Watch our video to learn about the types of Innocent Spouse Relief!
What do we mean by the term “Innocent Spouse?”
In the tax world, this happens when a couple of files a joint return and one spouse feels that they should not be responsible for the tax.
There are three types of relief for the innocent spouse:
1. Traditional Innocent Spouse
This happens when there is an understatement of income on a tax return and the innocent spouse did not know or have reason to know, about the understatement. It is inequitable to hold the innocent spouse responsible for the tax. He or she must, however, request relief within two years of the start of IRS collections. The tax liability is allocated between the spouses, with the income at issue allocated to the other spouse.
2. Separation of Liability
This happens when there is an understatement of income on a tax return. The two spouses must have been divorced, or legally separated, for at least 12 months. In this case, they must request relief within two years of the start of IRS collections. The ex-spouses involved will be treated as married filing separately. The tax debt will be allocated based on who earned the income, or who owns the assets that are the source of income. Usually, this provides a better answer for our clients.
3. Equitable Relief
This happens when there is an understatement of income on a tax return, or the tax is correct but unpaid. In this case, there is no requirement to file for equitable relief within two years. Given all the facts and circumstances, it is simply inequitable to hold the spouse responsible. The IRS will also consider marital status, economic hardship, knowledge or reason to know, abuse, physical or mental health, and financial dominance in the case of Equitable Relief. Tax liability will be allocated between the spouses.
There is also a relief for the Injured Spouse. This situation occurs when the couple files a joint tax return and some or all of an expected joint refund is taken to pay the other spouse’s tax liability. For example, the IRS takes part of a joint tax refund-related to child support from a previous marriage. The IRS will then give you your share of the money back.
If you would like to watch our YouTube video on this topic, click here!
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