Understanding Innocent Spouse Relief and How to Qualify

By: Rachel N. Blumberg and Jonathan D. Thiel

Filing an in accurate tax return can mean owing the IRS an overwhelming amount of money for penalties, interest, and back pay. This is true for both taxpayers when spouses elect to file a joint tax return because both spouses are responsible for any tax consequences that arise from that filing, regardless of which spouse earned the income. Even if the spouses later divorce or separate, the spouses both remain liable to the IRS on an inaccurate tax return no matter what the divorce decree states. In response to this injustice, the IRS implemented Innocent Spouse Relief to allow an unaware spouse to escape some or all the tax burdens under certain circumstances. The Innocent Spouse Relief process can be demanding and may require an expert to help guide the process.

What Is Innocent Spouse Relief?

Innocent spouse relief is offered toa spouse to relieve them from paying additional taxes when the other spouse understated taxes on the joint return without the innocent spouses’ knowledge. Understated taxes include unreported income, incorrect deductions or credits, or incorrect values given for assets. Innocent spouse relief is only available for taxes due on your spouse’s income from employment or self-employment but is not available for taxes due from your own income, household employment taxes, Individual Shared responsibility payments, business taxes, and trust fund recovery penalties for employment taxes.

Qualifications for Innocent Spouse Relief

To qualify for innocent spouse relief, you need to have (i) filed a joint return with your spouse, (ii) been unaware of the understated income or other errors and not in a position where you reasonably should have known about the errors(unless you fall within the domestic violence exception) [1], and (iii) live in a community property state.

Types of Innocent Spouse Relief

When you apply for Innocent Spouse Relief, you are automatically applied for two additional types of relief if you are eligible.,. Separation of Liability Relief allows the taxpayers to pay only his or her share of the understated taxes if the joint tax return understated the amount of taxes due in a situation where the taxpayers are now divorced, separated, or no longer living together. Equitable Relief grants relief to a spouse who is not eligible for Innocent Spouse Relief or Separation of Liability Relief if it would be unfair to hold one of the spouses responsible for the understated or underpaid taxes based on the facts and circumstances.

How to Request Innocent Spouse Relief

To request Relief, the taxpayer must file form 8857 with the IRS within two years of receiving the IRS notice of an audit or taxes due. Upon proper filing, the IRS will consider all the information and apply the type of relief, if any, that best fits the situation. The IRS will contact the other/former spouse to ask if they would like to participate in the process. This process may take around 6 months to complete and will result in a letter of determination upon the IRS rendering a decision. Generally, both spouses will have the right to appeal the decision within 30 days from the date postmarked on the determination letter.

Contact Strauss Troy Attorneys for Legal Help

Although requesting Innocent Spouse Relief can be performed by the individual taxpayers, tax compliance can be very demanding and complicated. Working with an attorney can simplify the process, make it less stressful, and ensure that you get the best possible outcome. Contact Strauss Troy attorneys for help with your innocent spouse relief case today. 

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[1] There is an exception to the knowledge requirement if you knew about the errors but (i) you were the victim of spousal abuse or domestic violence before signing the return, (ii) you didn’t challenge the items on the return because of fear, or(iii) you signed the joint return because you were pressured or threatened. If you fall under this domestic violence exception, you can still qualify for Innocent Spouse Relief.

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