FAQs for IRS Innocent Spouse Relief
Here are some frequently asked questions regarding IRS Innocent Spouse Relief. Feel Free to send us a question that you don’t see answered here.
What is the IRS Innocent Spouse Rule?
The IRS Innocent Spouse Rule provides an exception to the joint and several liability on a joint return. Normally, both spouses are responsible for the tax due on a joint tax return. However, if your spouse omitted income or didn't pay the tax bill and you were unaware of the situation, you may qualify for relief.
What is equitable IRS relief?
The IRS will also grant innocent spouse relief in situations where a reasonable person would think that it's unfair to hold you responsible. This is called IRS equitable relief. If you don't qualify for the other types of innocent spouse relief, you should look into equitable relief. It's also the only option if your spouse underpaid the tax.
What qualifies for Innocent Spouse Relief?
You can request innocent spouse relief if your spouse or ex-spouse underreported or underpaid federal income taxes on a jointly filed tax return. Underreported means that the spouse or former spouse didn't report all of their income or claimed excess credits to lower (or underreport) their tax due. Underpayment is when your former spouse didn't pay the tax due that was shown on the return.
How does the IRS define actual knowledge?
You may hear this phrase when applying for innocent spouse relief. If you actually knew about the error made by your spouse, you have “actual knowledge”. You don’t qualify for innocent spouse relief. Both you and your spouse are still liable. However, you don't need to know all the details to have actual knowledge. For instance, say that you knew your spouse had $20,000 in income that they didn't report on your joint return, but you weren't sure how they earned the income. This counts as actual knowledge.
What if you have actual knowledge but you signed under duress?
You may be able to get separation of liability even if you had actual knowledge of the understatement. For example, imagine that you knew your ex-spouse wasn't reporting income, but you were afraid to say anything so you signed the return. When reviewing your request for relief, the IRS will take into account the fact that you signed under duress or were coerced into signing.
What is the deadline or time limit for filing for Innocent Spouse Relief?
In most cases, you must file for innocent spouse relief no later than two years after the day the IRS first tried to collect the tax from you. However, there are exceptions.
If you are applying for equitable relief related to taxes owed, you have up to 10 years from the date the tax liability was assessed. If you are applying for a credit or refund under the equitable relief program, you have until the later of three years after the date of assessment or two years after the payment was made.
How can I find tax professionals that specialize in innocent spouse relief?
Here at TaxCure, we have a network of tax professionals who give details on the type of work that they specialize in. We then have an algorithm that ranks those pros based on those specialties to help taxpayers find the best pros for their unique situation. You can follow this link here to see the top-rated innocent spouse relief experts, or you can start your search below and apply the applicable filters to your search.
How does the IRS define “reason to know”?
This is another common phrase when applying for innocent spouse relief. “Reason to know” refers to cases where the IRS believes it’s reasonable that you knew about the issue. For example, if you knew about related facts or information, the IRS may assume that you also had reason to know about this issue. If you had reason to know, you cannot qualify for innocent spouse relief.
What does benefiting from the understatement of tax mean?
In some cases, the IRS may claim that you had a reason to know because you benefited from the understatement of tax. Say that your spouse was earning $80,000 from a side business that they were not reporting to the IRS. You claim that you didn't know about the money. However, your family lived well beyond its means. Due to the extra income, you went on several vacations every year and bought an expensive boat. This means that you benefited from the understatement of tax, and the IRS may deny your request for relief. You can benefit either directly or indirectly.
Can you apply for innocent spouse relief if you're still married?
You may be able to apply for classic innocent spouse relief or equitable relief if you are still married. To apply for separation of liability, you must either be divorced or not living in the same household for at least 12 months. You can't apply for this type of innocent spouse relief if you're still married and living together. In all cases, however, the IRS takes into account your relationship when reviewing your application.
What does the IRS mean by members of the same household?
To qualify for some type of relief, you must not be a member of the same household as your spouse/ex-spouse. You and your spouse are not members of the same household if you are living apart. However, if you are still romantically involved or if your spouse is likely to move back, the IRS considers that you are still members of the same household.
What are erroneous items?
