Last time, we mentioned the recent indictment of former U.S. Tax Court judge Diane Kroupa. As we noted, it isn’t clear how much knowledge Kroupa had of the alleged false deductions claimed by her husband, nor of other wrongdoing in connection with the couple’s tax returns.Lack of knowledge can make a difference in the outcome of tax fraud investigations. For one thing, an individual may not be charged with tax fraud when inaccuracies in a filing are based on negligence. In addition, a spouse who had no knowledge of wrongdoing may be able to obtain relief from joint and several liability in some circumstances. There are actually several types of relief that may be available, depending on the specific circumstances of the case.
Innocent spouse relief may be available when a spouse or former spouse reported income improperly, failed to report income, or wrongly claimed deductions or credits. Separation of liability relief, which is another possibility, allows for the allocation of taxes owed between a couple to ensure one spouse isn’t held responsible for the wrongdoing of another. A third possibility is equitable relief, which is sometimes available in situations where other forms of relief are not.
To qualify for one of these forms of relief, specific conditions must be met. For instance, innocent spouse relief may only be granted if a joint relief was filed which contained an understatement of tax solely attributable to one spouse’s error, the other spouse had no knowledge of the error and no reason to know about it, and it would be unfair to hold him or her liable.
Those who have come under IRS scrutiny as a result of the wrongdoing of a spouse or former spouse need strong advocacy to make sure their rights are protected. An experienced tax attorney can help ensure that this happens.
