Innocent Spouse Relief allows one of two taxpayers who are jointly liable for an IRS tax liability to be cleared of all or part of federal tax debt for a tax year in which a joint return was filed. Taxes, fines, and interest are all part of the federal tax debt.
A lot of married persons choose to file a joint tax return because of certain benefits this filing status allows. Even if they later divorce, both taxpayers are jointly and individually liable for the tax, as well as any interest or penalties owed on the joint return.
There are three categories of Innocent Spouse Relief; these are:
- Relief by separation of Liability. Under this sort of relief, the understatement of tax (plus penalties and interest) on your joint income tax return is allocated (divided) between you and your spouse (or former spouse). The amount allocated to you is usually the understatement of tax you are responsible for.
- Innocent Spouse Relief. By obtaining innocent spouse relief you might be absolved of obligation for paying tax, penalties, and interest if your spouse (or ex-spouse) incorrectly reported or omitted things on your tax return. In most cases, you can only collect the tax, interest, and penalties that qualify for relief from your spouse (or former spouse).
- Equitable Relief. Even if you do not qualify for innocent spouse relief, separation of liability relief, or liability relief under community property law, you may still be able to relieve paying taxes, interest, and penalties through equitable relief. If the IRS concludes that you do not qualify for any of these types of relief, the IRS will assess whether equitable relief is appropriate.
To understand more about the different types of Innocent Spouse Relief, let’s dig deeper and discover the vital details around them.
Relief by Separation of Liability
The relief of separation of liability is only available for unpaid tax liabilities which resulted from understatements of tax. Thus, refunds are not allowed.
To request this kind of innocent spouse relief, you must file a joint return and meet one of the following conditions during the time you file IRS Form 8857:
- If you are no longer married to or are legally separated from the spouse with whom you filed the joint tax returns for which you are requesting relief. If your marital status is widowed, you are no longer married under this regulation.
- If you were no longer a member of the same household as the spouse with whom you filed the joint return within the 12-month period prior to the filing of the innocent spouse claim.
However, even though you meet the requirements above, relief by separation of liability will not be granted under the following situations:
- When the IRS proves that you and your spouse (or ex-spouse) transferred assets and properties to each other as a part of a fraudulent scheme. This scheme includes an act to defraud the IRS or other third parties such as business partners, former spouses, or creditors.
- When the IRS proves that at the moment you signed your joint return, you are fully aware of any erroneous items which give rise to the deficiency that was allocated to your spouse or ex-spouse.
- When your spouse or ex-spouse transferred assets to you to avoid payment of tax liabilities.
Innocent Spouse Relief
Generally, innocent spouse relief relieves a spouse of all responsibility for the joint tax liability at issue. Only individual income or self-employment taxes are applicable to this form of relief. As such, it is not eligible for company taxes, Individual Shared Responsibility payments, Household Employment Taxes, and the trust fund recovery penalty for employment taxes.
To qualify for innocent spouse relief, you must meet all these conditions:
- When you filed a joint return which has an understatement of tax because of erroneous items of your spouse or ex-spouse.
- When you establish that during the time you signed the joint return you have no actual knowledge or any reasons to know, that there was an understatement of tax.
- When you take into account all the circumstances and facts about the understatement of tax.
- When you and your spouse (or ex-spouse) have not transferred assets and properties to each other as a part of a fraudulent scheme. This fraudulent scheme includes an act to defraud the IRS or other third parties such as a business partner, former spouse, or creditor.
Equitable Relief
You can receive equitable relief from an understatement of tax or an underpayment of tax, unlike innocent spouse relief or relief by separation of liabilities.
- Understatement of tax. Generally, an understatement of tax is the difference between the total amount of tax that should be shown on your return and the amount of tax that was actually indicated on your return.
- Underpayment of tax. Generally, an underpayment of tax is the amount of tax you have reported on your return but are not paid. For instance, your joint 2012 return shows that you and your spouse owed $10,000. Then, you only pay $5,000 with the return. In turn, you have an underpayment of $5,000.
To qualify for equitable relief, you must meet all the following conditions:
- You are not eligible for relief by separation of liability, innocent spouse relief, or relief from liability arising from community property law.
- You and your spouse (or ex-spouse) have not transferred assets and properties to each other as a part of a fraudulent scheme. This fraudulent scheme includes an act to defraud the IRS or other third parties such as a business partner, former spouse, or creditor.
- Your spouse or ex-spouse did not transfer assets to you to avoid tax or payment of tax.
- You did not file or fail to file your return with the intention to commit fraud.
- You establish that considering all the facts and circumstances, it would be unfair to hold you responsible for the underpayment or understatement of tax.
- The income tax burden for which you seek relief must be related to an item on the joint return filed with your spouse (or former spouse).
