fbpx

Innocent Spouse Relief

Innocent Spouse Relief

Although a married couple consists of two people, the IRS sees the couple as one tax liability. Therefore, the IRS can legally pursue one spouse for the whole liability. This is true even if the married couple separate or divorce. Innocent spouse relief offers some reprieve in particular circumstances.

Continue reading to learn about what innocent spouse relief is, how to qualify for it, and what types are available.

What is Innocent Spouse Relief?

Thanks to the many tax benefits, married couples commonly file their tax returns jointly. Consequently, both spouses are equally responsible for the entire tax liability. That means the IRS can legally pursue either spouse for part or all of an outstanding tax balance.

In most cases, this poses no problems for the couple. However, sometimes it may be appropriate to dismiss one spouse from some of the liability, especially after a divorce.

For example, a newly divorced husband learns that his ex-spouse didn’t disclose a significant bonus on their joint return. Consequently, he’s unaware of the resulting understatement of tax liability. Therefore, he’s not liable for the tax, interest, and penalties associated with the bonus.

According to the IRS, “You can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return.”

They continue, “Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse.)”

The IRS may deny innocent spouse relief in some cases. That’s commonly because their internal investigation found that both taxpayers on the joint return are equally responsible for the tax, interest, and penalties.

While the IRS offers innocent spouse relief on some taxes, others aren’t eligible. “For example,” they say, “Household Employment taxes, Individual Shared Responsibility payments, and business taxes and trust fund recovery penalty for employment taxes aren’t eligible for innocent spouse relief.” Income taxes, as well as self-employment taxes are eligible, on the other hand.

Qualifying for Innocent Spouse Relief

The IRS describes the following qualifications for innocent spouse relief:

  • “Erroneous items” that result in an understatement of tax liability appear on your joint return.

Unreported income is an example of an erroneous item. Suspicious or incorrect deductions and credits are also erroneous items.

  • You can establish that you weren’t aware of the erroneous items when you signed the joint return. In addition, you had no reason to know or suspect that the erroneous items were on the return when you signed.

Note: If you knew of erroneous items or probably should’ve known of them, you won’t meet this qualification.

  • In consideration of the facts of your case, it’s unfair to hold you liable for the understatement.
  • Finally, no property was fraudulently transferred between you and your spouse for the purpose of defrauding another entity.

Innocent spouse relief is a program designed for spouses with good intentions when he or she signed the joint return. If you need help establishing your good intentions, then consider hiring a seasoned and trusted tax relief expert.

Other Types of Innocent Spouse Relief

Innocent spouse relief isn’t the only relief of this type available to taxpayers. It certainly protects one spouse from the consequences of the other’s dishonest claims on a joint return. However, it’s not a solution for all scenarios.

Therefore, the IRS offers two additional solutions for spouses seeking relief. They are separation of liability relief and equitable relief.

Separation of Liability Relief

Although this solution doesn’t relieve one spouse of taxes, interest, and penalties owed, it does provide a fair allocation of the liability. In other words, the IRS divides the liability between each spouse. That’s not to say they’ll divide it down the middle. In fact, each spouse is commonly only liable for their fair share, based on income, credits, and deductions.

Similar to innocent spouse relief, the IRS offers separation of liability relief to taxpayers who filed jointly. In addition, the taxpayer must no longer be married to the joint taxpayer or be widowed.

They also offer this option to taxpayers who filed jointly but haven’t resided in the same household as their ex-spouse. The joint taxpayers must be living in separate households for at least 12 months before requesting relief to qualify.

Equitable Relief

Finally, taxpayers who don’t qualify for innocent spouse or separation of liability relief may opt for equitable relief. The IRS will consider this option instead of relief for the liability that results from a spouse’s improper reporting.

As long as the IRS denies your request for one of the other relief types, they may consider your case for equitable relief. They apply equitable relief to taxpayers who underpaid their tax liability, even though they filed an accurate tax return.

Equitable relief is open to a wide variety of IRS interpretations. Essentially, the IRS considers the facts and characteristics of your case to determine the fairness of the liability.

For example, a spouse who’s the victim of domestic violence in the marriage may have signed a joint return under duress. Therefore, the IRS is likely to consider the tax liability an unfair assessment.

The IRS notes the statute of limitations for spousal relief. “You must request innocent spouse relief or separation of liability relief no later than two years after the date the IRS first attempted to collect the tax from you.”