Erroneous items can be unreported income or incorrect deductions and/or credits, or incorrect cost basis for capital gains or losses. For example, imagine that your spouse claimed a $10,000 deduction for advertising expenses for their business, but they never actually paid for that much advertising. That is an example of an erroneous item for an innocent spouse claim.
What type of taxes qualify for innocent spouse relief?
You can only apply for innocent spouse relief on individual income tax and self-employment tax. For example, if you owe household employment taxes for a cleaning person or nanny, you cannot apply for innocent spouse relief on those taxes. You also cannot apply this type of relief to business taxes or trust fund recovery penalties for employment taxes.
Will the IRS contact my former spouse?
If you file for innocent spouse relief, the IRS will contact your former spouse and give him or her the option to participate in the process. There are no exceptions to this rule, even if you were a victim of abuse. However, the IRS will not reveal your contact information to your ex-spouse. Note that if your request is denied and you appeal to the Tax Court, your personal details may become a public record. To protect yourself, you should work with a tax professional who can help you navigate this situation.
What forms do I need to file for innocent spouse relief?
In order to file for innocent spouse relief, you have to submit IRS Form 8857. If you were a victim of spousal abuse, you must also submit a letter explaining that. You may also want to submit a letter with extra details in other cases as well. A letter helps you explain why you meet the requirements for relief.
What is an understatement of tax?
An understatement of tax occurs when your return says you owe less tax than you really owe. This usually happens when someone doesn't report all of their income, reports excessive deductions, or claims credits they aren't entitled to. If your spouse understated the tax on your return without your knowledge, you can apply for spouse relief.
What is an underpayment of tax?
This occurs when the total tax amount on the tax return is correct but the taxpayer fails to remit full payment. If this situation, the innocent spouse cannot apply for traditional innocent spouse relief. But they can apply for equitable relief.
When am I liable for my spouse's tax liabilities?
When it comes to taxes, married couples can file their return jointly or separately. If you and your spouse decide to file jointly, you will both be liable for any tax liability incurred. This means that if your spouse owes back taxes, the IRS can come after you for the money. However, if you file your taxes separately, you will not be held responsible for your spouse's taxes owed. Ultimately, it is up to you and your spouse to decide which filing status is best for your situation. If you own joint assets and you aren't personally responsible for your spouse's tax liability, your joint assets can still be at risk of levy from the IRS.
Can I get partial innocent spouse relief?
In some cases, you may qualify for partial innocent spouse relief. This comes into play if you know about some of the income your spouse understated but not all of it. To give you an example, imagine that you knew your spouse won $5,000 at a casino but didn't report it. However, you didn't realize that your spouse actually won $25,000. In this case, you can apply for innocent spouse relief on the $20,000 but not the $5,000.
What is the difference between injured and innocent spouse relief?
Innocent spouse relief is when you apply for relief of a tax bill due solely to your spouse's understatement of tax. It also includes situations where you ask the IRS to separate the tax liability on a jointly filed return after the end of a relationship. In contrast, injured spouse relief applies when the IRS keeps your tax refund to pay for a debt due solely to your spouse.
For instance, if the IRS seizes the refund from your jointly filed return for your spouse's child support or unpaid taxes from before you were married, you can apply for injured spouse relief. File Form 8379 (Injured Spouse Allocation). If the IRS approves your request, your share of the refund won't be seized for your spouse's debt.
If I qualified for an offer in compromise, can I still qualify for innocent spouse relief?
No, you cannot qualify for innocent spouse relief if you already qualified and settled your taxes with an offer in compromise. If you've already applied for an offer in compromise for the tax year in question, you should not also apply for innocent spouse relief.
How many years can my innocent spouse relief filing cover?
Your innocent spouse's relief filing will cover up to six years on the same form. If you want to cover more than six years you will have to file a separate IRS Form 8857 for the additional years.
Applying for innocent spouse relief can be complicated. If you're like most applicants, you probably have a lot of other questions. To get answers to your questions and help applying for relief, contact a tax professional today. Using TaxCure's search feature, you can look for a local tax pro based in your area who has experience with this program. They can answer your questions about IRS innocent spouse relief, and then, they can also let you know if your state has a similar program.