Separation or divorce is a difficult time for most people who go through it. Sometimes, even years later, these can cause IRS problems which could be devastating.
The innocent spouse rules are in place to help provide relief to spouses or ex-spouses who are being assessed back taxes from the IRS because of errors on their jointly filed tax returns. Most married couples chose to file joint tax returns because of the benefits joint filing provides. When a joint tax return is filed both taxpayers are jointly and individually responsible for the tax, as well as any interest and penalties. This is true even if they later divorce and a divorce decree states that a former spouse will be responsible for anything due on the previously filed joint tax returns. One spouse may be held responsible for the tax due, even if the income that created the tax was earned by the other spouse. There are three types of relief for innocent spouses;
1) Innocent Spouse Relief,
2) Separation of Liability, and
3) Equitable Relief. Each type of relief has different requirements (see our FAQ’s below for more detail).
If you meet the conditions for any of the types available for Innocent Spouse, the IRS will not hold you responsible for some or all the tax due on the specific joint tax returns filed. In order to qualify, you or your representative must file Form 8857, Request for Innocent Spouse Relief within two years of the date the IRS first attempted to collect the tax form you.
How does the Innocent Spouse Rule apply?
When you file a joint tax return, the law makes both spouses responsible the for tax liability. This is called joint and several liability. However, there are three types of relief for filers of joint returns: “innocent spouse relief,” “separation of liability relief,” and “equitable relief”. Each type has different requirements and is briefly explained below.
What is joint and several liability?
Joint and several liability applies to the tax liability shown on your joint tax return. It also includes any additional tax liability the IRS determines to be due, even if the additional tax is due to the income, deductions or credits of your spouse or former spouse. You remain jointly and severally liable for the taxes, and the IRS can collect from you, even if you divorce and the divorce decree states that your former spouse will be solely responsible for the tax.
Can I qualify for Innocent Spouse Relief?
To qualify for Innocent Spouse Relief you must meet all the following requirements:
1. You must have filed a joint return that has an understated tax.
2. The understated tax must be due to erroneous items of your spouse (or former spouse).
3. You must establish that at the time you signed the joint return, you did not know and had no reason to know there was an understated tax.
4. With all the facts and circumstances known, it would be unfair to hold you liable for the understated tax.
5. You must request relief within 2 years after the date the IRS first began collection activity against you.
What are “erroneous items?”
Erroneous items are any items that are incorrectly stated on your tax return, and any income item that is not properly reported.
What is “understated tax?”
Understated tax is when the IRS determines that your total tax liability should be more than the actual amount shown on your tax return.
Can I qualify for Separation of Liability relief?
Under the separation of liability relief, you allocate the understated tax, plus interest and penalties, on your joint return between you and your spouse. The understated tax allocated to you is generally the amount you are responsible for. To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements on the date you file Form 8857:
1. You are no longer married to, or are legally separated from the spouse with whom you filed the joint return that are requesting relief.
2. You were not a member of the same household as the spouse with whom you file the joint return at any time during the 12 month period ending on the date you file Form 8857.
Can I qualify for equitable relief?
Equitable relief is only available if you meet all of the following conditions:
1. You do not qualify for innocent spouse relief, separation of liability, or relief from liability arising from community property laws.
2. You have an understated or underpaid tax.
3. You did not pay the tax.
4. The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances.
5. You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme.
6. Your spouse (or former spouse) did not transfer assets to you for the main purpose of avoiding tax or the payment of tax.
7. You did not file or fail to file your return with the intent to commit fraud.
8. The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed a joint return.
How do I request relief?
File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. Form 8857 should be filed no later than two years after the date on which the IRS first began collection activities against you.
What is “Injured Spouse Relief”?
Injured spouse relief is different from innocent spouse relief. When a joint return is filed and the refund is used to one spouse’s past due federal tax or other items, i.e. child support, the other spouse may be considered an injured spouse. The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. You are considered an injured spouse if:
1. You are not legally obligated to pay the past due amount.
2. You meet any of the following conditions:
a. You made and reported tax payments.
b. You had earned income and claimed the earned income credit or the additional child tax credit.
c. You claimed a refundable tax credit.