“For equitable relief, you must request relief during the period of time the IRS can collect the tax from you.” They also point out that the rules for spouses in community property states are different. “If you lived in a community property state and didn’t file as married filing jointly, you might qualify for relief from the operation of state community property law.”

Innocent Spouse vs. Injured Spouse

Although the terms are often used interchangeably, innocent spouse and injured spouse relief aren’t the same things. In fact, the IRS offers each of them for separate circumstances. For that reason, it’s important to understand their differences.

While innocent spouse relief is commonly suitable for divorced or separated couples who filed jointly, injured spouse relief addresses married spouses. In other words, if the marriage is no longer intact, consider filing for innocent spouse relief. If you’re currently in the marriage, injured spouse relief is more appropriate.

The following example is borrowed from The Taxgirl at Forbes magazine.

“You filed a joint return with your spouse and later receive a letter from the IRS indicating that $5,000 in income was not reported. You find out that it was money your ex earned during the marriage that he failed to report – and you didn’t know a thing about it.”

The IRS may dismiss you from your liability of the taxes, interest, and penalties, whether you’re still married or not. An unmarried spouse should prepare to seek innocent spouse by gathering pertinent information. That is, information that establishes that you had no way of knowing about the unreported income.

Comparatively, a married spouse doesn’t have to sacrifice his or her refund for the unreported income either. The IRS can separate the refund from the joint return and send it to the injured spouse if they grant injured spouse relief.

Need Help? Leave it to Tax Champions!

Above all, your application for innocent spouse relief should establish that you’re not liable for the whole tax liability. If you’re not sure whether you qualify or how to establish your innocence in this context, then contact us here at Tax Champions.

We are certainly committed to achieving the best outcome that you qualify for. We have over 35 years of experience representing taxpayers with the IRS. We’re proud of our reputation as trusted tax experts. Take a look at our A+ rating at the Better Business Bureau. You’ll also find that we have no customer complaints on our profile. Furthermore, we have no complaints with the IRS nor the Board of Accountancy.

Call us today at 800.518.8964 for your free consultation. We’re available seven days a week, during business and evening hours. There’s no obligation to hire our firm and our friendly experts are happy to discuss your case in particular. We look forward to hearing from you.

Sources

[1] Erb, K. P. (2017, October 24). Ask the Taxgirl: The Difference Between Innocent Spouse and Injured Spouse. Retrieved from //www.forbes.com/sites/kellyphillipserb/2017/10/24/ask-the-taxgirl-the-difference-between-innocent-spouse-and-injured-spouse/#fefb382c7407

[2] (2019, August 5). Innocent Spouse Questions and Answers: Internal Revenue Service. Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/innocent-spouse-questions-and-answers

[3] (2019, July 29). Innocent Spouse Relief. Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/innocent-spouse-relief

[4] (2019, July 29). Introduction to Innocent Spouses. Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/introduction-to-innocent-spouses

[5] (2019, September 11). Publication 971 (10/2014), Innocent Spouse Relief. Retrieved from //www.irs.gov/publications/p971

[6] Tax Champions: Better Business Bureau® Profile. (n.d.). Retrieved from //www.bbb.org/us/ca/ventura/profile/tax-consultant/taxchampions-1236-92012281

[7] (2019, December 31). Three Types of Relief at a Glance. Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/three-types-of-relief-at-a-glance

[8] (2019, August 23). Topic No. 205 Innocent Spouse Relief (Including Separation of Liability and Equitable Relief). Retrieved from //www.irs.gov/taxtopics/tc205

[9] Erb, K. P. (2017, October 24). Ask the Taxgirl: The Difference Between Innocent Spouse and Injured Spouse. Retrieved from //www.forbes.com/sites/kellyphillipserb/2017/10/24/ask-the-taxgirl-the-difference-between-innocent-spouse-and-injured-spouse/#fefb382c7407

Image result for blue check mark Individual Tax Prep

Image result for blue check mark Business Tax Prep

Image result for blue check mark Business Tax Projections

Image result for blue check mark Tax Consulting

Image result for blue check mark Understanding Tax Laws

Image result for blue check mark Payroll Services

Image result for blue check mark Bookkeeping Services

Image result for blue check mark Tax Planning for Corporations, Partnerships & LLC's

Walter Wotman, CPA

Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman's Tax Champions authored this helpful Guide to IRS Tax Resolution for American taxpayers. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.

Get Help Now (800)-518-8964

Copyright Tax Champions 2017