Wife Gets Partial Innocent Spouse Relief From Husband’s IRS Penalties From Unsubstantiated Deductions

In my industry, I see many cases where taxpayers could avoid or reduce IRS penalties if they provide sufficient documentations that substantiate their business deductions.

Upon IRS request, you must have sufficient documentation to prove the legitimacy of your tax deductions in order to avoid tax evasion charges. If however, you are unaware of illegal deductions that your spouse made on your joint tax return, you are eligible to file for Innocence Spouse (again, with sufficient proof in favor of your position).

Recently, the IRS imposed tax penalties on a couple who failed to provide sufficient documentation to support their business expense deductions. The wife was able to prove her lack of involvement in the case and thereby received partial Innocent Spouse relief.

CCH (http://tax.cchgroup.com) reports:

Couple Fails to Substantiate Deductions; Penalties Imposed; Innocent Spouse Relief Partially Applied to Penalties

A doctor and his wife, who filed jointly, failed to produce business records, documents, or other evidence sufficient to sustain deductions claimed for an emergency room physician business, horse training and related sales activities, interest expenses, or legal and professional services expenses. The horse training and related sales activities did not meet the threshold standard for an activity engaged in for profit under Code Sec. 183 because the taxpayers failed to produce credible evidence sufficient to demonstrate that they maintained detailed and contemporaneous records for those activities, conducted the activities in a businesslike manner, or had the requisite intent to make a profit from those activities; accordingly, deductions under Code Sec. 162 were not allowed.

The taxpayers also were liable for additions to tax under Code Sec. 6651, and an accuracy-related penalty under Code Sec. 6662. They presented no evidence regarding their failure to file their tax returns or their substantial understatement of tax. Equitable relief applied under Code Sec. 6015 to relieve the wife from liability for penalties with respect to tax deficiencies stemming from the husband’s emergency room physician business because she had no substantial involvement in that business and did not assist in maintaining its business records during the years at issue. Further, there was no evidence that the family’s lifestyle changed; therefore, she had no reason to know that the deductions her husband claimed were erroneous.

T.L. Phemister, TC Memo. 2009-201

It’s important for you to know what tax deductions you are entitled to and what records you need to keep in order to prove the legality of your deductions. If you think that you may have wrongfully deducted some expenses or if you are expecting an IRS audit, I strongly encourage you to get expert tax help from a tax attorney to reduce your penalties.

You can get help from our specialized staff of tax attorneys, CPAs, EAs and tax professionals at TRS. Visit Tax Resolution Services for a free income tax relief consultation or call us at 866-IRS-PROBLEMS (1-866-477-7762).

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Tags: Back Taxes, business expense deductions, delinquent tax returns, delinquent taxes, Free Tax Consultation, IRS debt, Michael Rozbruch, tax attorney, tax evasion, tax relief, tax resolution, tax resolution services, wrongful tax deductions

This entry was posted on Friday, September 11th, 2009 at 11:02 am and is filed under Back Taxes, Innocent Spouse, Seeking Professional Tax Help, Tax news and tips, tax help. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.