Innocent Spouse Relief
As a married couple, spouses will have to decide to file as Married Filing Jointly or Married Filing Separately. There are many benefits available to married couples who file jointly. For example, many tax deductions and credits have a higher income threshold for married couples. Although filing jointly may seem like the obvious choice for married couples, there are several implications and liabilities to consider before jumping the gun.
Couples who choose to file a joint tax return assume equal responsibility for all taxable income, tax credits, and deductions owed, which is referred to as joint and several tax liability. However, if your spouse or former spouse has incorrectly reported or excluded items on your tax return, then you might qualify for innocent spouse relief. Keep in mind that certain tax items are not eligible for innocent spouse relief, such as:
- - The Trust Fund Recovery Penalty for employment taxes.
- - Business taxes
- - Individual Shared Responsibility payments
- - Household Employment Taxes.
Suppose you believe your spouse or former spouse is responsible for some or all of the tax liability. In that case, you may request for innocent spouse relief by filling out and submitting Form 8857 to the Internal Revenue Service (IRS).
How Understated Tax Works
A tax understatement is when a taxpayer owes more taxes than what was reported on their tax return. The understatement can result from failure to report income or improperly reporting income, deductions, or credits. The Internal Revenue Service (IRS) determines the understated amount by subtracting the difference between the reported amount and the actual amount.
Types of Innocent Spouse Relief
The Internal Revenue Service (IRS) introduced the Innocent Spouse Relief program to provide relief for taxpayers facing financial burdens created by their current or former spouse. This program will place one of the two taxpayers as the assumed responsible party in order to absolve a federal tax debt. In this case, federal tax debt includes taxes, penalties, and interest. Although the most common spousal tax relief is the Innocent Spouse Relief, there are similar alternatives to this program for eligible taxpayers. The options are as follows:
- - Innocent Spouse Relief, in which the taxpayer is relieved of responsibility for taxes, interest, and penalties. This program is available to taxpayers whose spouses are at fault for the tax liability.
- Separation Of Liability Relief, in which the former couple splits up the tax bill based on liability. To determine how to allocate the funds properly, see IRS Publication 971.
- Equitable Relief, in which the taxpayer does not qualify for Innocent Spouse Relief or Separation Of Liability but may still be relieved of the tax liability.
Eligibility for Innocent Spouse Relief
While every taxpayer's situation is unique, the Innocent Spouse Relief program will pardon taxpayers if they were unaware of the items that caused the additional liability. The Internal Revenue Service (IRS) will assess if you meet the following qualifications for Innocent Spouse Relief:
- • You have filed a joint tax return that includes erroneous items in which your spouse or former spouse is at fault.
- • You establish that you were unaware of the tax understatement when you signed the joint tax return.
- • It would be unfair to hold you liable for the tax debt once the facts and circumstances are taken into consideration.
- • You and your former spouse have no taken part in a fraudulent scheme to defraud the Internal Revenue Service (IRS), creditor, business partner, former spouse, or a third party.
The Internal Revenu Service (IRS)takes all facts and circumstances into consideration when determining if you are eligible for Innocent Spouse Relief. Examples of considerable factors may include:
- • Whether you received benefits on the tax return that included the understatement.
- • Whether you and your spouse have been separated or divorced.
- • Whether your spouse or former spouse has left you.
- • Whether you received a significant benefit from the understatement.
A significant benefit is any benefit that exceeds the standard of normal support. If the Internal Revenu Service (IRS) detects a direct or indirect benefit from the understatement in question, they may deny you of Innocent Spouse Relief.
The Internal Revenue Service (IRS) defines erroneous items as any credits, deductions, or income incorrectly reported or not reported at all. Erroneous items fall under the categories of either unreported income or an incorrect deduction, credit, or property basis. Unreported income is any gross income your spouse or former spouse failed to report. Any false deduction, credit, or property basis also qualifies as an erroneous item. Keep in mind that if you had no knowledge or reason to know of only a portion of the erroneous item, you might only qualify for partial relief. The relief will apply to the erroneous item you had no knowledge of.
Applying for Innocent Spouse Tax Relief
If you believe that you are eligible for Innocent Spouse Relief, you may request for innocent spouse relief by submitting Form 8857 to the Internal Revenue Service (IRS). You should file Form 8857 the minute you receive notice of a tax liability you were not responsible for or unaware of. Generally, innocent spouses have two years from the date of the IRS's first attempt at collection to file for relief. Keep in mind that once you file for relief, your spouse or former spouse will be notified of the pending request.
LifeBack Tax Can Help You Achieve Innocent Spouse Tax Relief
Although it is possible to achieve Innocent Spouse Relief independently, it is in your best interest to seek help from a reputable tax professional. An experienced tax professional understands the rigorous tax code and can help you navigate through the process.
At Lifeback Tax, our tax experts have worked on countless spousal tax relief claims. Our clients have been granted either full relief or partial relief, depending on the situation's circumstances. Whether your case is basic or complicated, our highly trained team of tax professionals will work with you through the entire process!
Innocent Spouse Relief FAQs
You may qualify for innocent spouse relief if
• you filed a joint tax return which has an understatement of tax (i.e. taxes were underpaid) due to erroneous reporting by your spouse.
• you can establish at the time the joint return was filed you did not know there was an understatement of tax
• taking into account all the facts and circumstances if would be unfair to hold you liable for the understatement of tax
• you and your spouse did not transfer the property to one another to defraud the IRS or any other party.
Yes. If the statutory conditions are not met the IRS may deny an injured spouse claim.
Yes, a spouse may also be responsible to the IRS for understatement of taxes by another spouse depending on the factual circumstances.
You may request innocent spouse relief by completing IRS Form 8857 and sending it to the IRS.
Many married couples file joint tax returns. The innocent spouse rule provides a spouse may be relieved of the tax, interest, and penalties on a joint tax return if there was a filed joint tax return, the joint tax return understated income, and the innocent spouse did not know nor have reason to know of the understatement.
Possibly. It depends on your state of residence.