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.
What Is Spousal Tax Relief?
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.
What Does Innocent Spouse Relief Cover?
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.
How Do You Qualify for Spouse Tax 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.
Filed Joint Return
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.
No Reason to Know
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.
Applicable Facts and Circumstances
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.
- Significant benefit: The IRS will consider whether the understatement gave you a significant benefit, based on your financial situation. A significant benefit exceeds the support you would usually receive based on your specific circumstances. Direct and indirect benefits include property transfers, including those you may receive years after filing the understatement.
- Relationship status: The IRS will also consider the state of your spousal relationship, including whether your spouse has deserted you or whether you two are divorced or separated.
No Transfers of Property
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.
Qualifying for Partial Relief
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.
Contact Polston Tax for a Free Consultation
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...
A recent article from the Washington Post cites data from 2019, where 1.3% of taxpayers earning one million to five million dollars were audited. Further, only 0.2% of those earning $25,000 to $50,000 were audited. You must understand this is not a personal attack when you receive an audit letter. The IRS has a computer...
In June 2023, the IRS began sending millions of CP14 notices to taxpayers countrywide. Those who receive these statements typically have many questions about what they mean and how to handle them. The Polston Tax Resolution & Accounting professionals are here with the answers you need. What Is an IRS CP14 Notice? An IRS CP14...
In 2022, Americans owe a whopping $120 billion in back taxes, according to the IRS. Now some people owe a year’s worth of taxes and can quickly get back on track. At the same time, others owe years and years’ worth of taxes and face severe consequences for their unpaid taxes. Have you been worried...
Receiving a letter from the IRS or the state can be intimidating, especially if you’re unsure what the notice is for or what to do next. Fortunately, many notices are nothing to worry about and are purely informative. Below, we take a look at everything you need to do — and what not to do...