Equitable tax relief in divorce cases

By astracom
In November 30, 2014
Comments off

Divorce clients frequently ask about obtaining “innocent spouse relief” from the IRS. Fairly dividing the marital debt is fundamental in divorce cases, but a dissolution judgment is only binding on the spouses, not any third parties, including taxing authorities.

For example, agreeing that the husband will be responsible for an income tax debt will not protect the wife from the IRS’ collection activities. This problem might occur where the parties filed a joint tax return and the husband recognized gain from a business which did not benefit the wife. This may have occurred after the parties separated, but before the marriage was dissolved.

There are actually three types of relief that people typically think of as “innocent spouse relief”: 1-) innocent spouse relief; 2-) separation of liability relief; and 3-) equitable relief. The first two afford rather narrow possibilities, because they require, among other things, that there was an error, typically an understatement, of the joint tax liability, which the injured spouse did not know, and had no reason to know about.

The third category, equitable relief, offers the broadest range of possibilities in dissolution cases, because it addresses either the understatement or underpayment of tax. To qualify, you must establish that, under all of the facts and circumstances, it would be unfair to hold you liable.

Final determination under this fact-based test is with the IRS, of course. But the factors they will consider dovetail nicely with dissolution cases, including: 1-) whether you are separated or divorced; 2-) whether you will suffer economic hardship if relief is not granted; 3-) whether you received a significant benefit from the item causing the tax liability; and 4-) whether the divorce judgment created a legal obligation for the other party to pay the tax.

To learn more about the divorce process, please visit my website at http://www.ljct-lawyers.com/Practice-Areas/Divorce/ , or call 860-299-6263 to consult with an Avon-Torrington-Hartford divorce lawyer.

Hartford area bankruptcy attorney and divorce lawyer Edward P. Jurkiewicz has over 20 years of experience representing clients. Our firm represents debtors and creditors and handles both relatively simple divorces and bankruptcies and more complex litigation matters. With this depth of experience, our firm is able to anticipate and prepare for any potential issues that could arise in your bankruptcy, divorce or family matter.

CONTACT US TODAY AT 860-299-6263