What is Innocent Spouse Relief?If a person files a joint return and is unaware that their spouse has deliberately under-reported their tax liability, the innocent spouse can get protection from paying additional taxes and penalties by filing form 8857. They need to prove that they did not know about the error in the joint return.
What is Injured Spouse Relief?An injured spouse is the one who files a joint tax return and all or certain portions of the refund is applied to the spouse’s past due financial obligations. You may fill form 8379, if you are not responsible for the debt and entitled for a refund by the government.
Innocent Spouse Relief vs Injured Spouse ReliefTo determine which status applies to your situation, you need to understand the differences and review the concerned joint tax return.
Accuracy in Filing Return
Reported Taxable Income
Types of Innocent Spouse Relief
1. Traditional Innocent Spouse ReliefThis type of tax liability relief relieves you from additional tax assessed against your total joint return due to the incorrect claim made by your spouse or former spouse. There are two criteria to claim this relief:
- Presence of a wrong item on the joint return, which is solely attributable by your spouse. This item could be an income which your spouse failed to report or an inaccurately claimed credit or deduction.
- There is an understatement of tax on your return which you are unaware of.
2. Separation of LiabilitySeparation of Liability will only give you partial relief in case of an additional tax assessed from your joint return. The IRS agrees to distribute equal portions of the debt to both the spouses individually. In order to get relief from joint tax liability under Separation of Liability, you should meet one of the following criteria:
- You are divorced or legally separated from your spouse.
- You are widowed.
- Both of you are living in separate households during the last one year since you filed for a joint return.
3. Equitable ReliefYou can claim this relief if you do not qualify to go for the other two Innocent Spouse Relief. If the IRS believes that it is unfair to hold one spouse accountable for the total tax debt, it goes for this catch-all variation of tax liability relief. However, it does not require the presence of an incorrect item on the joint return. Instead, it can be granted if the return was not paid after being adequately stated.
Requirements You Must Meet to File For Innocent Spouse Tax ReliefWhen a married couple has filed for a joint tax return, the liability for paying the taxes becomes joint and several. While some can trick an unsuspecting spouse into filing for a joint return on their taxes, others may withhold knowledge of an underpayment of taxes. When filing for divorce, a spouse can also file for innocent spouse tax relief. Whether you are filing for innocent spouse relief while married, or doing so after separation, there are a few innocent spouse tax relief requirements you must fulfill. Before proceeding to file for tax relief, let’s take a look at some of the conditions you need to be working in your favor to get the exemption.
1. A Filed Joint Return for the Particular YearOne of the most basic conditions that needs to be fulfilled is that if you seek relief for a particular year, there should be a joint return filed by you and your spouse for the same year. Innocent spouse relief is only available to those who are held liable for their spouse’s taxes. If the IRS does not find a record of a joint return filed under both your names, you will be denied the innocent spouse tax relief.
2. Joint Return Containing the Understatement of Owed TaxesIf a spouse fails to pay their part of the taxes on the joint return, there should be a record of understatement of the taxes that they owe to the state. Once you gain knowledge of the unpaid taxes and decide to file for innocent spouse tax relief, ensure that the joint return contains a statement which proves that the defaulting spouse has paid less than what they owe and is reflected under false activities or erroneous items.
3. Ability to Prove Your Unawareness of the LiabilityYou must be able to prove that your unawareness about the unpaid or underpaid taxes is genuine. The delinquent spouse may intentionally omit some income from the joint return or file them under false erroneous items. The IRS may be convinced of your innocence by comparing the amount of erroneous items to other items and your participation in the activity that resulted in the error. If the IRS finds that you had any knowledge about the process that resulted in the underpayment of the tax your request for innocent spouse tax relief will be denied.
4. Circumstance Should Work in Your FavorConsidering all facts pertaining to your situation it would be unfair to hold you liable for the outstanding tax amount. The IRS will look at all facts and circumstances to determine if it would be unfair to hold you liable for the understated tax liability. Some of the factors the IRS will look at include whether you benefited from the understated tax, if your spouse left you or cheated on you, and whether you have been divorced or separated from your spouse.
When to file for an Innocent Spouse Tax ReliefYou should file for an Innocent Spouse Tax Relief claim no more than 2 years from the date when the IRS first tried to collect taxes from you. Most times, you find it is only one spouse that files the returns while the other signs without going through the documents before signing. If you are not taking part in filing the returns, it is advisable to go through the returns before signing on them.
You are Not Required to be SingleYou can file for an Income Spouse Relief even if you are still married to your spouse. To obtain the relief, the spouse requesting for a claim must prove they did not file or failed to file with any fraudulent intentions. They must also show that there were no assets transferred between both spouses for a fraudulent scheme or tax avoidance.
There Must be “Known” MattersThere are cases where you can prove you had no knowledge of over-claimed deductions or income understatements and can still be held liable for tax understatements. A section in Publication 971 outlines an eligibility title of “Actual Knowledge or Reason to Know” which states that if a reasonable person in a similar situation would have known about the tax issues, you remain liable. Therefore, if you did not know, but should have known, liability becomes a possibility. You cannot be granted an exemption if you failed to be vigilant and aware of your joint tax filings.
Steps To Seek Innocent Spouse Tax Relief from IRSThis blog covers 3 steps that can help you seek innocent spouse relief from the IRS. Let us dig in.
1. File IRS Innocent Spouse Tax Relief Form 8857If you believe that you qualify for innocent spouse tax relief, you can file IRS form 8857. This is the first step to getting relief from joint tax liability. The form is seven-pages long and covers many questions about your situation and how you specifically qualify for the relief. The form also includes questions about your education, qualification, and profession. This information helps to determine whether you are in a position to have known if something was wrong with your tax filing. Attach all the necessary documents that support your claim. Be careful when filing as any misleading answer can lead to rejection of your petition. If you don’t know how to fill out an innocent spouse tax relief form, you must take help from a local tax attorney.
2. Draft an Innocent Spouse Relief LetterIf you are a victim of abuse from your spouse or ex-spouse, then drafting a letter is essential. Even if it is not required, it is good practice to draft a letter to strengthen your claim. You can look at sample innocent spouse relief letters before writing your letter. The IRS form 8857 might not provide enough space to explain your issue. A letter allows you to provide detailed information on why you should be eligible for innocent spouse relief. Also, do not forget to attach all documents that support your claims.
3. Mail the DocumentsOnce you are done filling the form, drafting a letter, and attaching other essentials, send the documents to the IRS office via postal service or private carriers such as FedEx or UPS. Or fax the form and attached documents. It is important to write your name and contact number on the letter or any other documents before you mail. You can refer to the IRS official website to get the helpline contact number of your Local IRS office.
CautionThere are certain situations when you should not file form 8857. Some of them are:
- Your answer to the first question on Form 8857 is NO.
- You already entered into a closing agreement with the IRS for the same liability
- You have accepted an offer in compromise with the IRS
- The court reviewed your case but did not approveIRS TAX