Innocent and injured spouse tax relief are two different avenues that can be pursued by couples filing joint tax returns if one party faces tax consequences due to the actions of their partner. Although the two scenarios are fairly different, they are both meant to release the innocent spouse from income tax liabilities that arise from joint tax filing. Before you request the IRS to consider you for innocent spouse relief or injured spouse relief, it is imperative to understand the differences between the two. In this blog, we will first have a look at the difference between innocent and injured spouse relief and then look into the details of filing for IRS innocent spouse tax relief.
What is Innocent Spouse Relief?
If a person files a joint return and is unaware that their spouse has deliberately under-reported their tax liability, the innocent spouse can get protection from paying additional taxes and penalties by filing form 8857. They need to prove that they did not know about the error in the joint return.
What is Injured Spouse Relief?
An injured spouse is the one who files a joint tax return and all or certain portions of the refund is applied to the spouse’s past due financial obligations. You may fill form 8379, if you are not responsible for the debt and entitled for a refund by the government.
Innocent Spouse Relief vs Injured Spouse Relief
To determine which status applies to your situation, you need to understand the differences and review the concerned joint tax return.
Accuracy in Filing Return
An injured spouse must have accurate details of all aspects of the tax return and information on the amounts filed; including credits and deductions. An innocent spouse on the other hand, needs to prove that all the information in the return is inaccurate. The IRS should believe that the innocent spouse was unaware of the false entries.
Reported Taxable Income
While only one spouse needs to file a return in the event of an innocent spouse, the scenario is entirely different when it comes to injured spouse relief. Both spouses must file a joint return, even if one spouse is not responsible for the debt (that the other spouse owes), and is entitled to a refund.
Review Findings
If you file for injured spouse relief, the tax liability of your spouse will remain, but you will be eligible for a refund based on your income and tax payments. An innocent spouse on the other hand, is released from all or part of any responsibility to pay tax, fines, and penalties to the IRS.
Types of Innocent Spouse Relief
1. Traditional Innocent Spouse Relief
This type of tax liability relief relieves you from additional tax assessed against your total joint return due to the incorrect claim made by your spouse or former spouse. There are two criteria to claim this relief:
Presence of a wrong item on the joint return, which is solely attributable by your spouse. This item could be an income which your spouse failed to report or an inaccurately claimed credit or deduction.
There is an understatement of tax on your return which you are unaware of.
2. Separation of Liability
Separation of Liability will only give you partial relief in case of an additional tax assessed from your joint return. The IRS agrees to distribute equal portions of the debt to both the spouses individually. In order to get relief from joint tax liability under Separation of Liability, you should meet one of the following criteria:
You are divorced or legally separated from your spouse.
You are widowed.
Both of you are living in separate households during the last one year since you filed for a joint return.
3. Equitable Relief
You can claim this relief if you do not qualify to go for the other two Innocent Spouse Relief. If the IRS believes that it is unfair to hold one spouse accountable for the total tax debt, it goes for this catch-all variation of tax liability relief. However, it does not require the presence of an incorrect item on the joint return. Instead, it can be granted if the return was not paid after being adequately stated.
Requirements You Must Meet to File For Innocent Spouse Tax Relief
When a married couple has filed for a joint tax return, the liability for paying the taxes becomes joint and several. While some can trick an unsuspecting spouse into filing for a joint return on their taxes, others may withhold knowledge of an underpayment of taxes. When filing for divorce, a spouse can also file for innocent spouse tax relief. Whether you are filing for innocent spouse relief while married, or doing so after separation, there are a few innocent spouse tax relief requirements you must fulfill. Before proceeding to file for tax relief, let’s take a look at some of the conditions you need to be working in your favor to get the exemption.
1. A Filed Joint Return for the Particular Year
One of the most basic conditions that needs to be fulfilled is that if you seek relief for a particular year, there should be a joint return filed by you and your spouse for the same year. Innocent spouse relief is only available to those who are held liable for their spouse’s taxes. If the IRS does not find a record of a joint return filed under both your names, you will be denied the innocent spouse tax relief.
2. Joint Return Containing the Understatement of Owed Taxes
If a spouse fails to pay their part of the taxes on the joint return, there should be a record of understatement of the taxes that they owe to the state. Once you gain knowledge of the unpaid taxes and decide to file for innocent spouse tax relief, ensure that the joint return contains a statement which proves that the defaulting spouse has paid less than what they owe and is reflected under false activities or erroneous items.
3. Ability to Prove Your Unawareness of the Liability
You must be able to prove that your unawareness about the unpaid or underpaid taxes is genuine. The delinquent spouse may intentionally omit some income from the joint return or file them under false erroneous items. The IRS may be convinced of your innocence by comparing the amount of erroneous items to other items and your participation in the activity that resulted in the error. If the IRS finds that you had any knowledge about the process that resulted in the underpayment of the tax your request for innocent spouse tax relief will be denied.
