Innocent Spouse Relief – Do you qualify?

When you file a joint income tax return, the law makes both you and your spouse responsible for the entire tax liability. This applies not only to the tax liability you show on the return but also to any additional tax liability the IRS determines to be due, even if the additional tax is due to income, deductions, or credits of your spouse or even your former spouse. You remain jointly liable for the taxes, and the IRS still can collect from you, even if you later divorce and the divorce decree states that your former spouse will be solely responsible for the payment of any tax liabilities that were incurred during the marriage.

Seems pretty unfair, doesn’t it?  The Internal Revenue Service agrees with you, which is why they have several options for you to deal with this type of situation.

In some cases, a spouse (or former spouse) may be relieved of the tax, interest, and penalties on a joint tax return.

There are several types of relief available to married people who filed joint returns:

Innocent Spouse Relief
By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest and penalties if your spouse (or former spouse) improperly reported or omitted items from your joint tax return. To qualify for innocent spouse relief, you must meet all of the following conditions:

  • You filed a joint tax return in the year that the taxes are owed AND
  • There is an understated tax on the return that is due to problems with items included or omitted by your spouse or former spouse when preparing the tax return in question (for example – unreported income, incorrect/improper deductions, false tax credits or erroneous property basis claims) AND
  • You can show that when you signed the joint tax return that you did not know, and had no reason to know, about the incorrect claims that were made on the joint tax return AND
  • Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax

Separation of Liability Relief
Under this type of relief, the Internal Revenue Service will calculate the amounts of understated tax (including any interest and penalties that have been assessed) on your joint tax return that is rightfully owed by each individual. These amounts are then allocated fairly between you and your spouse (or former spouse) and they then become individual tax liabilities of the parties involved.

This type of relief is only available for unpaid tax liabilities resulting from understated tax and refunds are not allowed.

To request, and possibly qualify for Separation of Liability Relief, you must have filed a joint tax return and meet one of the following requirements at the time that you are requesting relief:

  • You are no longer married to, or are legally separated from, the spouse with whom you filed the joint tax 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 that you are requesting relief

Equitable Relief
If you do not qualify for Innocent Spouse Relief or Separation of Liability Relief, you may still have a chance of being relieved of responsibility for taxes, penalties and interest through Equitable Relief.

Unlike Innocent Spouse Relief and Separation of Liability Relief, you can get Equitable Relief from not only an understated tax, but also an unpaid or underpaid tax liability. An unpaid or underpaid tax is a tax that has been reported correctly and there is no argument about the amount that is owed, there just remains a balance.

You may qualify for Equitable Relief if you meet ALL of the following requirements:

  • You are not eligible for Innocent Spouse Relief or Separation of Liability Relief AND
  • You have an understated, unpaid, or underpaid tax AND
  • You did not pay the tax AND
  • You can establish that, by taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated, unpaid, or underpaid tax AND
  • You and your spouse (or former spouse) did not transfer assets to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. AND
  • Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax AND
  • You did not file or fail to file your tax return with the intent to commit fraud AND
  • The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint tax return, unless you can prove one of the following exceptions:
    • The item is directly or partially attributable to you solely due to the community property laws of your state OR
    • If the item is titled in your name, the item is presumed to be attributable to you OR
    • You did not know, and had no reason to know, that funds that were originally intended for the payment of the tax liability were misappropriated by your spouse (or former spouse) for his or her benefit OR
    • You can establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge any of the items on the tax return filed for fear of retaliation by your spouse (or former spouse)

Injured Spouse Relief
If you filed a joint tax return and all or part of your refund is applied against your spouse’s (or former spouse’s) past-due federal tax, state income tax, child or spousal support or federal non-tax debt, such as a student loan, you may be entitled to Injured Spouse Relief.

As you can see, there are many types of relief and many requirements necessary to apply and possibly qualify for one of these types of relief.  The application process can be quite involved and takes several months to complete, which is why it helps to have an experienced professional on your side when trying to take advantage of the various options that are available to you.

If you believe that you qualify and would like to speak with a tax professional, please contact someone at our firm at your earliest convenience.  We will be happy to sit down with you and discuss your current tax situation to see if you qualify for one of the types of relief mentioned above, and if not, we might be able to suggest another type of resolution to your current tax situation.

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