IRS Innocent Spouse Rules
What is IRS Innocent Spouse Rules? When a married couple files their annual tax returns, both parties are jointly and severally liable for any unpaid taxes. This is based on the premise that a married couple jointly enjoys any income that is created by either of the parties within the marriage. If the IRS determines that additional taxes are due based on an underpayment of taxes, or underreporting of income, both the taxpayer and spouse are liable to pay any taxes that become due, even if there is a situation where the deficiency is not discovered until after a divorce has occurred. There are several instances when the IRS may consider releasing one of the taxpayers from liability for any additional taxes that may be due. One way this release of liability may occur is based on the principle of Innocent Spouse Relief. This occurs when one spouse is unaware of unreported income, or if there exists any other types of transactions that their spouse may have done that increases their joint tax liability. This can often occur when one spouse is the only wage or income earner, or when one is not involved with financial decisions.
In order to qualify for Innocent Spouse Relief, the IRS requires that the taxpayer who is requesting the relief meet the following criteria:
- You must have filed a joint return which has an understatement of tax;
- The understatement of tax must be due solely to your spouse’s erroneous claim;
- 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 22nd, 1998
The IRS has recently adjusted the requirement that the relief must be requested within 2 years from the time the IRS first requested the additional tax. Innocent Spouse Relief can be requested during anytime that the IRS has the right to request collection of the tax (generally 10 years), or if a refund or credit is involved, the request must be made within 2 years of paying the original tax, or 3 years after the filing of the return, which ever occurred last.
In order to request Innocent Spouse Relief, the spouse requesting the relief is required to file IRS Form 8857, Request for Innocent Spouse. The form requires that the spouse demonstrate that they were not aware of the circumstances that caused the additional tax liabilities to occur. Because of the nature of the information, it may be to the benefit of the filer of the form to consult with a tax professional who is familiar with Innocent Spouse Relief and the information that needs to be provided in order for a successful granting of the relief.
If you are unsure how to proceed in the filing of an Innocent Spouse Relief request, consultation with a tax attorney or other qualified tax professional will help in making sure that you obtain the relief you are requesting.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.