Transparency's role in avoiding a divorce redux by IRS audit

Divorce is not always a negative and contentious experience. Every divorce, though, tends to be burdened by some emotional upheaval. That's not a feeling anyone in Maryland wants to revive after a divorce is final, but an Internal Revenue Service audit has a way of doing just that.

Not every tax return filed by a divorcee triggers an audit by the Internal Revenue Service. However, any divorce proceeding, because of equitable distribution concerns, may spark such a review. It tends to hinge on whether a forensic accounting is done of the parties' holdings and discrepancies are found. Indeed, a divorce court judge is ethically obliged to refer such issues to the IRS when they surface.

It should come as no surprise that the IRS would be interested in such matters. Nor should it be a surprise that the government's follow up on such referrals can take some time. The agency typically has up to three years to take action. That time frame can be doubled if the discrepancies cross a particular threshold. And if the IRS chooses to claim suspected fraud, the statute of limitations may not apply at all.

That being the case, the chance of having to go through an undesirable revisiting of the divorce by virtue of an IRS audit becomes possible.  

If you are an innocent victim of an ex-spouse's failures in tax filing, there are three forms of relief that may be available to you. If you are completely innocent, you can ask the IRS to focus all collection efforts on the ex. The other two forms provide a framework through which you can seek to limit your liability if you shared some responsibility for the tax filing issues.

An experienced tax controversy attorney can help determine what route might be best given your particular circumstances.

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

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