Innocent spouse relief is an IRS tax provision that can protect you from your spouse’s incorrect tax filings. If you were unaware of errors on your joint tax return and are now facing unfair tax liabilities, this relief may be for you. In this guide, we will cover what innocent spouse relief is, who qualifies, and how to apply for it, including the necessary steps and key considerations. To request innocent spouse relief, you must file IRS Form 8857 within a specified timeframe.

Innocent Spouse Relief Requirements: Key Takeaways

• Innocent spouse relief is an IRS procedure that protects individuals from tax liabilities resulting from errors made by their spouse on a joint tax return, with specific types of relief addressing various circumstances.
• To qualify for innocent spouse relief, individuals must have filed a joint return and request relief within a two-year window from the IRS’s initial collection attempt, with special considerations for victims of domestic violence.
• Filing Form 8857 is essential for requesting innocent spouse relief, which must be submitted within the specified timeframe.

Joint Tax Returns and Joint Tax Liability

When married taxpayers file a joint tax return, they agree to share joint tax liability. This means the irs takes both joint filers as fully responsible for the full tax bill, even if only one spouse earned the income or caused the problem. Filing jointly often provides tax benefits, such as lower tax rates and eligibility for certain credits.

However, joint tax liability also means that any errors or omissions on the tax return can affect both parties. If one spouse inaccurately reports income or deductions, both spouses are held accountable for the resulting tax liability. This can lead to additional taxes due to audits or errors made by one spouse. Innocent spouse relief can become crucial to protect the innocent party from these additional taxes and unjust financial burdens, and understanding the different types of innocent spouse relief available can help determine the appropriate type of relief for the situation.

Understanding Innocent Spouse Relief

Innocent spouse relief is an IRS procedure that shields individuals from unfair tax liabilities caused by their spouse’s incorrect reporting on a joint tax return. This tax relief helps those who were unaware of the inaccuracies on their tax return and would face significant hardship if held responsible, but it does not apply to taxes tied to your own income, deductions, or other errors on the joint return.

Unreported income is a common issue that can lead to tax liabilities and the need for innocent spouse relief. There are different types of innocent spouse relief available, each with distinct eligibility criteria, and these rules can be especially important during divorce and tax planning.

While innocent spouse relief covers various scenarios, it does not extend to all types of taxes, such as employment or payroll taxes, and these protections arise under the relevant internal revenue code section. Equitable relief may still be available when other forms do not fit.

Requirements of a Joint Tax Return

In determining eligibility for innocent spouse relief, one of the primary considerations is whether a joint tax return was indeed filed. The IRS requires that a joint return must have been submitted for the specific tax year in question. However, complications can arise if there are issues with signatures or consent.

A critical aspect of this evaluation for purposes of innocent spouse relief is whether both spouses genuinely consented to the filing of the joint return. If one spouse signed the taxpayer’s name without their knowledge or consent, this could raise issues of forged signatures. Such actions might invalidate the joint return, as the IRS typically requires authentic consent from both parties. If there is no joint return, then there is no joint liability for the tax.

However, the IRS may still consider the joint return valid due to “tacit consent.” The tacit consent doctrine says that even without a physical signature, the spouse was aware of and agreed to the filing of the joint return. This can occur if the spouse benefited from the tax return or was involved in its preparation in some way.

For example, if both spouses discussed the tax return, agreed on the information included, or jointly spent the tax refund, the IRS might consider this as tacit consent. Even without a physical signature, the spouse’s actions and acknowledgment of the tax return’s benefits can imply consent to its filing under the tacit consent doctrine.

Types of Relief Available

Innocent Spouse Relief (Option 1)

The applicable Internal Revenue Code section outlines the conditions under which an individual may qualify for innocent spouse relief. This provision allows relief from joint tax liability if the following criteria are met:

• A joint tax return was filed
• The tax due is related to something wrong on the return relating to the other spouse
• The taxpayer did not know, and a reasonable person in the same situation would not have had reason to know, about unreported income, incorrect deductions, or other incorrect information caused by the other spouse
• It would be inequitable to hold the spouse who is requesting relief to be liable for the additional tax
• The request for relief is made within two years of the start of IRS collection activity

 

Domestic abuse or threats can also affect whether the IRS finds the requesting spouse eligible under the innocent spouse rule. The IRS may also weigh whether the other spouse earned most or all of the income when deciding if it is unfair to hold the requesting spouse liable.

If the first spouse is granted innocent spouse relief under this rule (option 1), then the total tax liability will be allocated to each spouse based upon the taxable items, and the other spouse remains liable for the erroneous items. Therefore, this rule does not give the first spouse complete relief from tax liability. Rather, it only gives relief to the first spouse for the portion of the tax that should not have belonged to them.

Separation of Liability (Option 2)

“Separation of liability” relief is available when the IRS agrees to treat each spouse, or former spouse, as having been married but filing separately. This form of relief applies only to the portion of the understated tax allocated to each spouse, so each spouse is responsible only for their particular income items.

