Filing Fair and Accurate Income Tax Returns – (Q & A)

Sep 2016


Q Dear Rick:
I am in my late 60s and last year I got remarried. This is my husband’s second marriage as well and we both have children and grandchildren from previous marriages. To be honest, the marriage is not going very well and I have a funny feeling that it will end in the not-so-distant future. The current problem deals with our 2015 tax return. After some discussions we decided that his accountant would prepare the return and my accountant would review it. After reviewing the return, my accountant recommended that I file my return separately, not as a joint return. He said there were too many irregularities. The problem is if we file separate tax returns it would cost me about $4,000 in taxes. I don’t want to pay those taxes. My gut feeling is that I should sign the return and take the gamble. My question to you is what do you think?

A Dear P.B.:
I 100 percent agree with your accountant. I think it is a mistake to knowingly sign a false tax return. I believe when you intentionally sign a false tax return you potentially open up a can of worms that can create all sorts of problems for you, both legally and financially.

It is important to understand that when a taxpayer signs a return whether it is an individual return or a joint return, they are attesting to the fact that they believe the return is fair and accurate. As a result, if the IRS audits your return and they discover irregularities, not only can you personally be on the hook for the additional tax liability, but in addition, interest and penalties. Particularly if the IRS determines that there was negligence or even gross negligence involved, you can see penalties as high as 50 percent.

You may think that the only additional tax liability you would personally be responsible for is the amount attributed to your income; unfortunately, that is not the case. When you sign a joint tax return you are personally on the hook for potentially all the additional tax liability plus any interest or penalty assessed. You may be under the mistaken belief that since the issues deal with your husband’s income, only he would be responsible – that is not the case. The IRS can choose to go after you, your husband, or both of you. Therefore, it’s potentially possible that you can be hit with a substantial liability. As far as I’m concerned, I would not want to take that risk. After all, the question you’d have to ask yourself is, if you were held liable and had to take a significant hit, how would that affect your personal finances.

In addition, something to think about is sleeping at night. Knowing that you signed a return that could come back to haunt you can cause unforeseen anxiety and potentially even affect your health. My question is, is it worth it?

There are many situations where a spouse will sign a joint return and then it turns out there were some irregularities and as a result, there were substantial additional taxes, penalty and interest owed. If one spouse can show that they had no knowledge of the irregularities and had no way of discovering them, there are procedures where that spouse can relieve themselves of liability. The innocent spouse statute deals with this issue. However, it is important to know that the innocent spouse has the burden to prove their case. If they cannot, they are going to be held equally liable.

In many situations where the innocent spouse statute is used, both parties are cooperating with each other. In the situation at hand where the marriage may not last, I am not sure there will be cooperation and that could cause a problem.

I always encourage taxpayers to file fair and accurate returns. Not only is it our responsibility as citizens of this great country to abide by the law, but it will also help you sleep at night. After all, no one wants to go to bed at night having to worry that the next day the IRS or the State of Michigan will be contacting them. My advice is to focus on the quality of your life and thus, I recommend that unless your husband cleans up the return, you should file a separate tax return-no matter the cost.

Good luck!