Karen M. was recently divorced and owed the IRS over $1,600,000 for a joint IRS liability she had incurred with her ex-husband. The debt had accumulated over many years and, as is usually the case, included a significant dollar amount of assessed penalties and interest. The taxpayer was newly single, lived on a modest income and had no possibility of settling the debt owed to the IRS. After looking at the taxpayer’s situation and all of the available tax settlement alternatives, we determined that filing for Innocent Spouse Relief gave the taxpayer the most realistic chance of one day being free of the tax debt.
Innocent Spouse Relief provides a taxpayer relief from tax debt if their spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits. While the benefits from obtaining this tax settlement option can be significant, it is usually difficult to obtain. Generally, a taxpayer requesting Innocent Spouse Relief must claim and document that he or she had no knowledge of the unreported income and did not receive the benefits of that income.
In the case of Karen M., we were able to provide documentation demonstrating that our client had no knowledge of the unreported income and had limited involvement in the financial matters of the family. We were also able to prove that she did not receive the benefits of the income that was never reported and that the non-innocent spouse had a history of hiding income from both her and the IRS.
Professional Tax Resolution and the taxpayer were thrilled when a letter was received from the IRS indicating that the Innocent Spouse filing was accepted and that the $1,600,000 tax debt was reduced to zero. This is another good example of why CPAs, Enrolled Agents, and Attorneys are often so passionate about what they do. In most cases there are tax settlement options available even in the most complicated situations.