Classic IRS Innocent Spouse Relief Requirements
Apply for Tax Relief Under Section 6015 B of IRS Code
Innocent spouse relief is an IRS program designed to protect people who are facing a tax debt due to their former spouse or spouse's actions. To qualify as an innocent spouse, you must establish that your spouse/former spouse is solely responsible for the tax liability, penalties, or interest from your joint return. If you are the responsible party, you can't qualify for this program. To help you out, this guide looks at the innocent spouse relief requirements so you can start to decide if this might be an option for you.
Requirements for Innocent Spouse Relief
To qualify for innocent spouse relief, you must meet a range of requirements. If you don't meet all of the requirements explained below, you will not be able to obtain this type of relief, but in that situation, you may want to look at the other two types of innocent spouse programs. Note that with this type of relief, married taxpayers who live with their spouses can request innocent spouse relief, but with some of the other options, your marriage must be over.
You Filed a Joint Tax Return for the Year You Are Seeking Relief
You must have filed a joint tax return for the year you are seeking relief. Legally, when you file a joint return, you and your spouse become jointly and severally liable for the tax debt. This means that the IRS can hold you both responsible (jointly), but it can also hold you individually (severally) responsible.
To give you an example of joint and several liabilities, imagine that you sign a joint tax return that says you and your spouse owe $10,000 in tax. All of the tax owed is due to your spouse's business. You owed some tax during the year, but you already paid it from the money withheld from your paycheck throughout the year. Normally, it doesn't matter that the bill was just due to your spouse. By signing the joint return, you become responsible for the bill. The IRS has the right to go after you personally for the whole thing. However, this rule isn't necessarily fair, and that's where innocent spouse relief comes into play. If you can prove that you shouldn't be responsible for the bill, you can get relief.
The rules are different in community property states such as Wisconsin. Innocent spouse relief in community property states is complicated, and it often only comes into play when you file as married filing separately. You can find more information about community property states here on the IRS's website.
The Tax Return Has an Understatement of Tax
The joint return must contain an understatement of tax. That means that the joint tax return says you owe less tax than you really do. This can happen due to unreported income, inflated deductions, incorrect basis, or erroneous credits. Here are some examples. If your spouse didn't report income from lottery winnings or a side business, the joint return has underreported income. An inflated deduction may apply if your spouse makes up business deductions or claims deductions for expenses they didn't pay. If your spouse sells a property and claims they originally paid more than they did to minimize the capital gains, that is a case of incorrect basis.
You Blame Your Spouse or Former Spouse
An error caused by your spouse or former spouse is the reason for the understatement of tax on your joint tax return. As indicated above, that may include underreporting income, claiming the wrong deductions, or over-claiming deductions or credits. Other examples may relate to using the wrong basis for claims related to capital gains or losses, as well as math errors. However, simply blaming your spouse is not enough. You must meet other requirements.
To illustrate, let's say that your spouse claimed a $5,000 business deduction for dog food because they said that the dogs were guard dogs for your home-based business. You didn't really agree, but you signed the return anyway. Then, the IRS audited the return, disallowed the expense, and sent you a bill for the tax. Unfortunately, in this situation, you can't claim that you're not responsible because the deduction was your spouse's idea. Unfortunately, since you knew about the issue when you signed the return, you cannot apply for this type of spouse relief. However, you may be able to get separate liability relief or equitable relief -- especially if you signed the return out of fear or under duress.
You Were Unaware of the Understatement of Tax
Plain and simple, this rule means that you did not know about the unreported income or any other erroneous item(s) when you signed the return. In other words, you had no actual knowledge of the issue and no reason to know about it. This is where innocent spouse relief claims can get very tricky. The IRS has strict definitions around the concepts of actual knowledge and reason to know, but this is also a subjective issue which is why you need a skilled tax pro to help you.
To be declared an innocent spouse, you must be able to prove that you didn’t know about the issue. Furthermore, you must show there was no reason why you would have known. To give you a very basic example, imagine that your spouse was running a secret business to support a secret gambling addiction and they didn't report the income. In this case, it may seem reasonable that you didn't know. However, if your spouse was earning an extra $100,000 a year that was paying for family vacations, home remodels, and other expensive items, you probably should have wondered where all the extra money was coming from. You will remain jointly responsible if the IRS thinks that a reasonable person should have known. This is one of the most common rejection reasons.
