Help! My Spouse is Cheating on His/Her Taxes!!! Part I
Part I

If you find yourself exclaiming these words, even inaudibly, read on. By the time you pick up the phone to call me chances are that you will have already:

• Read the signals that something is amiss (anything from a questionable deduction to a bumper sticker proclaiming your spouse’s allegiance to a tax protestor group)
• Tried talking about it (interesting conversation) or decided not to bother (even more interesting)
• Decided that knocking on wood and hoping for the best is not the best strategy
• Finally, decided to act and call me, your tax attorney.
• In the spirit of “First, do no harm,” a quick word on what NOT to do.  If you have reason to believe that your spouse is cheating on his or her taxes, you should not, under virtually any circumstances, sign a joint return with your spouse. The reason is simple: by signing a joint return, a married person becomes jointly and severally liable with your spouse for ALL of the taxes that you both, as a couple, owes for the year.
• Unless you can qualify as an “innocent spouse,” which will be difficult to do if you knew or had reason to know of the understatement (I.R.C.
  § 6015), you will be jointly and severally liable for the entire tax bill.  I.R.C. § 6013(d). Indeed, a person who knowingly signs an untrue joint return is guilty of a felony. I.R.C. § 7206.
• The obvious (and indeed the only) alternative is to file as “married filing separately.”  While this can result in a greater total tax liability than married filing jointly, it at least avoids the trap of joint and several liability plus a potential criminal conviction.  If you as the innocent spouse files separately, correctly reports your individual income, and pays the resulting tax, you will avoid the quagmire your spouse created. Correct?

Not quite.  Like an undetected cross-current, California’s community property law may result in some unforeseen complications. Because California is a community property state, absent a premarital or postnuptial agreement to the contrary, each spouse has an enforceable right to one-half of the total community income—i.e., the total income earned by both spouses. Therefore, you cannot simply report your wages for the year and be done with it.

Part II will address the possible remedies to your sticky marital tax secrets.

This is just a basic overview and is not legal advice specific to your situation. If you would like to speak with me about your situation, please email me at jcw@eastbaybusinesslawyer.com or call 925-217-3255.