With tax returns neatly filed and over with until next year, it seems like the perfect time to talk about what your signature means, both on your tax return and other documents as well. A signature by definition binds the individual signing the document [i.e. contract, agreement, form, etc.] by the provisions contained in the document, which means simply: You are legally obligated to whatever is contained within them. And in circumstances where you are married and signing as one of the parties to the contract—or tax return—you share in the legal responsibility, as well as in any legal consequences, that may arise.
Best Practices
That said it’s in your best interest to read and understand what you are signing, no matter what the circumstances. When someone hands you a document and says “Just sign here,” the responsibility ultimately rests with you to know what you’re agreeing to. Even though it may inconvenience you to read the information contained, in the long run, the risks far outweigh the time you will spend reading the fine print. In the case of your tax return, you are still responsible even though you may rely on your spouse both to complete the return and, as importantly, to act on it (i.e. to make the payment for the tax obligation) In the case that s/he doesn’t, then you will have to face the aftermath as well.
So you see the “Just sign here” activity can be fraught with serious consequences. In fact, the IRS even has a provision known as the Innocent Spouse rule.
Here’s an excerpt from the IRS that generally outlines the liability you carry upon signing your tax return.
“Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows. Both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. One spouse may be held responsible for all the tax due.”
While this may sound like the heaven-sent loophole that will automatically save you, it’s best to understand that you will be responsible for proving that you are indeed innocent. To learn more about this rule and your potential inabilities go to the Innocent Spouse FAQ’s: http://www.irs.gov/taxtopics/tc205.html
The bottom-line is that even though you may have an “airtight” case for being an “innocent” party, you will still have to complete paperwork and submit documentation to the IRS for a review of your case, and sometimes, depending on the scale and conditions of the case, with the aid of an attorney to represent you.
Also noteworthy is the fact that this liability will ‘follow’ you even after divorce, if you do not qualify for innocent spouse status.
It’s easy to see then that this claim process for establishing your innocence can become not only time consuming, but stressful and costly. It goes without saying then that by reading and understanding first anything you are signing your name to, you will avoid what could potentially be some very unhappy and costly moments. So the next time you are faced with signing any document, take a deep breath, take your time and read before you pounce on the yellow sticky that says “Just Sign Here”. Taking precautions now—or the next time you sign anything on the dotted line—will keep you out of harm’s way.
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