Tax Court Rules in Favor of Man Whose Wife Embezzled
In 2011, Rick Jacobsen’s wife was arrested for and ultimately convicted of embezzling almost $500,000 from the blood bank where she worked as an accountant.
As if that weren’t horrible enough, Jacobsen later received a letter in the mail from the IRS. It said he owed over $100,000 in taxes for the funds embezzled in 2010 and another $18,000 for funds embezzled in 2011.
Why was Jacobsen receiving a letter from the IRS when he in no way participated in the criminal activity and wasn’t even aware of it? Because he and his wife filed a joint tax return. According to the law, spouses are responsible for errors and omissions the other makes on a tax return.
And yes, embezzled funds are taxable.
Innocent Spouse Relief
In case you were worried, Jacobsen eventually got out of this situation, but how did he do it? Because of a rule called innocent spouse relief. He filed IRS Form 8857 to ask for innocent spouse relief, but it took him some time to be released from responsibility for the taxes on the embezzled funds.
The case had to go to court, where it was heard by a judge. The judge ultimately let Jacobsen off the hook for his spouse’s actions.
More About Tax Relief for Innocent Spouses
The law that pertains to innocent spouse relief basically states that a spouse who didn’t know that the other spouse had filed incorrectly can be relieved of the responsibility of paying those taxes.
For instance, if your spouse improperly filed taxes, intentionally misrepresented income, or claimed incorrect deductions and credits and you didn’t know about it, you could be able to get relief.
Each situation is unique, of course, and you will have to prove that you had no knowledge of the situation. The reason Jacobsen’s case went on for a long time and went to tax court is because his spouse claimed that he had full knowledge that she’d been embezzling funds.
If you did know about your spouse’s misdeeds, such as incorrectly claiming income or falsely claiming deductions, then you are on the hook for all penalties and taxes owed.
Help for Your Personal Tax Situation
Jacobsen’s case is extreme, but every year, countless spouses claim innocent spouse relief because they didn’t know that their spouses were intentionally filing tax returns incorrectly. If you believe that you might qualify for innocent spouse relief, speak to a tax attorney right away.
Your lawyer can examine your situation and see if a case can be made to get you off the hook for any taxes, penalties, or interest that the IRS is trying to pin on you. When you didn’t know about tax errors your spouse made, you shouldn’t have to pay for your spouse’s mistakes.
Lead Tax Attorney, The W Tax Group