Innocent Spouse Relief From Taxes, Interest, and Penalties
What is Innocent Spouse Relief
A request for innocent spouse relief may relieve you of personal responsibility for taxes, interest, and penalties from a joint tax return if your spouse, or your former spouse, improperly reported items or omitted items. If the request is granted, the tax, interest, and penalties that qualify for relief are no longer your responsibility and can only be collected from your spouse or former spouse. You will remain liable, however, for any tax, interest, and penalties that do not qualify for relief and the IRS may collect these amounts from either you or your spouse (or former spouse).
Joint Return Means Joint Liability
Many married taxpayers choose to file a joint tax return for the benefits it provides. In doing so, both spouses become jointly and severally liable for the tax and any interest or penalties that arise from the joint tax return. Even if they later divorce, each person remains legally liable for the entire tax liability before the IRS. A divorce decree may obligate one party to pay the tax debt, but the IRS may still collect all tax, interest, and penalties from a joint tax return from either taxpayer.
Three Types of Relief
In certain cases, a spouse or former spouse can get relief from being jointly and severally liable from a joint tax return. The three types of relief include:
- Innocent Spouse Relief provides relief from taxes, interest, and penalties arising if your spouse or former spouse failed to report income, reported income improperly, or claimed improper deductions or credits.
- Separation of Liability Relief is when the IRS separately allocates tax obligations between former spouses, with each taxpayer responsible for that share of the taxes and associated penalties and interest allocated to each of them.
- Equitable Relief may be granted when you do not qualify for either innocent spouse relief or separation of liability with respect to something not reported on a joint return that is generally attributable to your spouse or former spouse.
Do You Qualify for Innocent Spouse Relief?
To qualify for innocent spouse relief you must satisfy all of the following conditions:
- You must have filed a joint tax return that has an understatement of tax that is solely attributable to your spouse’s erroneous item. This could be income received by your spouse but omitted from the joint return. It could also include deductions or credits incorrectly claimed on a return
- You must establish that at the time you signed the joint return that you did not know and had no reason to know that the joint tax return resulted in an understatement of tax
- You must convince the IRS that after taking into consideration all of the facts and circumstances, it would be unfair to hold you liable for the understatement of tax
In most cases, you must request innocent spouse relief no later than two years after the IRS first attempts to collect the tax from you.
Should I Have Had Reason to Know About an Understatement of Tax?
One of the hardest aspects of obtaining innocent spouse relief is establishing that you did not know and had no reason to know of the tax understatement. In making this determination, the IRS will consider all of the relevant facts and circumstances, which may include:
- The nature of the erroneous item and its amount in relation to other items on your tax return
- Your financial situation, and that of your spouse or former spouse (i.e., how well were you living and was in reasonable based on the information shown on your tax return)
- Your educational background and business experience
- The extent of your participation in the activity that resulted in the erroneous item
- Whether the erroneous item represented a departure from a recurring pattern on prior tax returns (for example, did your joint tax return omit income from an investment reported on prior year’s returns)
- Whether you asked or failed to ask about the erroneous item before signing the joint tax return
Caution – The IRS Must Contact Your Spouse or Former Spouse
By law, if you request innocent spouse relief, the IRS must contact your spouse or former spouse. There are no exceptions, not even for victims of spousal abuse or domestic violence.
The IRS will inform your spouse or former spouse that you have requested innocent spouse relief, and will allow him or her to participate in the process.
The IRS will protect your privacy by not disclosing certain personal information, such as your current address, current name (if different), phone numbers, or employer. However, certain information contained in your request may be disclosed.
If you are concerned about your privacy or the privacy of others, contact the Business Law Group for assistance with your Innocent Spouse Relief request to ensure your personal information is protected!
How to Qualify for Separation of Liability Relief
You may qualify for separation of liability relief if you filed a joint tax return and meet one of the following requirements at the time of your request:
- You are divorced or legally separated from the from the spouse with whom you filed the joint return
- You are widowed
- You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period before the date of your request
If you had actual knowledge of the item giving rise to the understatement of tax at the time you signed the joint return, you do not qualify for separation of liability relief.
What is Equitable Relief?
If you can establish that it would be unfair to hold you personally liable for a joint tax obligation, you may grant you equitable relief, even if you do not qualify for innocent spouse relief or separation of liability relief. In considering your request, the IRS will consider all of the facts and circumstances.
Call the Colorado Tax Attorneys at the Business Law Group
The tax attorneys of the Business Law Group can help you determine if you are eligible for innocent spouse relief, separation of liability relief, or other equitable relief, and file the request in a way to protect your personal information. Call us today!