Finn and Stella have been married since 2015 and have filed a joint tax return in the past. Both spouses have earned bachelorʼs degrees from a university. Finn works for the local library and earns \($50,000\) per year and Stella works as a financial consultant and earns \($150,000\) per year. Stella handles all the coupleʼs financial affairs including the filing of the income tax return. Finn briefly looks at the return before Stella e-files the return. They are currently being audited by the IRS on their 2020 and 2021 tax returns, and they owe a tax liability and penalty of \($210,000.\) The IRS claims underreported income of \($600,000\) that Stella earned under the table related to Ponzi schemes she developed. Finn states that he was unaware of the earnings and should not be held liable for any part of the tax liability. Finn drives a Jaguar, the couple purchased a new \($1,200,000\) home in 2021, and they took several trips to Europe and the Caribbean in 2020 and 2021. Is Finn liable for the tax liability or can he claim innocent spouse relief?
In addition to the chapter content, see Statements on Standards for Tax Services at https://future.aicpa.org/resources/toolkit/statements-on-standards-for-tax-services, Circular 230 at www.irs.gov/tax-professionals/circular-230-tax-professionals, and Chapter 3, LO4, Tax Professional Responsibilities.