Innocent Spouse Relief: Everything You Need to Know

Filing a joint return often has tax benefits, but it can also come with negative effects. When you file a joint return with your spouse, you are agreeing to be held jointly and severally liable for all tax liabilities on the tax return. This means that even if you didn’t make any income or you didn’t know about what was filed on the return, you’re still equally responsible to pay the taxes. Based on your circumstances, you might qualify for relief from this responsibility, called spousal relief.

Here are the specifics this guide covers:

  • What is Innocent Spouse Relief?
  • Innocent Spouse Relief Requirements
  • Proving Innocent Spouse Relief
  • How to File Innocent Spouse Relief
Section 1:

What is Innocent Spouse Relief?

There are many reasons someone would ask for spousal relief and depending on your circumstances, you have the option of asking for one of the following three types of relief:

1.  Innocent Spouse Relief  

Most people refer to “Innocent Spouse Relief” when they’re thinking of asking for spousal relief. But, actual innocent spouse relief is only available under certain circumstances. First, you must have filed a joint return with your spouse. The taxes owed came about because there was an underpayment of tax due to a spouse’s erroneous item. This means that the IRS looked at your return and found you owe more taxes than what you reported. This could come by either a traditional audit where an IRS agent reviews your return or by getting a letter from the IRS when it makes a change on its own. The “erroneous item” occurs when there has been a failure to report income, improperly report income, or overstate deductions or credits. You must not have had known, or had any reason to know, that the return was filed with an erroneous item. Because of this, the IRS would need to find that it would be unfair to hold you liable for the taxes owed.

2. Separation of Liability Relief

This relief is similar to innocent spouse relief in that you must have had filed a joint return and the return contained an erroneous item. However, there is a requirement that you must be: a) no longer married to, b) legally separated from, or c) living apart for at least 12 months from your spouse (or former spouse). In this case, you can limit your liability to the portion of the taxes owed that is attributable to items specifically allocable to you. You can qualify for this relief even if you had a reason to suspect that there were errors in your return. In general, the IRS will allocate taxes between you and your (ex)spouse as if you had filed separate returns. You will need to show the IRS in your request how you wish the tax be separated.

3. Equitable Relief

If you don’t qualify for one of the first two types of relief, you may still be able to request relief based on the facts and circumstances showing it would be inequitable to hold you liable for all or part of any unpaid taxes on your joint return. This differs specifically from innocent spouse relief and separation of liability relief in that it applies to both an understatement of tax and an underpayment of tax.  That means that there doesn’t have to be an “erroneous item” on your return. Maybe you simply have an amount due that you can’t pay or you ended up with a tax bill you hadn’t anticipated. Also, with this relief, you can get a refund if it should go to you rather than your (ex)spouse. There are several factors the IRS looks at to see if it would be fair to grant you relief.

Section 2:

Innocent Spouse Relief Requirements

When you’re applying for spousal relief, you will need to prove that it would be unfair to hold you responsible for your spouse’s tax debt. The IRS wants to know about your specific circumstances to determine if the tax debt should be removed from your name. Here is a list of items to focus on when making a request for relief:

What is your marital status?

If you are still married, you will not qualify for separation of liability relief unless you have been living apart from your spouse for at least a year. For innocent spouse relief and equitable relief, the IRS will be critical of a situation where you continue to stay in a situation where you’re incurring more liability. So, while not required, it does make a better case for you to have been divorced or at least separated from your spouse before making the request for relief.

Is there a history of domestic abuse?

Were you forced into signing the tax return? The IRS considers situations where you are not free to do something other than file a joint tax return when abuse is present in your relationship. Being threatened, forced, or coerced into signing a return or making statements about the filing to an auditor is information that is very important to your request for relief. This can be a very sensitive topic and information you may not want to share. You should know that, for your safety, you can request that your address, employer, phone number, new name, and other identifying information can be protected through the request process.

Do you have a divorce decree that says who is responsible for the tax liability?

If you have some agreement or court order showing that you should be absolved of the liability, this will go a long way in your request for relief. However, if nothing is mentioned or you are the one to pay the tax in the divorce decree, then this will not weigh in your favor. Also, did you have a reasonable expectation that your spouse would actually pay the taxes owed if he/she was ordered to pay the tax? Just because your spouse was required by the court to pay the tax, the IRS requires that it be reasonable to assume he/she would pay the taxes.

