IRS Innocent Spouse Relief – A Comprehensive Guide
Sometimes a spouse will be called into question about suspect tax activities their wife or husband did. There were some situations when one of the married couples committed a particular fraudulent tax activity. Then, the spouse who had been hiding in the dark needed to face the authorities and explain what had happened. If the same thing happens to you, you’ll surely find it embarrassing and disparaging knowing the fact that your spouse has deceived you, and you’re now expected to do your job cleaning up the mess. Generally, if your spouse owes taxes, you are also on the hook.
It also means that you need to settle tax obligations and possible penalties. Because of that, the Internal Revenue Service has implemented the provision Innocent Spouse Relief. So if you qualify for the set guidelines of this provision, you will definitely feel relieved, knowing that some burdens will be taken out of your shoulders. So if you want to know more about that, please read the entire article below and check this comprehensive guide of the IRS Innocent Spouse Relief.
What is an IRS Innocent Spouse Relief?
The Innocent Spouse Relief is an IRS tax form that taxpayers can use to request relief from a tax liability that their spouse or former spouse has been involved in. So by requesting this particular form and meeting all of its requirements, you will be relieved from any responsibilities of paying taxes, potential penalties, and interest when your spouse or former spouse has improperly or incorrectly reported particular items on your tax return.
Moreover, the said interest, tax, and penalties that are qualified for the ISR guidelines will be collected by your spouse or former spouse who incorrectly filed your returns. But the both of you are still responsible for any of these that don’t qualify for the said relief. Besides that, Innocent Spouse Relief is only applicable for self-employment or individual taxes.
Hence, these don’t qualify for innocent spouse relief if you have a trust fund recovery penalty for employment taxes, business taxes, individual shared responsibility payments, and household employment taxes. Also, keep in mind that when you and your spouse are getting divorced, you can’t stop the Internal Revenue Service from considering the both of you responsible for joint and several liability for your owed legal taxes. Generally, both spouses are responsible for paying back taxes after a divorce.
TIP: If you don’t qualify for innocent spouse relief, you can potentially stop IRS collection efforts by requesting a Collection Due Process Hearing.
Types of Innocent Spouse Relief
There are four types of Innocent Spouse Relief that you should know. Please check the details below.
Innocent Spouse Relief
As mentioned earlier, if your spouse or former spouse incorrectly filed your tax return, you can be relieved of the responsibility for paying interest, tax, and potential penalty by requesting Innocent Spouse Relief and meeting its requirements.
Relief by Separation of Liability
This particular type of relief will allow you to allocate the tax understatement, including the penalties and interest, that’s reflecting on your tax return between you and your spouse or former spouse.
The equitable relief will be your option for you to be relieved of the responsibility for paying interest, tax, and possible penalties when you don’t meet the requirement for separation of liability or the Innocent Spouse Relief. You can take advantage of this particular type of relief if the owed taxes weren’t paid with your return and the reported tax amount is correct on the joint tax returns filed to the IRS.
Relief from Liability for Tax Attributable to an Item of Community Income
Married couples who didn’t submit joint returns but live in community property states may request this particular type of relief. The community property states include California, Louisiana, Arizona, Idaho, New Mexico, Nevada, Wisconsin, Texas, and Washington. Also, a different deadline applies if you request this type of relief, and the time you request it follows the rules for equitable relief. You can check the IRS official website for further details about this.
Suppose you’re in a situation right now that you’re dealing with tax liability, interest, and penalties because your spouse erroneously filed your tax returns. In that case, you need to know what qualifies for Innocent Spouse Relief. Remember that for you to be considered for the relief, you and your spouse or former spouse need to file and submit a joint tax return. Besides that, the IRS will also use the following criteria below to see if you qualify for innocent spouse relief.
- The taxpayer is married and filed a joint tax return.
- The taxpayer’s spouse or former spouse erroneously reported a joint tax return.
- A piece of evidence is presented proving that the spouse wasn’t aware of the tax understatement or the error on items it includes
- The taxpayer believes that the tax understatement resulted from an error that the spouse found out after filing the return.
- The taxpayers believe that they are not responsible for the tax understatement after all of the circumstances and facts have been carefully checked and taken into account.
The Reason to Know and the Actual Knowledge tests are based on the principle that the Internal Revenue Service won’t make you innocent if you were completely aware of the inaccuracy or the tax deficiency of the return when you filed and submitted it to the agency. It’s because the fact that you knew about it in the first place, it made you an accomplice to the inaccuracy of the items included in your tax returns. With that, here are the important things below that the IRS uses as the basis to determine the actual knowledge of a taxpayer.
- You and your wife’s financial status
- The amount and the nature of the erroneous item
- Whether the erroneous item shows a recurring pattern from the tax returns in the previous years
- Whether you failed to ask about the items on the return at the time or before you signed it
- The extent of your participation of having an erroneous item on your return
- Your business experience and educational background
Reason to Know
In the other areas of the law, the Reason to Know is also called willful blindness. So when the IRS determines whether they have to grant the innocent spouse relief, the agency will look into facts carefully and consider every circumstance surrounding the tax liability. The primary requirement for the relief is to prove that you didn’t know or had no reason to know that the tax return you signed was inaccurate or understated.
