- A measure of relief built into the tax code that allows a person, if eligible, to avoid paying his or her spouse's tax if it was reported incorrectly. The innocent-spouse rule applies to a spouse that can prove that he or she did not incur the tax bill and did not somehow benefit from the failure to pay.
Ultimately, this rule is designed to protect people from liability for taxes incurred as a result of evasive or dishonest financial behavior by their spouses, or from divorces where one person fails to pay tax on the income he or she earned and intends to leave the other spouse with the bill.
Several conditions must be met in order for the innocent-spouse rule to apply. The innocent spouse must prove (with appropriate documentation) that the error or fraud was committed by the other spouse. The innocent spouse must also be able to establish that he or she didn't know about the income or fraudulent activity. Finally, the application for relief must be made within two years of when the IRS begins its collection process.
Investment dictionary. Academic. 2012.
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