Spouses who file joint federal tax returns are both generally liable for the tax owed. But joint filers may seek “innocent spouse” relief. In one case, a man received innocent spouse relief regarding taxable proceeds that his ex-wife received in settlement of an employment discrimination lawsuit. Although he had knowledge of the settlement proceeds, he credibly testified that he made a good faith effort to comply with the law but erroneously believed a portion of the settlement wasn’t taxable. Plus, he was in poor health and showed he would suffer economic hardship if he was held liable because his only income was Social Security disability payments. (TC Memo 2022-110)
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