When individuals file a joint tax return, each spouse is equally liable for all tax, penalties and interest that come about from that particular year. The IRS or states can legally go after both spouses or just one spouse for the entire tax amount that is due even if the couple is divorced and the divorce decree states that one individual is responsible for the taxes owed.
The IRS created innocent spouse relief because it realizes that there are times when it would be unfair to hold both joint filers equally liable for the tax liability that was created. There are three forms of spouse relief that will allow one spouse to get out of paying their spouse or ex-spouses tax. If an individual does not qualify for one, it is possible that they will qualify for another type of relief.
This was the original type of innocent spouse relief. This is an improved version from a prior innocent spouse law which has since been split into this section and two others. This form of relief can fully relieve one spouse’s responsibility for paying any of the understatement of taxes owed. Individuals must meet specific criteria in order to qualify.
- You must have filed a joint return for the year you are seeking relief from.
- If there was no joint return filed, you will not qualify for innocent spouse relief. This type of relief is only available to those individuals that are are held liable for their spouse’s taxes.
- The joint return that was filed must contain an understatement of tax owed. The understatement of tax must be from erroneous items/item that relate to something your spouse or former spouse did.
- An understatement of tax means that you should have owed more tax than the amount was actually shown on your return.
- Inaccurate items can be under reported income, improper deductions, misstatements of basis in property, over claims of exemptions and credits, arithmetical errors, improper property transfers or anything else that cause the tax return to be wrong.
- You did not know or didn’t have any reason to know about the erroneous items on the return at the time you signed.
- You must be able to prove that you didn’t know and there was no reason why you would have known. If you knew of the erroneous item at the time you signed the joint return, both you and your spouse will remain jointly liable for the tax liability. The IRS will look at many facts and circumstances around this item. This is a very common reason for innocent spouse relief requests to be rejected. Some common things the IRS looks at are the amount of the erroneous item with comparison to other items on the return, the financial situation of you and your spouse/ex-spouse, educational background, business experience, participation in the activity that resulted in the error, if you asked questions about the error prior to signing or if the item in error seems to be a recurring pattern in comparison to prior years returns.
- Considering all factors surrounding your situation, it would be unfair to hold you liable for the tax amount that is due.
- The IRS will look at all facts and circumstances available to them in order to make a determination if would be unfair to hold you liable for the understated tax liability. This part of the rule is up to significant interpretation of the IRS. Some factors the IRS will look at tare whether you received benefit from the understated tax, if your spouse left you or cheated on you, and whether you have been divorced or separated from your spouse.
- At the time you apply for this relief it must be within two years of the IRS’s first collection attempt of the amount owed for the years that you seek relief from.
If you meet all of the conditions above you have a strong possibility of receiving this type of relief. If you do qualify for this type of relief you would be relieved of the entire tax amount owed, including interest and penalties relating to the understatement of tax. If you meet the requirements of this, it is a good idea to see if you also meet the requirements of the other forms of relief before applying. It is best to prove you qualify for more than one type of relief when applying to receive the best outcome from the IRS. The same forms are used for applying for all three types of relief, so it should not be too much additional work.
Our team of licensed tax professionals will gather the appropriate tax records if you qualify for Innocent Spouse Relief. This will reduce your overall tax debt or liabilities helping you settle for less.