What is Innocent Spouse Relief? Under normal circumstances, a husband and wife who sign a joint return are both held liable for the tax. By law, the IRS may take adverse collection action against either individual for any delinquent liabilities. This includes situations where one spouse did not earn the income from which the liability stemmed and after dissolution of marriage, even if a spouse has pledged to be liable for the tax owed in a divorce settlement.
However, the IRS has provided options for relief through the innocent spouse provisions of the Internal Revenue Code. This is particularly important in situations where only one spouse is a viable collection source or where adverse collection action threatens an ex-spouse’s reasonable standard of living. In order to file an Innocent Spouse Claim, taxpayers must file a Form 8857 which requires detailed answers to a number of questions about the spousal relationship and the liability in question.
There are two types main types of innocent spouse relief claims. The first type (§6015(b) relief) involves claims when there was an understatement of income on a jointly filed tax return. This type of relief has five main requirements:
- The spouses filed a joint return for the tax year in dispute
- There was a substantial understatement of tax caused by an erroneous item or negligence of one spouse.
- The other spouse who signed the return did not know or have reason to know there was a substantial understatement of tax liability.
- It is inequitable or unreasonable to hold the spouse liable for the delinquent liability.
- The innocent spouse relief claim is filed within two years of the first collection activity against the requesting spouse.
The second type of relief is so called Equitable Relief or §6015(f) relief. Equitable relief is available when relief is not available under §6015(a). This may occur because the two year time limit occurred or the reason for the tax debt is not due to an understatement on a tax return. For example, a married couple could have prepared a completely accurate return, but failed to pay the taxes when due.
The first requirement under Equitable Relief is that the requesting spouse must truly be in an innocent spouse. The Requestiong spouse is not eligible for equitable relief if the requesting spouse engaged in any type of fraud or transferred assets to evade tax. Once this threshold requirement is met, the IRS looks to multiple factors to determine whether equitable relief is appropriate like: the marital status of the requesting spouse (is he or she still married to the non-requesting spouse), economic hardship, the requesting spouse’s knowledge or reason to know, any benefits the requesting spouse received, and the requesting spouse’s health.
If you intend to file an Innocent Spouse Claim, you should hire an experienced tax attorney to navigate you through the process. The IRS is generally not inclined to relieve spouses from joint liability or provide equitable relief, unless a claim is properly stated and there is compelling reason to grant leniency. Innocent spouse cases are structured like mini-trials with several elements, which the taxpayer has the burden of proving. Failure to meet any of the required elements will result in a denial of your Innocent Spouse Claim.
Furthermore, the other spouse has a right to be notified of your claim and can intervene or otherwise issue objections to the claim. Community property states, such as California, can also raise a number of difficult issues that an experienced attorney should be retained to handle. Because of the complexity and variety of the issues involved, you should consult an attorney before proceeding with your Innocent Spouse Claim.
Our office has a proven track record of innocent spousal defense, both in the IRS Appeals Division and in Tax Court. In addition, if your former spouse has filed an Innocent Spouse Claim with the IRS, we can advise you as to your rights and how to challenge the claim if you desire.
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