Question

At the time Sherry signed her joint return, she knew that her spouse did not report $5,000 of gambling winnings. The IRS examined the tax return several months after she filed it and determined that her spouse's unreported gambling winnings were actually $25,000. Sherry established that she did not know about, and had no reason to know about, the additional $20,000 because of the way her spouse handled gambling winnings. If Sherry meets the other requirements, what amount of the understated income will qualify for innocent spouse relief?

A. $2,500

B. $5,000

C. $10,000

D. $20,000

Answer 1

In this question , Sherry was aware of only $5000 unreported gambling income which must have been disclosed bcoz she signed joint return . However , she did not disclose $ 5000 in joint return. Therefore , she can not get relief from this $ 5000 so, she will have to pay tax on $ 5000 along with interst and penalty if levied as per country income tax provision .

Further , she was not aware of $20000 gambling income of her spouse so, she can file application to IRS alongwith appropriate evidence and reason that i was not aware of $ 20000 and if IRS is satisfied with submitted evidence then IRS can grant relief of $20000 for her only in joint return but she will have to pay tax on $ 5000 along with interest and penalty if any . However , Tax on $ 20000 along with interest and penalty ( if any ) will be seprately levied on her spouse return .

Conclusion : Relief of $20000 can be granted to Sherry. And , $5000 will be disclosed in sherry joint return.