Divorcing Connecticut couples going through a divorce may be surprised to discover that, in some cases, the process may end up causing an audit of their tax returns. This is because a judge oversees property division determinations during the proceedings. If the judge becomes aware of hidden assets and other property or earnings that haven’t been reported, there is an ethical obligation to report any suspected discrepancies to the IRS. These reported inconsistencies can lead to a tax audit.
In some cases, the audit may only apply to the earnings, property, or activity of one spouse. Regardless, the innocent spouse may still be subjected to the audit and liable for the results if a joint return had been filed. Often, this comes as a shock, as this spouse will often have no knowledge of the illegal activity. The IRS has an innocent spouse relief program for those who find themselves in this particular situation. With innocent spouse relief, the person may contact the IRS and ensure that the penalties only apply to the spouse who is responsible for the discrepancies.
Many people find post-divorce tax audits to be financially as well as emotionally draining. Because the statute of limitations for underpayments or failure to report income is normally three years, this can result in uncomfortable or stressful details of a divorce resurfacing that ordinarily would be well behind both parties.
A common reason for the dissolution of a marriage is the financial infidelity of one of the partners, and this can often be manifested in tax returns being prepared and filed improperly. A family law attorney may be able to provide assistance to a former spouse who is being audited due to income tax improprieties committed by the other spouse during the marriage.
Source: Forbes, “Divorce Causes Tax Audits“, Cameron Keng, February 10, 2014