In the case of married couples, often one of the spouses is self-employed and does not pay their taxes and the other spouse has no idea about the back taxes. What the IRS doesn’t tell you is that only the self-employed spouse can be liable for taxes.
This is the basic situation that I have encountered very often in my practice. I am meeting with a couple who are behind in paying their taxes to the Internal Revenue Service. One of the spouses (suppose the man) is self-employed and does not pay his taxes. The other spouse (wife) has a regular job at W2 and taxes are withheld from their paycheck. However, the IRS is not only going after her husband for back taxes, but her as well.
This can be a classic situation where the wife may qualify for an innocent spouse determination, which means that she will not be liable for taxes. More importantly, the IRS cannot garnish or garnish your bank accounts or assets to satisfy tax debt.
To qualify for an innocent spouse determination, a person must properly demonstrate to the tax authorities that they had no control over the preparation of the tax return. For example, in our situation, the man (whom we’ll call John) is the sole owner of his business and has the authority to sign checks. John chooses the accountant and is the only one who meets with the accountant.
John is the person who provides all the banking information and other tax deductions to the accountant. John is also the person who answers all the questions the accountant has regarding tax preparation. Finally, John is the person who collects the completed tax return and pays the accountant.
The wife (Jane) had no control or involvement over the tax return preparation process. Also, Jane has no control over her husband’s business and the taxes owed to the IRS can be directly attributed to John’s self-employment income. In this scenario, Jane would be considered an innocent wife according to the IRS and would not be held liable for delinquent taxes.
When trying to settle back taxes with the IRS for a married couple, the innocent spouse determination is a very powerful tool for a married couple. However, determining whether a spouse qualifies can take a long time, and it can take more than a year for the IRS to rule on an individual’s application. Therefore, it is very important that a person seek the professional assistance of an experienced tax professional.