Did you know that your spouse had an “erroneous item” on your joint tax return?

To the extent you had no idea of the problem, the IRS will consider relief to you. If there was any chance that you should have known taxes would be due, you won’t be eligible for innocent spouse relief; however, to the extent you may have known, but had no control over it or weren’t absolutely sure, the IRS can grant you other relief based on fairness.

Did you receive benefits from not paying the taxes?

If you were able to live a better lifestyle that can be traced to not having paid taxes or having underreported income or over-reporting expenses on your tax return, the IRS will be critical of allowing you relief. But, if your spouse kept the money and only used it for his/her benefit, you may be eligible for relief.

If you are required to pay the taxes, will you have an economic hardship?

Your request will include information about your income and expenses so the IRS can determine if you will not be able to meet your living expenses if it requires you to pay the taxes due. There are federal standards for living expenses that the IRS uses to calculate whether you have a hardship. Just because it will simply affect your living expenses will not be enough to prove this factor. You will need to show that your specific situation (age, work history, education, extraordinary expenses) will make it difficult to pay taxes of your spouse.

Have you filed your returns and paid your taxes on time?

The IRS will want to prove that you are otherwise compliant with all of your tax responsibilities. If you have past due taxes or returns that are not related to the period for which your asking for relief, the IRS will be hard pressed to grant you relief. But, if you’ve been diligent in all other years, the IRS will consider you’re making your request in good faith.

Unfiled Tax Returns Guide

Basically, the IRS will give you a thumbs up or down to see if each factor applies to you and whether your situation warrants spousal relief. Each factor is looked at independently and there is not one that weighs more than the others. If your circumstances show it would be unfair for you to be equally responsible for the tax debt, the IRS will grant you relief.

Section 3:

Proving Innocent Spouse Relief

You have the burden of proving your case. A well-written and well-reasoned application for relief is very important. Innocent spouse relief (and the other forms of relief) are one of the most commonly declined types of relief. This is largely due to not meeting the minimum requirements related to the relief as well as to not having a complete request. You should paper your request as much as possible, backing up all of your reasons with third-party proof of your claims. You will want to outline each of the above factors and include as much information as possible to support your request. If you can make the IRS’ job easier by giving it information from the get-go, you will be more likely to be granted your relief from the outset.

Section 4:

How to File for Innocent Spouse Relief

The IRS has a form on which you make your request for spousal relief no matter if you are requesting Innocent Spouse Relief, Separation of Liability Relief, or Equitable Relief. You will file Form 8857 to make the request. Your request should be made before the two-year mark of when you received your tax bill if you are doing this because of an IRS audit (for Innocent Spouse Relief or Separation of Liability Relief). If you have underpaid or understated your taxes and are asking for Equitable Relief, you have 10 years to make the request from the date the tax was first owed, or if you are asking for a refund of taxes already paid, you’ll need to request relief by the later of two years after you paid the tax or three years after you filed your return.

You should plan to be patient with your request. It typically takes the IRS about six months to consider your case and give you a response. You will have to keep filing your returns and paying your other tax liabilities on time. Also, you should know the statute of limitations to collect the tax stops running for the time the IRS is considering your case.

You will receive a letter from the IRS letting you know its decision. The IRS will also contact your spouse to let him/her know. If he/she disagrees with the IRS, he/she will have 30 days to have the IRS reconsider. If the IRS doesn’t change its mind, your spouse will not have appeal rights. If the IRS doesn’t grant you relief, you will have the chance to appeal. Then, if you still don’t agree with the appeal decision, you can petition the U.S. Tax Court to reconsider the request.

Section 5:

Conclusion

Be diligent and patient in making your request. Requests are fact-driven, and the IRS can only make a decision in your favor if it knows your full story. Very often, the IRS will deny relief on its first review and that is mostly because they don’t have enough information to justify relief. It is important to make sure your request is filed correctly. Having a good tax professional fighting for you will go a long way to getting you the relief you need.

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