Posted by: Garcia & Cuadra, PA | September 24, 2012

Current Innocent Spouse Provisions (Part II)

Current Innocent Spouse Provisions

In cases in which a joint return has been filed for a taxable year and there is an understatement of tax attributable to erroneous items of one individual filing the joint return, a spouse is relieved from liability for tax attributable to an understatement if she (he) establishes that:  (1) In signing the return, she (he) did not know, or had reason to know of such understatement, and (2) taking all facts and circumstances into account, it is inequitable to hold such party liable for the deficiency in tax attributable to the understatement.  Relief under §6015(b) is available if the requesting spouse makes an election within two years after the IRS begins collection activities with regard to that spouse.

A requesting spouse has knowledge or reason to know of an understatement in two circumstances:  (1) She (he) actually knew of the understatement; or (2) a reasonable person in similar circumstances would have known of the understatement.  Whether a spouse has actual knowledge of an erroneous item or

substantial understatement of income at the time the return was signed depends upon all of the facts and circumstances.  These include, but are not limited to, the following:  (1) the nature of the erroneous item and its amount relative to other items; (2) the couple’s financial situation; (3) the requesting spouse’s educational background and business experience; (4) the extent of the requesting spouse’s participation in the activity resulting in the erroneous item; (5) whether the requesting spouse failed to inquire (at or before signing the return) about items on the return or omitted from the return; and (6) whether the erroneous item represented a departure from a recurring pattern reflected in prior years’ returns.

For more information about Current Innocent Spouse Provisions please see our previous blog.

(More to follow on this topic on our next blog)

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