Discuss why Congress passed the innocent spouse provision and give requirements to be met in order to qualify as an innocent spouse and be relieved of liability for tax on unreported income.
Answer: The provision was passed because each spouse is liable for the entire tax on a joint return as well as penalties imposed. This would not be fair if one spouse concealed information regarding income or deductions from the other spouse.
An innocent spouse is relieved of liability when
1. The amount is attributable to grossly erroneous items of the other spouse.
2. The innocent spouse did not know of and had no reason to know that there was such an understatement of tax.
3. To hold the innocent spouse liable for the understatement would be inequitable.
4. The innocent spouse elects relief within two years after the IRS begins collection activities.