18 May When a spouse lies on a joint tax return
Q. I’m getting a divorce, and I think my husband wasn’t honest on our past tax returns. We have never been audited, but I’m worried about what could happen. What should I do?
A. Any fishy business with your past tax returns with your husband could mean delays for your divorce.
As you read on, please realize exactly what may happen to you will depend on the specifics of your situation, and you should absolutely consult with an attorney on this one.
“You should know that 99 percent of all divorces are resolved by settlement, and within that settlement you will have an opportunity to address any and all issues that you are concerned about,” said Kenneth White, an attorney with Shane and White in Edison.
That means if you’re concerned about potential tax liability as a result of some action or inaction of your husband, White said, you can secure language within your Marital Settlement Agreement directing that your husband shall indemnify you and hold you harmless from any and all liability, tax or otherwise, as a result of previously filed joint tax returns.
White said depending on the degree of seriousness of the alleged failure, you may need to address your divorce, if contested, through arbitration as opposed to through the Superior Court of New Jersey.
“Any time a judge hearing family court matters has reason to suspect that a fraud has been committed upon the IRS, that judge is ethically and legally obligated to freeze the litigation and contact the IRS, so as to allow the IRS an opportunity to investigate,” White said.
Such situations arise in contested litigation when one party is self-employed and may fail to report certain income, may take questionable deductions or other issues, he said.
“In such situations, parties typically agree to present their litigation to arbitration as opposed to a judge, as an arbitrator is not bound by the same ethical and legal obligations as a judge, and therefore can decide the matter without contacting the IRS,” White said.
Now, let’s talk generally on this kind of taxing problem.
When a person files a joint tax return with their spouse, they are jointly and individually responsible for the tax and any interest or penalty due on a joint tax return even if they subsequently divorce, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights.
“A divorce decree stating the former spouse will be responsible for potential tax liabilities for past jointly filed tax returns does not protect the other spouse in the eyes of the IRS,” he said. “The IRS does offer three potential types of relief: 1) innocent spouse relief; 2) separation of liability; 3) equitable relief.”
To make a request for innocent spouse relief, you need to file IRS form 8857, “Request for Innocent Spouse Relief.”
“In order to qualify for innocent spouse relief, you can’t have actual knowledge of the items that caused the tax deficiency at the time you signed the joint income tax return,” Maye said.
So when should someone file Form 8857? According to IRS.gov, “You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held.”
“If someone does not qualify for innocent spouse relief, all is not lost,” Maye said. “The individual may still qualify for relief under the separation of liability or equitable relief rules.”
For more information about all three forms of relief, visit IRS.gov.
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This story was first posted in May 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.