4. Circumstance Should Work in Your Favor
Considering all facts pertaining to your situation it would be unfair to hold you liable for the outstanding tax amount. The IRS will look at all facts and circumstances to determine if it would be unfair to hold you liable for the understated tax liability. Some of the factors the IRS will look at include whether you benefited from the understated tax, if your spouse left you or cheated on you, and whether you have been divorced or separated from your spouse.
When to file for an Innocent Spouse Tax Relief
You should file for an Innocent Spouse Tax Relief claim no more than 2 years from the date when the IRS first tried to collect taxes from you. Most times, you find it is only one spouse that files the returns while the other signs without going through the documents before signing. If you are not taking part in filing the returns, it is advisable to go through the returns before signing on them.
You are Not Required to be Single
You can file for an Income Spouse Relief even if you are still married to your spouse. To obtain the relief, the spouse requesting for a claim must prove they did not file or failed to file with any fraudulent intentions. They must also show that there were no assets transferred between both spouses for a fraudulent scheme or tax avoidance.
There Must be “Known” Matters
There are cases where you can prove you had no knowledge of over-claimed deductions or income understatements and can still be held liable for tax understatements. A section in Publication 971 outlines an eligibility title of “Actual Knowledge or Reason to Know” which states that if a reasonable person in a similar situation would have known about the tax issues, you remain liable. Therefore, if you did not know, but should have known, liability becomes a possibility. You cannot be granted an exemption if you failed to be vigilant and aware of your joint tax filings.
Steps To Seek Innocent Spouse Tax Relief from IRS
This blog covers 3 steps that can help you seek innocent spouse relief from the IRS. Let us dig in.
1. File IRS Innocent Spouse Tax Relief Form 8857
If you believe that you qualify for innocent spouse tax relief, you can file IRS form 8857. This is the first step to getting relief from joint tax liability. The form is seven-pages long and covers many questions about your situation and how you specifically qualify for the relief. The form also includes questions about your education, qualification, and profession. This information helps to determine whether you are in a position to have known if something was wrong with your tax filing. Attach all the necessary documents that support your claim. Be careful when filing as any misleading answer can lead to rejection of your petition. If you don’t know how to fill out an innocent spouse tax relief form, you must take help from a local tax attorney.
2. Draft an Innocent Spouse Relief Letter
If you are a victim of abuse from your spouse or ex-spouse, then drafting a letter is essential. Even if it is not required, it is good practice to draft a letter to strengthen your claim. You can look at sample innocent spouse relief letters before writing your letter. The IRS form 8857 might not provide enough space to explain your issue. A letter allows you to provide detailed information on why you should be eligible for innocent spouse relief. Also, do not forget to attach all documents that support your claims.
3. Mail the Documents
Once you are done filling the form, drafting a letter, and attaching other essentials, send the documents to the IRS office via postal service or private carriers such as FedEx or UPS. Or fax the form and attached documents. It is important to write your name and contact number on the letter or any other documents before you mail. You can refer to the IRS official website to get the helpline contact number of your Local IRS office.
Caution
There are certain situations when you should not file form 8857. Some of them are:
Your answer to the first question on Form 8857 is NO.
You already entered into a closing agreement with the IRS for the same liability
You have accepted an offer in compromise with the IRS
The court reviewed your case but did not approveIRS TAX
Innocent Spouse Tax Relief Wait Time
The IRS can take anywhere from 6 months to a longer time to review your request for innocent spouse tax relief. The IRS will contact your spouse (former or current) to ask whether they will participate in the process. Upon completing the review, the IRS communicates the decision to the taxpayer with a Letter of Determination. The taxpayers are required to file taxes as per usual until the decision is communicated. If they want to appeal the IRS’s decision, they can do so within thirty days of receiving the letter of determination.
Final Words
If you find yourself in a situation where your spouse filed fraudulent taxes, and you would like to know if you qualify for an innocent spouse relief or want to get a better understanding of tax law and the best help navigating the procedure, look no further—reach out to the Law Offices of Nick Nemeth. The Law Offices of Nick Nemeth has a team of seasoned professionals to help clients with their IRS tax debt issues. To seek guidance on IRS tax troubles or filing for innocent or injured spouse relief, fill out our inquiry form, and one of our consultants will get back to you shortly. You can also call us at (972) 426-2991.
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Whether dealing with IRS audits, tax liens, wage garnishments, or other tax controversies, our firm is dedicated to protecting your rights and helping you achieve the best possible outcome.
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