100+ Years of Combined Tax Resolution Experience.
In a marriage, sometimes spouses make different decisions for their partnership. One might be in charge of the finances while the other runs the household. In these situations, one member may not know the details of their financial situation. As a result, they may unknowingly incur a tax liability with their spouse.
The IRS created innocent spouse relief to allow a spouse to seek relief from tax penalties resulting from their current or former partner’s unpaid tax balances. This reprieve can give you partial or full relief from your tax liability by indicating that only your spouse should be responsible for the tax. However, this takes strategy, as you’ll need to prove you didn’t know about the tax balances in your name.
If you think innocent spouse relief applies to your situation, learn more about the potential benefits and how to qualify.
Innocent spouse relief is a provision in the U.S. tax code to help spouses who were unaware of their marriage’s financial situation when filing a tax statement. When you are married, you have the choice to file taxes jointly or separate from your spouse. When you file jointly, you both file and sign the same tax return, meaning you are both responsible for the taxes owed, even if you get divorced.
You may not know the details of your joint tax situation if you were not involved in the tax filing process, either by choice or by force. You may have decided to leave all the financial duties to your spouse, who filed incorrect information on the paperwork. Or, your spouse may have lied to you about your combined financial situation.
The IRS acknowledges the possibility of a spouse not knowing their true financial situation due to inaccurate reporting or the other spouse lying about their finances or keeping them secret. When you request relief based on your spouse’s tax actions, the IRS may relieve you of the responsibility to pay the taxes, penalties and interest your spouse has caused through improperly reporting or omitting portions of income on your tax paperwork. The IRS can grant you partial relief for the taxes you owe or even relieve you of the full tax liability, depending on the circumstances.
While innocent spouse relief can help you avoid unfair payments, you can only receive it for specific types of taxes. This relief can go toward individual income and self-employment taxes. You cannot receive spousal relief for other taxes, such as business taxes, individual shared responsibility payments, business trust fund recovery penalties and household employment taxes.
When deciding to pursue this relief, make sure your situation applies. If you’re unsure, you can speak to an experienced tax attorney who can help you understand any rights you may have to spousal relief.
To apply for innocent spouse relief, you will need to fill out Form 8857, Request for Innocent Spouse Relief. Use the most recent form revisions. After you submit the form, the IRS decides how much tax, if any, you are responsible for.
To qualify for this relief, you must meet the following conditions.
You and your spouse will need to have filed a joint return featuring a tax understatement due to items of error. Erroneous items include your spouse’s unreported income and any incorrect deductions, basis or credit your spouse has claimed.
You will need to prove that when you signed your joint tax return, you did not know of or had no way of knowing of a tax understatement. You must show to the IRS that you were unaware of errors on the tax return and that a person of sound mind in circumstances like yours would have also been unaware of those errors.
When determining whether you would have reasonably known about the errors, the IRS will consider many factors, including the nature of the errors, your joint financial situation, your business experience, your educational background and whether the mistakes represent a break from a recurring pattern reflected in your previous tax returns.
When deciding whether holding you accountable for the taxes owed is fair, the IRS looks at several factors. They will need to see that due to the facts and the circumstances of your life, relationship and finances, it would be unfair to hold you liable for the understatement of taxes. The facts and circumstances considered include the following.
You and your spouse must not have transferred property to one another as part of a fraudulent scheme. These include plans to illegally obtain money from the IRS or another third party, like a creditor, business partner or ex-spouse.
You may receive partial tax relief if you did not know or had no way of knowing about the taxes owed when you filed the tax return. Even if you knew of some of the erroneous items, if others come as a surprise, you can try to prove this to the IRS. If the agency approves your appeal, and you have met all other above requirements for that portion, you’ll be free of the understatement regarding that specific unknown error.
If you think innocent spouse relief applies to your situation and could benefit you, consult with a professional. A tax attorney will look at your finances with a knowledgeable eye and tell you whether your circumstances could bring you tax relief.
Seeking help is the first step. If you want to apply for innocent spouse relief, a tax attorney can walk you through the process and advocate to the IRS on your behalf to help prove you were uninvolved in your spouse’s erroneous tax claims.
If you need tax attorneys to help to settle your tax liability, give us a call at 844-841-9857 or click below to schedule a free consultation.
Do you know why most married taxpayers go for filing joint tax returns? It’s actually because of the benefits that it offers. But with joint tax returns, both the filers hold the responsibility for the tax bill or any penalties and interest that arise from it. Both are legally responsible for the entire liability, even...
The world of tax laws is a complex maze, and the IRS statute of limitations is your guide. It tells you how long the IRS has to audit your tax returns and collect any money you might owe. Knowing this timeframe is essential. It’s your protection against the IRS coming after you years down the...
If you and the Internal Revenue Service (IRS) disagree on an outcome or decision involving your tax matter, you can legally appeal their decision. IRS tax appeals allow you to state your case to the IRS appeal division for another evaluation. Whether you need to dispute a tax penalty, assessment or other decision from the...
One of the keys to business success is understanding the tax rules and how they apply to or affect your company. In states where marijuana is legal for medical or recreational use, there are usually special taxes that apply to the sale of the drug. If you’re considering opening a dispensary or own one already,...
The landscape of cannabis taxation is as dynamic as the changing tides of its legal status across various jurisdictions. Entrepreneurs and consumers alike must navigate a complex maze of federal and state tax regulations that often clash or overlap, especially as more states join the roster of cannabis-legal states. Businesses entrenched in the burgeoning industry...
As the fiscal year draws to a close, taxpayers might observe a shift in their strategies by assessing the updated landscape of tax brackets for 2023. With the guidance of Polston Tax’s experienced advisors, individuals, and businesses can navigate the system’s complexities, ensuring a path to financial efficiency and potential savings. Tailored tactics can cater...