Innocent Spouse Relief

Do you need to reduce or remove your liability for your spouse or ex-spouse's tax issues?

Do You Qualify for Innocent Spouse Relief?

You’ve read the articles and seen the movies and TV shows where the cops come into a very large home and arrest the husband and wife. The wife is hysterical and has no idea why she is in handcuffs. To her surprise, the husband had been running a ponzi scheme and the wife knew nothing about it.

The wife’s world just got turned completely upside down by the person she trusted most. She will be left with nothing and most likely need to start over. She then needs to speak with the authorities and try to explain that she knew nothing about what happened. The humiliating experience is devastating.

How might something like this happen in the real world without your knowledge? If you and your spouse signed the joint tax return, you are both liable.

The IRS, surprisingly, has created a provision that protects you from such incidents and relieves you from the tax liability for those years in question. If you meet certain criteria, you can then qualify for Innocent Spouse Relief.

Why Did the IRS Create Innocent Spouse Relief?

Married couples can choose to file their income tax returns jointly or individually under current federal tax legislation. The choice can have a big impact. For example, if a married couple chooses to file an individual tax return, certain sections of the Internal Revenue Code (the Code) severely limit or altogether eliminate key tax benefits. To take advantage of these benefits, most married couples file a joint tax return.

Under Section 6013(d)(3) of the Code, when you file a joint return with your spouse, you are jointly and severally liable for the tax on that return, plus any interest and penalties.

This means no matter what situation you are in, if you file a return with your spouse and you owe money, you are presumed to owe it as well.

But in some cases, you may be able to get out of this responsibility by claiming "innocent spouse relief."

This was enacted in 1971 when Congress passed its first Innocent Spouse Act. See Pub. L. No. 91-679, 83 Stat. 675 (1971). Decades later, Congress strengthened protections afforded to innocent spouses through passage of the IRS Restructuring and Reform Act of 1998, Pub. L. No. 105-206. Today, the innocent spouse provisions are in Section 6015 of the Code.

The IRS policy of pursuing both taxpayers for an unpaid debt has been upheld by the courts. even if both parties agree that the IRS should attempt to collect from one party before pursuing the assets of the other. Also, courts have ruled that divorce decrees and other agreements between the parties that are legally binding have no effect on the IRS.

The reasoning for this is that it would be unjust to limit the IRS's collection rights based on an agreement to which it was not a party. On the other hand, the IRS code says that it is not always fair to hold innocent spouses responsible for debts they did not know about.

The Specifics of Innocent Spouse Relief

In order for the IRS to grant innocent spouse relief, the following standards must be met:

1. You filed a joint income tax return.

2. Your tax was understated on your return (the IRS determined that you owe more taxes than you reported).See Reg. 1.6015-1(h)(4).

3. The additional tax owed is due to erroneous items claimed by your spouse.

4. When the requesting spouse signed the return, they had no reason to know that the understated tax existed.

5. Based on the facts and circumstances, it would be unfair to hold the seeking spouse responsible for the joint tax liability.

6. The spouse who asked for innocent spouse relief tried to get it for two years after the IRS started trying to get money from him or her.

Did you have actual knowledge?

Were you aware of the tax deficiency at the time the return was filed? The IRS wants to know if you really knew what you were doing so they can decide if you should get "innocent spouse relief."

Because demonstrating actual knowledge might be difficult, the government has made it easier by requiring only that a person should have had "reason to know" of the deficiency.

A Reason to Be Aware

For innocent spouse relief, the most important thing is that you can show that you didn't know the tax was reported wrongly when you signed the return.

Because the IRS will not issue a reprieve if you knew there was a mistake when the return was submitted, the "reason to know" test is used to evaluate if someone is eligible for innocent spouse relief. If you knew, you would be a partner in tax evasion and wouldn't be able to get the relief.

The IRS will use the factors below to determine an innocent spouse:

The nature of the erroneous item

-Your current financial situation of you and your spouse (or former spouse)

-Your educational background and business experience

-Did you participate in the activity that resulted in the erroneous item?

Whether you failed to inquire about items on the return or omitted from the return that a reasonable person would have questioned at or before the time the return was signed

Innocent Spouse Relief Requirements

To be considered for innocent spouse relief, you must file a joint return. Otherwise, you must meet three criteria to be eligible for relief.

One of the taxpayers thinks that one of the spouses found an error that caused the tax to be less than it should have been.

-There is proof that one spouse was unaware of the mistake or that the tax was understated.

-After looking at all the facts and circumstances, one spouse thinks he or she shouldn't be held responsible for the tax that wasn't paid.

Keep in mind that the entire argument is based on the concept of reason to know rather than actual knowledge.

The amount of time a spouse has to request innocent spouse relief is limited. The spouse seeking relief must file Form 8857 within two years of the date of the first attempt to collect the debt. When you find out you owe more taxes and you think it's because of your spouse or ex-spouse, you should ask for innocent spouse relief.

The IRS will contact your spouse.

No matter the situation, the IRS is compelled to contact your spouse regarding your claim for innocent spouse. Unfortunately, this is still true if you have been a victim of spousal or domestic violence.

When your trust is violated by someone you love, it is absolutely devastating. We have heard stories like this way too often, and we are here to help. We sympathize with your situation and want to do everything we can to fix it. Let us help you put that chapter of your life behind you.

How to File Innocent Spouse Relief

To ask the IRS for help for an innocent spouse, the taxpayer must fill out IRS Form 8857 and send it to the following address:

Internal Revenue Service

P.O. Box 120053

Covington, Kentucky 41012

Or, you can fax the form and attachments to the IRS at 855-233-8558.