to seek the professional assistance of an experienced tax professional.

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