Married couples usually file a joint tax return, and in most marriages one spouse takes charge of the activity, even though both are responsible for the information on the return. When a couple divorces, and neither is re-married, one of them will typically file as a single person and the other as the head of household.
Later what can, and does, happen is that tax fraud perpetrated by an ex-spouse can trigger a tax audit that affects both ex-spouses. Even those who are not accused of tax fraud can have prior year returns audited if they fall into other audit-prone categories.
According to reliable sources, the Internal Revenue Service audits some types of income tax returns more frequently than other types of returns. As we stated in a previous blog, some income tax filers such as those earning more than $1 million per year, are more likely to be audited.
The IRS is also reportedly trying to collect on $385 billion per year in estimated unpaid taxes due to tax fraud. The IRS is allegedly targeting the following types of tax fraud:
- Underreported income
- Overstated deductions
- Double record keeping
- Excess business expenses
- Hiding or transferring assets
If the IRS suspects tax fraud, or seeks for some other reason to audit a joint return for a currently divorced couple, both ex-spouses will be required to provide information.
There is a reported possibility that the so-called innocent spouse rule, if one spouse had no reason to know about the tax fraud, he or she could be relieved of payment for back taxes, penalties and interest. The ex-spouse may also be able to obtain equitable relief if he or she was the victim of spousal abuse.
If the IRS is pursuing a tax audit of prior year returns for ex-spouses, it would be wise to obtain professional representation. There are a number of financial as well as legal issues that may be involved.
Source: McClatchy, "Tax cheats can land spouses in hot water," Claudia Buck, April 16, 2012