Innocent Spouse Relief

Innocent Spouse Relief

There are various favorable tax related reasons to file joint tax returns, but did you know that by doing this you and your spouse are each jointly 100% liable for the entire amount of the tax? This tax law is referred to as joint and several liability. This can certainly present problems, if one of the spouses understates income or misuses deductions, for example, without the knowledge of the other spouse. It is common in many marriages for one spouse to handle the finances of the household. What can a spouse do if his/her spouse files an incorrect or fraudulent tax return and finds himself/herself in a situation where they are liability for the additional tax, penalties, and interest owed? There are three types of relief under the tax law: 1.) Innocent Spouse Relief; 2.) Separation of Liability Relief; and 3.) Equitable Relief. The scope of this article is limited to Innocent Spouse Relief. Innocent Spouse Relief provides a spouse relief from liability of additional tax owed, when their spouse or former spouse either: 1.) Failed to report income; 2.) Reported income improperly; 3.) Claimed improper deductions or credits. To qualify for innocent spouse relief eligibility criteria, the spouse must demonstrate that they had no knowledge of the understatements or inaccuracies in the tax return at the time the return was signed. Additionally, they must request relief within a certain time frame from the IRS after receiving a notice of the tax deficiency. Understanding these requirements is crucial for anyone in a situation where they feel unfairly burdened by their spouse's tax decisions.

In general, Innocent Spouse Relief must be requested no later than 2 years after the date the IRS first attempted to collect the tax from you but their are exceptions to this rule. Under the tax law, Innocent Spouse Relief rules are effective for unpaid balances as of July 22, 1998 and tax liabilities arising after July 22, 1998. There are several conditions that must be met in order to qualify for Innocent Spouse Relief, including: 1.) You filed a joint tax return which understated the taxes and that understatement was a result of an error made solely by your spouse or former spouse; 2.) You establish that when you signed the tax return you did not have knowledge or should not have known that the return contained such error; 3.) After reviewing all of the facts collectively, it would be unfair to hold you liable for the error resulting in the understatement of tax. The errors that result in an understatement of tax include: unreported income, use of an improper deduction, credit or property basis claimed. Under the tax law, factors used to determine of unfairness to hold the spouse liable include, but are not limited to: 1.) whether you received a significant benefit from the understatement of tax, 2.) whether your spouse or former spouse abandoned you, and whether you and your spouse are divorced or separated.

By: Timothy S. Hart