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If you prepare the joint return, can you be an 'innocent spouse'?

October 20, 2009

Surely there's a set of facts that will enable a spouse who prepares the joint tax return to win "innocent spouse" status, but it isn't Owen Smith's set of facts. The former H&R Block employee and IRS veteran prepared joint returns including income from his wife's restaurant business. The returns left off a lot of income. The Tax Court wouldn't let Mr. Smith off the hook:

Petitioner and Ms. Lyman's tax returns reported large deductions that significantly reduced their joint tax liabilities during the years at issue. Because petitioner prepared and signed those returns, he would have noticed the net losses and resulting deductions repeatedly claimed for Ms. Lyman's business. Presumably, such large losses, caused by understated gross receipts, over a period of years would cause him to question how he and Ms. Lyman were able to maintain their standard of living. Consequently, petitioner could be expected to know that the returns contained understatements, thus raising his duty to inquire.

The Moral? The more you should know, the harder it is to play dumb.

Cite: Smith, T.C. Memo. 2009-237

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