If a married couple files a joint tax return, they are “in it together” as far as federal income tax liability is concerned. In other words, one spouse could still be liable for tax even if the other spouse commits a fraud. However, as shown in a new case, Zaheen, TC Memo 2026-7, 1/22/26, an “innocent spouse” may be entitled to equitable relief due to special circumstances.
Background: Generally, joint filers are “jointly and severally” liable for taxes when they file a joint income tax return with the IRS. So, the IRS can come after you for unpaid tax—as well as interest and penalties—even if you aren’t directly responsible for an understatement or omission. Unlike the laws for most other actions in this country, you’re guilty until proven innocent!
However, the courts may be lenient if an innocent spouse is found liable for back taxes.
To qualify as an innocent spouse under the prevailing regulations, a spouse must meet the following requirements.
- You filed a joint return that has an understatement of tax due to erroneous items of your spouse (or former spouse).
- You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax.
- You and your spouse (or former spouse) have not transferred property to one another as part of a fraudulent scheme.
- Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.
In addition, the IRS may grant equitable relief in other instances if you would unduly suffer economic hardship. This is determined by the relevant circumstances.
Facts of the new case: A couple who had independently immigrated from Pakistan married and resided in Massachusetts. They filed a joint return for 2019, the tax year in question. At the time of the trial, they were in the process of obtaining a divorce.
The husband, an electrical engineer, completely controlled the family’s finances. His spouse, a physician, was generally discouraged from participating in these activities. The husband also displayed violent tendencies towards her and their children. The wife has testified that her physical and mental health had suffered as a result of his behavior.
During 2019, the husband concocted a scheme whereby he withdrew funds from his spouse’s 401(k) account without her knowledge. The distribution wasn’t properly reported on the couple’s joint tax return. Initially, the IRS held the wife jointly and severally responsible for the deficiency, but the Tax Court relented. It determined that the innocent and unknowing spouse was entitled to equitable relief.
Caution: This is an issue that is often contested in the courts. If one of your clients is in a similar position, collect all the evidence needed that can provide a way out of the predicament. Make sure that you are on firm legal ground.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
