The Innocent Spouse

       Individuals who sign returns with their spouse may be headed for problems if there is something the spouse did that results in allegations of understatement of income or fraud. The Innocent Spouse Rule was enacted to help protect the innocent spouse.

             Section 6103(3) of the Internal Revenue Code extends relief to the innocent spouse.  A spouse will be relieved of liability when a joint return has been made for a taxable year and there is a substantial understatement of tax attributable to erroneous items of one spouse on the return.  (I.R.C. 6013(e)(1)(B).  The innocent spouse must establish that in signing the return he or she did not know or had no reason to know that there was a substantial understatement (I.R.C. 6013(e)(1)(C) and taking into account all the facts and circumstances it is not reasonable to hold the innocent spouse liable for the deficiency.  The innocent spouse may be relieved of the liability for the tax, interest and penalties for the amount attributable to the substantial understatement.

             If the liability is not attributable to the omission of gross income, relief can be given in a limited number of situations.  (I.R.C.  6013(e)(4)(e). If the omission is not attributed to gross income, If the innocent spouse's adjusted gross income is $20,000 or less, relief will be given to the innocent spouse only if the liability is greater than 10 percent of the adjusted gross income.  If the income is more than $20,000; the liability must be greater than 25 percent of the adjusted gross income.  (I.R.C. 6013(e)(4)(B).  The determination of the spouse to whom items of gross income are attributable shall be made without regard to community property laws. (I.R.C. 6013(e).