Christie and Billy jointly file this year. Billy intentionally omits $5,000 in gambling winnings. Christie fraudulently deducts $1,000 in business expenses. The IRS audits the return, assesses a $2,500 deficiency and begins collection efforts two years after the timely filing of the return. Christie and Billy divorced one year before the deficiency was assessed. Can Christie receive any tax
relief from the full $2,500 deficiency?
What will be an ideal response?
Yes, under the proportional liability election, which is part of the innocent spouse provisions, Christie meets all four of the conditions at the time of her election: divorced, not residing with the other filer at any time during the 12-month period preceding the election, no actual knowledge of the gambling winnings, and electing proportional liability within two years after the IRS begins its collection efforts. Christie will remain liable only for that portion of the deficiency attributable to her separate taxable items.
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