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A tax audit could follow divorce

In a previous post we some factors that when present could prompt the Internal Revenue Service to conduct an audit. There are multiple other factors other than the ones we discussed in that post. One of them is divorce.

It is likely that most people who are in the midst of divorcing a spouse have a lot of things on their minds. In addition to the division of assets, child support and custody matters, those divorcing should be aware of the potential interest of the IRS.

The IRS knows when someone has divorced because of the way in which they file. Following a divorce someone will end up filing single or head of household, rather than married filing joint or married filing separately.

It is possible that any fraud or discrepancies uncovered by the IRS could be a complete surprise for an ex-spouse. In those situations it may be possible for the innocent spouse to seek relief that reflects this. There are three types of relief that fall under this category.

Innocent spouse relief could result in a spouse not needed to pay any additional taxes when his or her ex claimed improper credits or deductions, reported income improperly or failed to report income.

Separation of liability life results in the assessed tax being allocated between the two spouses. In this case each would cover the amount for which they are responsible.

Equitable relief is potentially available when an ex is to blame for reporting issues on a return filed jointly or when the tax reported on the return is not paid. This could be an option when the first two types of relief are not.

Recently divorced individuals may be targeted by the IRS because of the forensic audit that is usually a part of the process. In the course of the forensic audit it is possible that income and assets previously undisclosed will be revealed. Those assets could have a bearing on a person’s income tax filing that previously had not been accounted for. The IRS may conduct an audit of filings completed during the marriage, anytime within the three years following the divorce.

For most, an IRS audit is a scary proposition. To make it a bit less frightening some may find it beneficial to consult with a tax attorney.

Source: Forbes, “Divorce Causes Tax Audits,” Cameron Keng, Feb. 10, 2014

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