When deciding if you should have known about the issue, the IRS considers many factors. For instance, the IRS will consider your spouse’s finances, your educational background, and your business experience. For instance, if you're a lawyer or you have a master's degree in business but you didn't sign a tax return for the last five years, you may be able to argue that you didn't know about the situation, but the IRS will counter that due to your educational background, you should have asked questions about why there wasn't a tax return to sign. In other words, the IRS will claim that you had a reason to know about the issue due to your education. Moreover, the IRS will look at patterns in previous years, and whether you participated in the activity related to the error. The IRS will also consider if you benefited from the understatement of tax.
It Is Truly Unfair to Hold You Responsible for the Tax Liability
There is a significant amount of interpretation in regards to this element. The IRS looks at a number of factors including whether you benefited (indirectly or directly) from the understated tax. The IRS will also look to see if you received a significant benefit. This is a benefit(s) in excess of normal support. For example, if you acquired certain assets, property rights, or money after the filing of the return, the IRS may say that you received a significant benefit.
When you apply for relief, you must reveal if your spouse transferred any property to you. Even if you didn't know about the issue and it was solely your spouse's fault, a property transfer can show that you benefited from the understatement of tax on the joint tax return. For instance, say that your spouse underreported tax in 2018, and you didn't know about it. Then, in 2019, your spouse gave you a sports car, and its cost was substantially more than your spouse could normally afford based on their reported income. In 2020, you got a divorce. The next year, the IRS comes after you for the tax debt. You claim you didn't know about the tax bill, but the IRS looks at the car and begs to differ. These are the types of complex issues that IRS takes into account when assessing the issue of fairness.
The agency also takes into account if you’re widowed, divorced, separated, and if your spouse left you. Here's another example. Imagine that your spouse lied to you about underreporting income. Then, they fled the country or died unexpectedly. You don't have the resources to pay for the tax bill, and you didn't have any reason to know that your spouse was lying on the returns. In this case, it probably would be unfair or inequitable to hold you responsible.
The agency also takes into account personal details about your relationship. The IRS wants to see if there has been a pattern of your spouse lying and deceiving you. When you apply for innocent spouse relief, you can also explain if your relationship was abusive. If desired, you can have the abuse noted on your account, and the IRS agents who contact you will be sensitive about this personal issue. However, you don't have to note abuse on your account if you don't want to.
What if it would be unfair to hold you responsible but you don't meet the other requirements? In this case, you should check out equitable relief. Innocent spouse based on equitable relief really focuses on the fairness issue. For instance, this may apply in cases where you knew about the issue but you were forced to sign the joint tax return. You have a little more leeway on some of the above requirements when you use the equitable relief category, but you can only apply if you are separated or no longer married.
The IRS Began Collection Activities Less Than 2 Years Ago
For you to qualify as an innocent spouse, it must be less than two years since the IRS first attempted to collect these taxes from you. Note that the clock starts running when the collection actions start, not when the return was filed. For instance, collection actions may include the IRS taking you to court for the tax bill or seizing your tax refund because you owe tax due to an understatement on a previous year's jointly filed return. To be on the safe side, you should reach out for help as soon as you suspect an issue. You don't want to miss this window of opportunity.
Partial Innocent Spouse Relief
Innocent spouse relief isn't all or nothing. In some cases, you may qualify for partial relief. This applies when you knew about part of the understatement but not all. To give you an example, imagine that your spouse earned $80,000 in a side business, and they didn't report the income on your tax return. You knew that they earned $10,000 on the side, but you had no knowledge of the other $70,000 because they were very deftly hiding it from you. In this case, you can make a strong argument that you deserve relief from the tax due to the $70,000 of unreported income. If the IRS grants your request, the agency will hold you responsible for the tax related to the $10,000 but not the remaining $70,000.
If you meet all of the above requirements, there is a strong possibility you will find relief. If the IRS accepts your request, you are no longer liable for the tax debt, interest, or penalties related to the understatement of tax. However, if you do not meet the requirements above, you can look at other forms of Innocent Spouse Relief such as separation of liability or equitable relief. Separation of liability breaks down the details on the return so that you are only responsible for the taxes related to your portion of the income. Equitable relief can apply in situations where the tax was understated or underpaid due to your spouse or ex-spouse's actions, and it would be unfair to hold you responsible.
If you are looking for a tax professional that has experience with Innocent Spouse Relief, you can find a list of tax professionals that have experience with innocent spouse relief here. Or you can start your search below to find the top-rated professional based on your unique tax situation. Once you find a local tax professional that meets your needs, you can contact them directly. Most tax pros start with a free consultation, and they can help you decide if the innocent spouse program is right for you or if you should take another approach. In many cases, you may end up using multiple programs. For instance, you might apply for innocent spouse relief on some of the tax bill, but then, you might also need to set up payments on the remaining liability.