Filing a tax return as “married filing joint” has many tax benefits. Lower overall tax rates, maximized income tax deductions and credits, etc. In a community property state, like Nevada, unless you had a pre-nuptial agreement, the rules require reporting everything 50/50, just taxed at a higher tax rate. Thus, the tax savings alone could be the overriding reason to file a joint tax return.

Problem with married filing joint status, each spouse assumes 100% of the liability for the taxes owed, including if the original return was filed incorrectly and the IRS assesses additional tax.

It is amazing to me how many times I’ve seen folks come into my office, in trouble with the IRS because their spouse knowingly misreported any deduction, credit or tax basis, as well as any income not reported on the return. Usually, the IRS only pursues returns that significantly reduced the tax they should have paid. The IRS does not play nice in the sandbox when they catch somebody materially underreporting the tax they owe. And they are really good at going after the spouse with the most available assets to grab. Many times, it ends up being the spouse who did not deliberately under report income or over reported expenses. Also, the IRS usually doesn’t catch on for some time. In the meantime, the marriage may have dissolved. Thus, the IRS is trying to stick it to the spouse who has the most assets but not the one who caused the problem.

Best strategy is to attempt to claim “innocent spouse.” An “innocent spouse” may not be liable for any unpaid tax and penalties, despite having signed the joint return.

To qualify, you must have met all of the following requirements. 1) You have filed a joint return that has an understatement of tax. 2) The understatement of tax is due to erroneous items made by your spouse. 3) You can establish at the time you signed the joint return that you did NOT know — or had reason to know — that there was an understatement of tax. 4) Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understatement. 5) You and your spouse (or former spouse) have not transferred property to one another as part of a fraudulent scheme to defraud the IRS or another third party.

We have successfully argued “innocent spouse” with the IRS many times. After all, the IRS are not cruel heartless people. They can usually spot an unfair situation.

The best defense against becoming a victim and then having to claim “innocent spouse” is to carefully examine any joint tax return before it’s filed. Don’t sign anything you don’t understand and agree to.

Have you heard? Proverbs 18:5 says, “To be partial to the faces of the wicked is not good, nor to deprive the innocent of justice.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. As well as on our website at BullisAndCo.com. You can also find us on LinkedIn and Facebook.

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