Married taxpayers who file a joint tax return are jointly and severally liable for any tax, interest, and penalties on that joint return. This liability extends after divorce even when the divorce decree provides for a differing allocation of liability. In certain cases, a spouse may receive relief from joint and several liability after making a request of the taxing authorities.
There are three types of relief to request: Innocent Spouse, Separation of Liability, and Equitable Relief. You can find more information on the differences between the three here.
Filing for Innocent Spouse Relief
File Form 8857, Request for Innocent Spouse Relief (and Separation of Liability, and Equitable Relief) to make the request. For Innocent Spouse and Separation of Liability Relief, you must make the request within two years of when the tax was assessed. It can be made during the audit examination. For Equitable Relief, you have up to the time the IRS can collect the tax (generally 10 years), or if you’re asking for a refund, you have until the later of three years after filing your return or two years after you paid the tax.
It is usually about a six-month process for the IRS to review your case and give you an answer. During this time, you must stay compliant with all IRS rules, such as filing your returns on time and paying your tax liabilities. The time this takes will have an affect on your statute of limitations (or the time the IRS can collect your tax). When a request is being considered, the statute stops running for this time. So, if you are close to having the statute run, then you may consider not doing the request for relief.
Once the IRS makes its determination, it contacts your spouse to see if he/she disagrees with removing you from the tax liability. The spouse has 30 days to dispute the IRS’ determination.
If you disagree with the IRS’ decision, you have a chance to appeal. (Your spouse does not have these appeal rights.) An IRS Appeal is a new set of eyes to consider your case. If you still disagree with the Appeal determination, then you can bring the issue to the U.S. Tax Court.
The following is a partial list of the positive and negative factors that will be taken into account by the IRS in determining whether to grant full or partial relief to you. No single factor is more important than the others. The IRS looks at each and considers how they play into your entire case.
1) Marital status.
Are you separated or divorced from your spouse (whether legally separated or living apart)?
This factor is required for separation of liability relief as you can’t still be married or living together at the time the request is made. For innocent spouse relief and equitable relief, marital status will be considered to the extent you continue to expose yourself to potential liabilities and to benefit from the understatement of tax liability.
Have you been a victim of abuse by your spouse and did such abuse amount to duress?
While these details can be extremely difficult to share, it will play a large role in how the IRS reviews your case. You may request that the IRS not share your contact information with your (former) spouse when it sends out the required notice to him/her of its determination. Information such as your new name, address, employer, telephone number, and any other location related details reasonably indicating your location can be removed. (Note, however, that if you file in U.S. Tax Court, this information will need to be shared.)
3) Your or the other spouse’s legal obligation.
Was the legal obligation for payment of the outstanding tax liability allocated to either spouse pursuant to a divorce decree or agreement?
If it was allocated to the other spouse, did you reasonably believe he/she would pay the liability? The fact that the other spouse was legally obligated under the terms of the divorce decree to pay the subject tax liability was sufficient to show relief should be granted. But, if a divorce decree places the obligation to pay the tax on the you, then that fact would weigh against granting relief.
4) Knowledge or reason to know.
Did you know or have reason to know of the item giving rise to a tax bill or that the reported liability would be unpaid at the time the return was signed?
The intentionally ignorant are not protected. If you knew or should have known of an item giving rise to a deficiency, you won’t be eligible for innocent spouse relief. However, the knowledge requirement does not require you to possess knowledge of the tax consequences resulting from the item giving rise to the deficiency or that the item reported on the return is incorrect. Rather, you have to show that you actually knew of the item on the return that gave rise to the deficiency. But, you still may be eligible for separate liability relief or equitable relief if you had reason to know, but did not have actual knowledge of the potential for a deficiency.
5) Significant benefit.
Have you significantly benefited (beyond normal support) from the unpaid liability or items giving rise to the deficiency?
Transfers of property to you are relevant in determining the existence of a significant benefit, and such transfers are not limited to the tax years to which the understatement relates. If you have lived a different lifestyle by having more available money due to nonpayment of taxes, that could result in the IRS considering you to have received a significant benefit.
6) Economic hardship.
Will you experience economic hardship if relief from the liability is not granted?
If you have to pay the taxes, in whole or in part, and you would suffer an economic hardship causing you to be unable to pay your reasonable basic living expenses, the IRS may give you relief. The determination of a reasonable amount for basic living expenses will vary according to your unique circumstances. Unique circumstances, however, do not include the maintenance of an affluent or luxurious standard of living.
Your age, employment status and history, ability to earn, number of dependents, necessary monthly payments expended, any extraordinary circumstances such as special education expenses, a medical catastrophe, or natural disaster, and any other factor will be considered.
7) Noncompliance with federal laws, including income tax laws.
Have you made a good-faith effort to comply with federal income tax laws in the following tax year(s) to which the request for relief relates? Have you appropriately applied for the relief?
Spousal relief is the most difficult relief to get from the IRS. This is mainly due to a poorly drafted request and not understanding what is required by the IRS. We urge you to get good tax professional help before taking on this type of request so you can do it as completely and efficiently as possible.