April 24, 2015
Article by Janis Cowhey, Co-Leader of the LGBT Practice Group and David Glusman, Advisory Services Partner, "'Innocent Spouse' Tax Relief in Same-Sex Married Couples," Featured in New York Law Journal
When the Internal Revenue Service (IRS) conducts audits of joint tax returns, whether for same-sex couples or traditional heterosexual couples, the starting assumption of the government is that both taxpayers are jointly and severally liable for any tax or penalty assessed. That means that both of the taxpayers will be held accountable without regard to whose income was understated or whose expenses were overstated. This is true without regard to the original reason for the audit (audits are usually computer-generated based on closely guarded IRS algorithms, but can also come from confidential "whistleblowers").
Sometimes, however, the issues underlying the audit findings relate solely to one spouse, while the other spouse knows nothing of either the audit or the issues. In such cases, the IRS provides that taxpayers who filed a joint return with a spouse or ex-spouse who erroneously or fraudulently misstated income or expenses may be eligible to apply for relief of tax, interest, and penalties if he or she meets specific requirements. The IRS recognizes this as "innocent spouse" relief from collection efforts against such taxpayers' separate assets. Knowing when or if this protection is available, and how to react early in the process, can make a significant difference in the ultimate outcome.
The issues that are likely to arise when contemplating use of innocent spouse relief available under the Internal Revenue Code (IRC) are just as likely to occur in same-sex couples as in heterosexual couples. In many cases, there are additional areas of concern for same-sex couples that may need to be addressed if the IRS has attempted collection efforts on the innocent spouse due to alleged or actual underpayment of tax by the other spouse.