Most Orange County married couples file joint tax returns. Many married couples also have one partner who is primarily responsible for filing the joint return. This trust can be dangerous because a spouse can be held liable for the tax fraud committed by their partner.
Most California residents would never suspect being married to someone that embezzles money or commits tax fraud and it is usually shocking to a spouse to learn that their partner has cheated others and embroiled the entire household in a tax controversy.
Approximately 50,000 taxpayers request innocent spouse relief every year. Most of these taxpayers tend to be women who face financial pressure from their husband's mishaps. Many prominent women request innocent spouse relief after their high profile husbands go to jail for embezzlement activities that the women were unaware of. These activities can create a massive tax liability because the IRS still imposes tax on illegally gotten gains.
Of the 50,000 innocent spouse claims filed, approximately 2,000 of the claims are denied every year because the spouse requesting relief has failed to meet the IRS deadline of two years. Many tax experts believe that Congress did not intend for the two-year deadline to apply to all cases and several prominent Congressmen are pushing for a modification of the rules for determining who qualifies as an innocent spouse.
There are several ways that Orange County taxpayers can protect themselves if they are worried that their spouse's activities may lead to a tax issues. One option is to not file a joint return. Another option is to create contemporaneous records to document suspicions. These may help support an innocent spouse claim in the future.
Source: The Wall Street Journal, "A new push to protect spouses," Laura Saunders, 6/4/11