This form of relief (option 2) is only for spouses or former spouses whose marital status shows they are no longer married, including those who are either:

• currently divorced
• legally separated at the time the return was filed, or
• were not members of the same household for at least 12 months at the time the return was filed

 

Eligibility for this provision requires having filed a joint return and lacking actual knowledge of the understatement at the time of filing. Here too, the request for relief must be made within two years of the start of IRS collections activity. It also does not provide a federal tax refund for the same taxes if they have already been paid.

Equitable Relief (Option 3)

“Equitable relief” is yet another form of innocent spouse relief. It is considered when you do not qualify for the other forms of relief but fairness still supports relief. It may apply to an unpaid or understated tax when the other two options do not fit, and it is granted when it is determined to be “inequitable” to hold an individual liable for an unpaid tax or tax deficiency that is the responsibility of the other spouse.

To strengthen your case for equitable relief under option 3, you should try to show that you meet the IRS’s eligibility criteria, which include factors such as knowledge, economic hardship, domestic abuse, spousal abuse, and financial control by the other spouse when deciding whether relief applies, and you may also need to be prepared for a potential IRS appeal process if your initial request is denied.

Filing Form 8857: Request for Innocent Spouse Relief

Seeking innocent spouse relief starts with filing Form 8857, the IRS form and innocent spouse relief form used to request relief. The innocent spouse form formally initiates your request for relief from tax liabilities attributed to your spouse’s actions. Without it, the IRS cannot process your request.

In 2021, the IRS received 26,179 innocent spouse requests and fully approved only 4,807, so irs approves relief in a limited number of cases.

The requesting spouse should follow the form’s instructions carefully and submit a completed form with supporting documents, and consider obtaining professional tax audit representation if the IRS has already initiated examinations related to the joint return. The IRS approves relief only when the facts in Form 8857 and supporting documents establish eligibility.

Even if a divorce decree states that your ex-spouse is responsible for the taxes, the IRS does not recognize this. Both parties remain liable for any taxes owed, necessitating the filing of Form 8857 to claim relief. If you receive an irs notice about unpaid taxes or errors on the joint return, act quickly and file Form 8857 within the applicable deadline.

The IRS will notify the non requesting spouse about your claim relief. Relief can be denied for the same taxes if a prior court order, closing agreement, or related proceeding already resolved whether you relief is available. Interest continues to accrue on the tax debt while your request is under review.

Processing Time To Request Innocent Spouse Relief

The IRS typically takes up to six months to process Form 8857 requests. They will review your request and accompanying information to make a preliminary determination. Factors such as case complexity and the need for additional information can influence processing time.

Difference Between Innocent Spouse Relief and Injured Spouse Relief

Innocent spouse relief and injured spouse relief are often confused, but they serve different purposes. Innocent spouse relief prevents a spouse from having to pay additional federal income taxes due to inaccuracies on a joint return that they were unaware of.

“Injured spouse relief” enables a spouse to reclaim their portion of a tax refund that was withheld to settle the other spouse’s debts. The key difference lies in their focus: innocent spouse relief addresses tax liabilities from incorrect filings, while you can request injured spouse relief to protect one’s tax refund from the other spouse’s debts, including cases involving stimulus checks and injured spouse claims.

The debts consider for injured spouse relief include unpaid child support, federal student loans or state income tax.

Example of Injured Spouse Relief

Alex and Marie file a joint tax return. Alex has outstanding student loan debt, and the IRS applies their entire joint tax refund to Alex’s debt. Marie, who is not responsible for Alex’s student loan, can file a request for injured spouse relief to reclaim her portion of the refund.

IRS Appeals and Innocent Spouse Relief

If your request for innocent spouse relief is denied by the IRS, you have the option to appeal the decision. If the IRS issues a final decision denying relief, you may seek review in tax court. To begin an appeal, you must file a written protest with the IRS Office of Appeals within 30 days of receiving the denial notice. If there is a related court proceeding or a final decision on the same tax issue, that may limit whether you can seek further relief. This office is independent of the IRS and aims to resolve disputes fairly and impartially.

During the appeals process, you may be asked to provide further documentation or participate in a conference with an appeals officer. It’s crucial to be well-prepared and organized, as this is your opportunity to make a compelling case for why you should qualify for innocent spouse relief. You should seek assistance from a CPA or tax attorney, or another tax professional familiar with tax laws and Tax Court procedure, to strengthen your appeal, and it can help to understand the differences between Enrolled Agents and CPAs when choosing representation.

Frequently Asked Questions

What is the primary purpose of innocent spouse relief?

The primary purpose of innocent spouse relief is to protect individuals from unfair tax liabilities arising from erroneous reporting by their spouse on a joint tax return. It ensures that one spouse is not held accountable for the other’s mistakes.

How long do I have to file Form 8857 for innocent spouse relief?

You must file Form 8857 for innocent spouse relief within a two-year window from the date the IRS initiates the collection process. Timely filing is crucial to your eligibility for relief.

What is the difference between innocent spouse relief and injured spouse relief?

Innocent spouse relief addresses tax liabilities arising from false or misleading information on a joint tax return, while injured spouse relief protects an individual’s tax refund from being used to pay the other spouse’s debts.

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