A March 15, 2006, Wall Street Journal article points out the difficulty that spouses and former spouses are having in seeking Innocent Spouse Relief from the IRS. When you sign a joint income tax return with your spouse, you and your spouse are jointly responsible for the taxes, interest or penalties on those returns unless you qualify for innocent spouse relief. That means that under most circumstances, the IRS can collect the entire amount owed from either party.

When you claim the “innocent spouse” defense, you argue that you did not know and had no reason to know about any under reporting of income or other wrongdoing associated with the filing of the return and that therefore you should not be held responsible for paying any additional taxes, penalties or interest due.

According to the article the IRS has taken a renewed interest in enforcement, due in part to growing concern of the budget deficit. The article sites a recent report that states that of the nearly 50,000 innocent spouse claims received by the IRS in 2005, only 21% were allowed in full and another 8% were partially allowed.

The moral to the story: if you have even a hint of impropriety, do not sign a joint return. As a divorce lawyer, I would also add that if a divorce is imminent then before signing a joint return, talk to your lawyer about the implications first.

Note: I would link to the Wall Street Journal story but it is not available on wsj.com without a subscription. If you are a subscriber and have acces to the Journal online, you can go to the above link and do an article search for “Innocence in Tax Fraud” and it will pull up the article.

Also, you can download the IRS publication describing and explaining Innocent Spouse Relief here.

The Alabama Court of Civil Appeals recently issued an opinion in Buchanan v. Buchanan which addressed the issue of market fluctuations in retirement accounts. The facts in the case are common: husband and wife divorce, wife is awarded 50% of husband’s retirement account, the parties and/or their lawyers do not process the Qualified Domestic Relations Order to effectuate the transfer from Husband to Wife. Over three years later, the wife files a petition to hold the husband in contempt of court for failing to transfer her 1/2 of the retirement account.

Unfortunately for the parties, by then the value of the account had been reduced from $77,000 to $43,000 due to market fluctuations. The question was should the wife get 1/2 of $77,000 or 1/2 of $43,000? Who should bear the loss in value that occurred between the time of the divorce to the actual division of the accounts? The Appeals Court found that each party should share the market loss, which meant the wife would only get 1/2 of $43,000. The net result is that she lost $17,000 because a QDRO was not immediately prepared to divide the account.

Jim Jeffries | Mobile & Baldwin County Attorney

Jim currently is a member of the Alabama Supreme Court's Advisory Committee on Child Support Guidelines and Enforcement as well as a statewide committee that has been tasked with reviewing and making recommendations for possible revisions to Alabama's version of the Uniform Interstate Family Support Act (UIFSA). Jim was also recently appointed by the President of the Alabama State Bar Association to a serve on a committee whose purpose is to review and comment on Alabama legislation regarding joint custody for a proposal to the Alabama Legislature for possible changes in this legislation.

Jim has attained a Peer Review Ranking of AV from Martindale-Hubbell® - The highest an attorney can be ranked by his peers.

He continues to lecture to attorneys across the state regarding family law issues.

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Jeffries Family Law, LLC

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