Tax Relief for Innocent Spouses

What is Innocent Spouse Relief?

It is common for married taxpayers to file a joint tax return.  However, even if they later divorce, both taxpayers remain jointly and individually liable for the tax and any interest or penalty due on the joint return. This holds true, even when a divorce decree obligates a former spouse to be solely responsible for any amount due on a joint tax return that was previously filed.  Even if one spouse earned the income, the other spouse may be liable for all the taxes due. However, the IRS provides relief for a spouse from tax, penalties, and interest on a joint tax return under some circumstances.

What is the New Rule for Innocent Spouse Relief?

The IRS is eliminating the two-year time limit that currently applies to certain relief requests.  This will also enable more tax payers to qualify for retroactive relief.  Specifically, the IRS will no longer apply the two-year limit to new equitable relief requests; a tax payer may reapply for equitable relief if such request had been denied because of the two-year limit; and the IRS will no longer apply the two-year limit in any pending litigation that involves equitable relief.

What are the Three Types of Relief?  

1. Innocent spouse relief.
2. Separation of liability.
3. Equitable relief: you may qualify for equitable relief if you do not qualify for innocent spouse relief or separation of liability.

How Do I Qualify for Innocent Spouse Relief?

You must meet all of the following conditions:

• You must have filed a joint return which has an understatement of tax.  This is the difference between the total amount of tax that should have been shown on your return and the amount of tax that was actually shown on your return.
• The understatement of tax must be due to erroneous items of your spouse;
• You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understatement of tax;
• Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understatement of tax; and
• You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998

How Do I Apply for Innocent Spouse Relief?

To apply for Innocent Spouse Relief, you must file Form 8857 (Request for Innocent Spouse Relief) and attach a statement explaining why you qualify for relief.

How Do I Qualify Under Separation of Liability?

Divide the understatement of tax, interest, and penalties on your joint tax return between you and your spouse. This is typically the amount of income and deductions you attribute to your assets and earnings. In order to qualify, however, you must have filed a joint return and either:

• You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief; or
• You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12 month period ending on the date you file Form 8857.

How Do I Qualify Under Equitable Relief?

The IRS considers various factors, including the following:

• Current marital status
• Reasonable belief of the requesting spouse, at the time he or she signed the return, that the tax was going to be paid; or in the case of an understatement, whether the requesting spouse had knowledge or reason to know of the understatement
• Current financial hardship or inability to pay basic living expenses
• Spouses’ legal obligation to pay the tax liability pursuant to a divorce decree or agreement to pay the liability
• To whom the liability is attributable
• Significant benefit received by the requesting spouse
• Mental or physical health of the requesting spouse on the date the requesting spouse signed the return or at the time the requesting spouse requested the relief
• Compliance with income tax laws following the taxable year or years to which the request for relief relates
• Abuse experienced during the marriage.

Free Consultation with an Innocent Spouse Tax Attorney

If you are here, you probably have a tax law issue you need help with, call Ascent Law for your free tax law consultation (801) 676-5506. We want to help you.