Your Spouse Embezzled Money And The IRS Taxes You

embezzlement

I just read a great story about a man whose wife embezzled $500,000 and the IRS tried to tax him for her criminal behavior! He did not take it lying down. In fact, he fought and won!

What would you do if this scenario happened to you?

Would you just play along and pay the taxes? I suppose if you were aware of the embezzlement you might. But, let’s just say you had no clue what was going on, then what?

So here’s the gist of the story from a Wall Street Journal online article and some facts you may want to tuck in the back of your mind in the event you should encounter anything similar.

According to the article and based on the $500,000 the wife embezzled, “The IRS asserted that Mr. Jacobsen owed about $110,000 in taxes and penalties for 2010 in connection with his wife’s embezzlement, and an additional $18,000 for funds she embezzled in 2011.

So he filed a handwritten request on Form 8857 for relief under the “innocent spouse” rules. Congress first passed this provision in 1971 to sever joint liability if one spouse isn’t complicit in the other’s bad tax behavior.”

What helped Mr. Jacobsen win his case was basically a lack of financial sophistication.

The article stated, “Mr. Jacobsen, a factory worker, had an Associate’s Degree and no financial education. He said he trusted his wife to handle their financial affairs.” The article goes on to say that, “According to the opinion, his wife embezzled amounts that largely mirrored his payments for his free-lance work as a home inspector, helping to conceal the theft.”

Apparently neither husband or wife indulged in lavish expenditures. However, they were both gamblers. In fact according to the article, “For 2010, their tax return reported $161,951 of gambling losses and $162,951 of other income, their gambling winnings.”

In Mr. Jacobsen’s case he gambled with the IRS too. And he won.