Innocent Spouse Relief: Guides, Types, Rules & Forms
When you file a joint tax return with your spouse, both of you are liable for all of the tax, penalties, and interest. Even if all of the tax due was from your spouse's income, you are still liable. Because of this, the IRS or the states can legally go after both spouses or just one spouse for the entire bill on a joint return.
Unfortunately, even if you get divorced and the decree says that your ex is responsible for the bill, the IRS can still go after you. Luckily, there is innocent spouse relief (ISR). Innocent spouse relief applies in situations where it would be unjust to hold both of you responsible for the joint tax liability.
What Is the IRS Innocent Spouse Rule?
The IRS's innocent spouse rule offers relief to taxpayers in situations where it would be unfair to hold them responsible for their spouse or former spouse's taxes. There are three different types of innocent spouse relief, and they all have different rules and requirements. However, they all apply in cases where a couple has filed a joint return and one person wants or needs relief from the other one's tax bill.
The person who applies for this type of relief is called the requesting spouse. If you qualify for relief as the requesting spouse, the IRS will basically declare that you are not liable for the taxes of your spouse or former spouse. Concerned about a tax bill due to your spouse or ex-spouse's actions? Want to know about your options? To help you out, this guide provides an overview of the three types of relief from innocent spouses, and it has links to pages with more information about this IRS program.
Classic Innocent Spouse Relief
This program is based on the IRS's original type of innocent spouse relief. There are specific qualification requirements, and the issue must be related to an understatement of tax on a joint return. For instance, if your spouse underreported income on your tax return without your knowledge and that led to a tax bill, you may want to apply for this type of relief. Similarly, this option can also apply in situations where your spouse incorrectly claimed a credit that lowered the tax bill.
Fortunately, if the IRS accepts your request and decides to grant innocent spouse relief, the IRS does not hold you liable for the tax amount related to your spouse or former spouse's unreported income. The application process can be complicated so you should consider working with a tax professional. To qualify, you must not have known about the understatement of tax. But you can't just say that you didn't know. You also have to prove that there was no reason for you to know. When reviewing this issue, the IRS takes multiple factors into account including your education, your involvement in the family finances, and whether or not you benefited from your spouse or ex-spouse's actions.
Separation of Liability Relief
With this type of relief, the IRS allocates the taxes on your joint tax return between you and your spouse/ex-spouse, as if you filed your tax return separately. Allocation does not have to be half and half. It varies based on who’s responsible for what. To give you a quick example, imagine that your spouse earned $100,000 and you earned $50,000. When the IRS separates your liability, it makes you responsible for the tax related to your $50,000 in income, and it holds your spouse responsible for the tax related to their $100,000 in income.
You can only apply for separation of liability relief if you don't meet the criteria to apply for traditional spouse relief. Additionally, your marriage must be over. You must be widowed, separated, or divorced. Generally, to qualify as separated, you must have lived apart for at least a year and you must no longer have a romantic relationship. If the IRS has reason to believe that you are still together or that your spouse is going to move back in, it won't let you get this type of relief even if you don't live together.
IRS Equitable Tax Relief
You can apply for this type of relief if you have understated or underpaid tax. As indicated above, understated tax occurs when someone fails to report income or claims credits they don't deserve. As a result of these actions, their tax return shows that they owe less than they really do. In other words, the tax return understates their tax bill. Underpaid tax, in contrast, occurs when the tax return shows the correct tax due, but it has not been paid.
Equitable relief helps people who don’t qualify for the other types of relief. For instance, this might apply in a situation where you believed that your spouse paid the tax bill, but instead, they took their secret lover on a cruise. To qualify for this type of relief, you must prove that it would be unfair for the IRS to hold you responsible.
How to Request Innocent Spouse Relief
If you believe that you should not be held responsible for taxes owed because of erroneous information provided by your spouse or former spouse, you may be eligible for innocent spouse relief. Innocent spouse relief may also be available if your spouse failed to disclose important information, or if you were unaware of an underpayment or understatement of tax.
To request innocent spouse relief, you must file Form 8857 with the IRS. You must complete and sign the form under penalties of perjury, and you must include a statement explaining why you believe you should qualify for innocent spouse relief. If you are requesting innocent spouse relief from joint and several liability for tax, interest, and/or penalties, you must also attach a copy of your federal income tax return for the year in question.
Once your Form 8857 is received, the IRS will send you a notice requesting additional information or documentation if needed. The IRS will also notify your spouse or ex-spouse so they can make their case. Unfortunately, there are no exceptions to this rule, but the IRS won't reveal your contact details to your spouse. Once all required information has been received from the requesting spouse and the other spouse or ex-spouse, the IRS will review the case and make a determination. If the IRS grants innocent spouse relief, you will no longer be held responsible for the unpaid taxes, interest, and/or penalties that were due to your spouse. Of course, however, you will still be responsible for your own portion of the taxes. If your request is denied, you have the right to appeal the decision.
Frequently Asked ISR Questions
To help you know what to expect, we've put together some of the most commonly asked questions about innocent spouse relief. The above link has questions and answers about innocent spouse relief, equitable relief, and separation of liability. Alternatively, you can also contact a tax professional. They can answer your questions and help you decide if this is the right program for your situation.
Innocent Spouse Tax Relief Help and Services
Not all tax professionals and tax companies have experience in helping with innocent spouse cases. At TaxCure, we have made it easy to quickly find professionals that specifically can help with innocent spouse cases. You can click this link to see top-rated tax professionals that have experience with innocent spouse, or you can start your search below and select the applicable tax agencies as well as your tax problem and/or desired solution. Once you narrow down your search to a few contenders, give them a call to talk about your tax problems and decide if they are the right professional for you.