Sciara Pastore & Megale International Tax Advisory

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War of the Roses Tax Motivated Divorce Crossborder Innocent Spouse
May 3, 2024 - The War of the Roses was a 1989 movie depicting a wealthy couple marriage falls apart, material possessions become the center of an outrageous and bitter divorce. One obvious tax issue not addressed is the fiscal responsible for jointly filed tax liabilities unless one spouse seeks innocent spouse treatment. In a cross-border scenario where one spouse it is quite usual for the foreign based spouse to overlook full USA tax compliance.

Married taxpayers have the option to file a joint tax return whereas if you are married to a nonresident, you file separately unless you make an election to file jointly.

If elected the nonresident spouse must declare their worldwide income, and report any offshore trusts or business as required for a US citizen. The election is a once in a lifetime for both spouses and makes both husband and wife joint and severally responsible for each tax liability.

The problem arises quite often when the nonresident fails to report all income and business endeavors which makes the "innocent" spouse responsible for any taxes assessed and penalties. The bottom line to coin a phrase is caveat emptor "let the buyer beware" or in our case "let the signer be aware."

The only way out of this tax dilemma is to "espouse" the innocent spouse provisions. Under Section 6015 (b), if the injured spouses' timely files for relief within 2 years of collection and establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement of taxes.

Seems simple enough to just paraphrase what Sargent Schultz of the famous Hogan Heroes show said "I see nothing! I hear nothing! I know nothing." In the IRS style they have seen fit to add other requirements to the statute granting equitable relief under section 6015(f): (1) marital status; (2) economic hardship; (3) in the case of an understatement, knowledge or reason to know of the item giving rise to the understatement; (4) legal obligation; (5) significant benefit; (6) compliance with tax laws; and (7) mental or physical health.

The determination for relief depends clearly on weighing all the facts and deciding whether the innocent spouse is treated unjustly. Lavish Lifestyle is usually a major hurdle for a positive determination.

So, to sum up the rules of the road, if employed or an officer of your spouse's company, before you sign the return, be more circumspect. If you receive significant gifts from your spouse, you may lose your innocence. Lastly, compare your lifestyle to the amount of gross income on page one of your tax return.

Although we do not profess to be a marriage counselor or recommend a tax motivated divorce, we point out that the marriage factor is neutral unless the spouses is no longer married; the divorce factor weighs in favor of relief.
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This release was published on openPR.