Has your spouse been accused or convicted of embezzlement? While this charge can cause them all sorts of legal trouble, it can also affect you in an unexpected way: your taxes. How does a spouse's fraudulent behavior wind up affecting you? And what can you do about it? Here's what you need to know.
Why Embezzled Funds Are Tax Issues
Embezzling money is the theft of money that's in a person's care. While it's usually theft from a person's employer, it can belong to just about anyone or any organization that person has access to. And while embezzlement is a crime, it's also income. Because that money has been illegally obtained, the embezzler usually doesn't report it on their income tax forms.
However, the IRS and state tax agencies expect taxpayers to report all income — both legal and illegal — on their taxes. So by not paying taxes on their ill-gotten gains, your spouse has now also defrauded the IRS. By getting caught, the matter is now known to the IRS.
Why Your Taxes Are Affected
Unfortunately for many married couples (or those who file income taxes jointly), all parties filing taxes together are equally responsible for those taxes. So if one spouse on a joint return fails to report embezzled income and pay related taxes, the IRS considers both you and them liable for the taxes. This standard remains true even if one spouse knew nothing of the theft or did not prepare the returns.
What Options An Innocent Spouse Has
If you've been unwittingly dragged into a tax mess due to embezzlement, what can you do to protect yourself? Veering from the standard of joint liability is possible, but you will need to convince the IRS on a case-by-case basis that you should not be held liable for the debt or penalties. This often calls for the help of a tax or legal professional.
Getting resolution may be accomplished through innocent spouse relief, which is a request to be severed from joint liability. Another route may be to negotiate an offer in compromise, settling for a portion of the debt and considering it paid in full. If these fail, you may need to take your case to appeals or even go before a judge.
Where You Can Learn More
The issues of innocent spouse relief, liability severance, and tax fraud are very complicated. You should never attempt to handle this on your own. Start by consulting about the specifics of your case and associated tax debt with a tax resolution specialist in your state. With their help, you can extricate yourself from this difficult situation and start moving forward with your life.
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