So if a piece of particular evidence will be presented showing that you knew about the understatement of your tax return when you signed it, then there’s no reason for you to cry innocently. With that, here are some circumstances that the IRS will look into to determine if the spouse is truly innocent.
- Both parties’ financial situation
- Amount and type of error
- The extent of the participation in committing the error
- Business experience and education background
- Whether the erroneous item shows a recurring pattern from the tax returns in the previous years of the same amount and type of error
- Whether you failed to ask about the items on the return at the time or before you signed it
Innocent Spouse Relief Process
If you seek Innocent Spouse Relief, you have to complete Form 8857, which is the Request for Innocent Spouse Relief form. Once done, you can go ahead and submit it to the IRS via mail or fax. Or, you can also make an Innocent Spouse Relief letter that contains the same information you can find on Form 8857, which will require you to sign under penalties of perjury.
Besides that, if you want to seek relief from the joint liability of a joint tax return, the Internal Revenue Service is required to send notifications to your spouse or former spouse about your request. Then, he or she needs to provide details and information required to consider your claim. Once done, the taxpayer also needs to understand that it may take up to six months after filing to get a determination from the IRS.
Again, to file a request for Innocent Spouse Relief, you have to:
- File Form 8857, the Request Form for Innocent Spouse Relief.
- Attach a statement to explain why you should qualify for innocent spouse relief.
- Write your name and Social Security Number on all attachments you’ve included.
Innocent Spouse Relief Statute of Limitations
Generally, the Internal Revenue Service has a total of 10 years to collect the legal taxes you owe, and that is the collection statute of limitations. So by law, the agency can’t collect your owed taxes for that particular tax year as long as your request for relief is still pending. However, the penalties and interest will continue to accumulate over time. Besides that, your request for relief will be considered pending from the time the agency received the Form 8857 that you’ve filed until the date it’ll get resolved, including the time when the Tax Court was considering your request.
Then, after your request gets resolved, the Internal Revenue Service will start collecting any amount you owe, or you’re held responsible for paying, and it may include your delinquent taxes, interest, and possible penalties. In addition, the period of ten years for the collection will also increase by the amount of time spent while your request for relief was still pending, plus another 60 days on top of that.
What to Do if the Request is Denied
If your request for Innocent Spouse Relief has been, unfortunately, denied, one thing you can do is to appeal the decision by using Form 12509 to file a Statement of Disagreement. You can do it within the appeals office of the Internal Revenue Service. Besides that, your spouse or former spouse will receive notification from the IRS about the proceedings.
In addition, if you are able to reach this part, you should have already contacted a tax attorney to help you along the way because this process may take time and be complicated. Moreover, if you disagree or are not satisfied with the decision of the Appeals Office of the agency, you also have a choice to appeal your case to the tax court.
What to Do if Request is Denied
If you’ve filed Form 8857 to request for Innocent Spouse Relief and it gets denied or rejected, it might be because of one of the following issues below.
- You were not able to convince the IRS that you didn’t know, or you had no reason to know about the understatement of your tax return when your spouse asked you to sign it.
- You were not able to file for Innocent Spouse Relief within two years after you received the collection notice from the IRS.
- The Internal Revenue Service determined that a reasonable individual in similar circumstances would have known of the tax understatement.
- You could receive a benefit from filing or submitting inaccurate tax returns.
So if you had any reason to know about what your spouse or former spouse did when he or she intentionally filed your tax returns inaccurately, the chance is high that you wouldn’t qualify for innocent spouse relief.
What is an innocent spouse Form 8857?
The Innocent Spouse Relief form 8857 is a particular form from the Internal Revenue Service. It’s what you need to fill out and submit to the IRS if you want to request relief from paying the interest, tax, and possible penalties when your spouse or former spouse incorrectly filed your joint return.
What’s the difference between an innocent spouse and an injured spouse?
FYI we have an entire article explaining the difference between an injured spouse vs. innocent spouse. innocent spouse claim is intended for allocation or relief from a joint and several liability that is reflecting on a particular joint return. On the other hand, the injured spouse claim is intended for a refund allocation of a joint tax refund. Hence, you will be an injured spouse when a portion or all of your tax refund share from a joint return will be used to pay for the delinquent state tax, federal tax, federal non-tax debt, or child or spousal support owned by your spouse.
The government in the United States has been providing taxpayers with broader protection to innocent spouses who have been involved in submitting erroneous tax returns without their knowledge. These innocent spouses have nothing to be afraid of in raising this concern as a way to defend themselves from the understatement or deficiency of the legal taxes they owe as long as they can prove that they didn’t know or they didn’t have any reason to know about it.
In addition, the Internal Revenue Service will figure out the aggregate amount of your owed legal taxes after you’ve completely filled out and submitted Form 8857. You are not required to figure that amount yourself, but if you want to, you can also do it by checking the “How to Allocate the Understatement of Tax” section that you can find on Publication 971.