When you and your spouse file a joint tax return, you are both liable for all taxes owed to the Internal Revenue Service (IRS). However, there are some forms of relief for you if you should not be held liable for the tax debt. One type of relief is Innocent Spouse Relief.
What is Innocent Spouse Relief?
Innocent Spouse Relief releases one spouse from the joint tax debts of their joint return when their spouse reports improper items on purpose. If your spouse did not report income or improperly claimed deductions or credits, you may not have to pay for those items. This includes relief from the taxes owed, interest, and penalties.
Although you must have been married to your spouse to have filed your joint return, you must be separated or divorced when you ask for Innocent Spouse Relief.
In order to qualify for Innocent Spouse Relief, all of the following must be true:
Your spouse improperly completed and filed your joint tax return resulting in an understated (lower) tax amount due;
You can show that when your spouse filed the joint tax return you did not know and had no reason to know there was an understated tax; and
It would be unfair to hold you liable for the understated tax.
You will not be able to get Innocent Spouse Relief if your spouse made honest mistakes on the tax return that you could have corrected by carefully reviewing it.
You also will not be able to get Innocent Spouse Relief if the IRS proves that you and your spouse transferred property to one another as a part of fraudulent scheme.
Generally, the IRS will not grant Innocent Spouse Relief in cases of tax underpayment (when you owe more taxes than you paid). In other words, if the joint tax return shows an amount due and your spouse does not pay the taxes, you will likely be liable. On the other hand, if there is both an understatement and underpayment of taxes, it is possible, but not likely, that you could be relieved of both.
An understatement of tax means you owe more taxes than what was reported on your return. For instance, if your spouse reported you owed $5,000 in taxes, but you actually owed $7,000, the IRS will consider your tax liability understated by $2,000. The understatement can come from not reporting all income, or from improperly claiming credits or deductions.
Actual Knowledge or Reason to Know
If the IRS proves you knew or had reason to know about an understated tax, you will not qualify for Innocent Spouse Relief. The IRS will consider whether a “reasonable person in similar circumstances” would have known about the understatement. The IRS will also consider all facts and circumstances related to the case. This includes your financial situation, education, business experience, and whether you participated in the activities that led to the understated taxes. For example, if you worked at a family business and tax deductions related to the business caused the understatement, the IRS might decide that you had reason to know about the understated taxes.
The Unfairness Factor
The IRS will consider several factors when deciding whether it would be unfair to hold you liable for the understated tax. Some examples of things the IRS may consider are:
Whether you received a significant benefit from the understated tax
Whether your spouse deserted (left) you
Whether you and your spouse are divorced or separated
Whether the items your spouse claimed were related to their income
Fraud or deceit committed by your spouse
Benefiting from the Understated Tax
The IRS will look at whether you got a significant benefit from the understated tax. A significant benefit is any benefit more than normal support. For example, if your spouse gives you expensive gifts that are beyond what they can normally afford, the gifts could be considered beyond normal support. If the gifts can be traced back to your spouse’s unreported income (like from getting paid under the table from a side job), the IRS could find that you significantly benefited from that income. This is true even if your spouse gives you the gifts several years after they made the money.
The IRS will consider whether your spouse deserted (left) you. If your spouse deserted you, especially if it left you in economic hardship, it could mean that holding you responsible for the tax debt would be unfair.
Filing for Innocent Spouse Relief
To ask for Innocent Spouse Relief, you need to complete and file Form 8857. This seven-page form asks for:
General information about you and your spouse
The tax years for which you are seeking relief
Your involvement in your household finances and tax preparation
Your current financial situation
Whether you are a survivor of domestic violence
Any other information that would prove that it would be unfair to hold you liable
Provide any information that could possibly help the IRS get an idea of your overall situation. The IRS could deny your claim if you do not give enough information.
It is very important to answer Question 30, which asks for more information that could help the IRS decide if it would be unfair to hold you liable for the tax debt. Include any details involving deceit or fraud by your spouse involving the tax return. If your spouse did something to keep you from knowing or made it hard for you to learn about the tax understatement, include that information.
When to File
File Form 8857 as soon as you learn you are being held liable for taxes that you believe should be your spouse’s alone. In general, you have two years from the time the IRS first tries to collect from you. There are some exceptions to the two-year filing deadline. To learn more about these exceptions, read Instructions for Form 8857 by the IRS. You may want to speak to a tax lawyer who can help you. Use the Guide to Legal Help to find tax lawyers and legal services near you.
The IRS Must Contact Your Spouse
The IRS must contact your spouse to tell them that you asked for Innocent Spouse Relief, and will allow them to participate in the process. There are no exceptions to this.
Survivors of Domestic Violence
If you are a survivor of domestic violence, the IRS must still contact your spouse. You can let the IRS know you are a survivor of domestic violence even if you do not have a police report or any hospital records. The IRS will not disclose your personal information.
Appealing a Denial
The IRS does not have to grant Innocent Spouse Relief. Getting Innocent Spouse Relief is usually difficult, even if you meet the deadline. On average the IRS receives more than 50,000 Innocent Spouse Relief applications a year. Fewer than half of them are granted based on the application alone. It is important to understand your rights to appeal and appeal deadlines.
After the IRS receives all the necessary information, it will send a preliminary determination letter to you and your spouse. If neither of you appeals, that decision becomes final. If you or your spouse appeals, the IRS Office of Appeals will review your case and issue a final determination.
If you do not receive a final determination from the IRS within six months, you can ask the U.S. Tax Court to review your case. If you received a final determination from the IRS, you must file the petition with the U.S. Tax Court within 90 days. This deadline cannot be extended, regardless of what anyone from the IRS tells you.
If you have questions about your rights to an appeal, use the Guide to Legal Help to find tax lawyers and legal services who may be able to help you.