If your mate lies, will the IRS blame you?
It will depend on whether you are an 'innocent spouse' who couldn't have known.
It was clearly Barbara’s fault.
The mutual fund was in her name and she didn’t report the dividends and capital gains as income. Her story was that she never got a 1099. But, the IRS got its copy. What I got was a new tax bill, wrapped in interest and penalties.
Even the IRS recognizes an “innocent spouse.” That’s the poor schlump who files a joint tax return that omits or understates income, or overstates deductions or credits.
Because it’s a joint return, each person is subject to what’s known as “joint and several” liability. That means that you’re personally liable for the total tax, regardless of who earned the money or who negligently, carelessly or intentionally screwed up. But, I’m not bitter.
To qualify as a classic innocent spouse, at the time you signed the return you couldn’t have known or had any reason to know that there was an understatement of tax because of errors or omissions by your inconsiderate and thoughtless spouse.
- Video: Investing made simple
Well, maybe I’m a little bitter.
In any case, if, based on the facts and circumstances, it would be unfair to hold you liable for the understatement of tax, you qualify as an innocent spouse. File Form 8857 (.pdf file) and you’re free from liability.
Even if you don’t qualify for classic innocent spouse relief, you can be released from liability if the facts and circumstances mandate relief on an equitable basis. This escape hatch works even if the return was correct but the entire tax has not been paid.
Barbara wasn’t buying any of this.
Despite my impassioned argument that both the facts and equity made me an innocent spouse, she wouldn’t budge.
“By definition, there’s no such thing as an “innocent spouse” she proclaimed. “Before you continue arguing, review the qualifications for an ‘injured spouse.’”
I paid the bill.
VIDEO ON MSN MONEY
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.