Publication 971 - Innocent Spouse Relief - Internal Revenue Service (Page 6 of 24) in pdf

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The following are examples of erroneous items.

Whether you failed to ask, at or before the time the

return was signed, about items on the return or omit-

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The expense for which the deduction is taken was

ted from the return that a reasonable person would

never paid or incurred. For example, your spouse, a

question.

cash-basis taxpayer, deducted $10,000 of advertis-

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Whether the erroneous item represented a departure

ing expenses on Schedule C of your joint Form

from a recurring pattern reflected in prior years’ re-

1040, but never paid for any advertising.

turns (for example, omitted income from an invest-

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The expense does not qualify as a deductible ex-

ment regularly reported on prior years’ returns).

pense. For example, your spouse claimed a busi-

ness fee deduction of $10,000 that was for the

Partial relief when a portion of erroneous item is un-

payment of state fines. Fines are not deductible.

known. You may qualify for partial relief if, at the time you

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No factual argument can be made to support the

filed your return, you had no knowledge or reason to know

deductibility of the expense. For example, your

of only a portion of an erroneous item. You will be relieved

spouse claimed $4,000 for security costs related to a

of the understated tax due to that portion of the item if all

home office, which were actually veterinary and food

other requirements are met for that portion.

costs for your family’s two dogs.

Example. At the time you signed your joint return, you

knew that your spouse did not report $5,000 of gambling

Actual Knowledge or Reason To

winnings. The IRS examined your tax return several

Know

months after you filed it and determined that your spouse’s

unreported gambling winnings were actually $25,000. You

established that you did not know about, and had no

You knew or had reason to know of an understated tax if:

reason to know about, the additional $20,000 because of

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You actually knew of the understated tax, or

the way your spouse handled gambling winnings. The

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understated tax due to the $20,000 will qualify for innocent

A reasonable person in similar circumstances would

spouse relief if you meet the other requirements. The

have known of the understated tax.

understated tax due to the $5,000 of gambling winnings

you knew about will not qualify for relief.

Actual knowledge. If you actually knew about an errone-

ous item that belongs to your spouse (or former spouse),

Indications of Unfairness for Innocent

the relief discussed here does not apply to any part of the

Spouse Relief

understated tax due to that item. You and your spouse (or

former spouse) remain jointly liable for that part of the

The IRS will consider all of the facts and circumstances of

understated tax. For information about the criteria for de-

the case in order to determine whether it is unfair to hold

termining whether you actually knew about an erroneous

you responsible for the understated tax.

item, see

Actual Knowledge

later under Separation of

The following are examples of factors the IRS will con-

Liability Relief.

sider.

Reason to know. If you had reason to know about an

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Whether you received a significant benefit (defined

erroneous item that belongs to your spouse (or former

below), either directly or indirectly, from the under-

spouse), the relief discussed here does not apply to any

stated tax.

part of the understated tax due to that item. You and your

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Whether your spouse (or former spouse) deserted

spouse (or former spouse) remain jointly liable for that part

you.

of the understated tax.

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The IRS will consider all facts and circumstances in

Whether you and your spouse have been divorced

determining whether you had reason to know of an under-

or separated.

stated tax due to an erroneous item. The facts and circum-

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Whether you received a benefit on the return from

stances include:

the understated tax.

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The nature of the erroneous item and the amount of

For other factors, see

Factors for Determining Whether To

the erroneous item relative to other items.

Grant Equitable Relief

later under Equitable Relief.

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The financial situation of you and your spouse (or

former spouse).

Significant benefit. A significant benefit is any benefit in

excess of normal support. Normal support depends on

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Your educational background and business experi-

your particular circumstances. Evidence of a direct or indi-

ence.

rect benefit may consist of transfers of property or rights to

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The extent of your participation in the activity that

property, including transfers that may be received several

resulted in the erroneous item.

years after the year of the understated tax.

Page 6

Publication 971 (September 2011)

Publication 971 - Innocent Spouse Relief - Internal Revenue Service Page 6

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