The Innocent Spouse rule helps a spouse get relief from the tax owed due to errors, or inaccuracies filed on joint tax returns by the other spouse. To qualify to file for this relief :
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You filed a joint return that underreported income or overstated expenses leading to understated total tax owed
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You were unaware of the understatement in taxes filed
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It would be unfair to pay the additional taxes, considering you did not knowingly participate in the wrongful tax filing along with the other spouse
To get a better understanding of these requirements, let us take a deeper dive.
What is Innocent Spouse Relief?
Innocent spouse tax relief is a way for a spouse or former spouse to obtain possible relief from tax liability, due to actions by the other spouse on a previously filed joint tax return. When a married couple chooses to submit a joint tax return, then both spouses are jointly and severally responsible for the tax amount due. Both spouses will also be liable for any interest, penalties, or additional assessments of taxes due to issues with the information reported on that tax return.
If one spouse misrepresented income and deductions or if one of them fails to pay, then the other spouse is equally liable to pay the entire amount due.
When one spouse files incorrect or fraudulent information on a joint tax return, with the other spouse being unaware, the innocent spouse can file Form 8857 to get relief from the taxes owed, as a result of the problems on that joint tax return. Other types of assistance from tax debt caused by another spouse include separation of liability relief and equitable relief. All three have requirements for an aggrieved person to pursue this form of relief. If one is not available to you, then it is wise to review the other options.
Conditions for Requesting Relief
To request relief from paying the tax due from a joint return under the rule for innocent spouse and obtaining relief, you need to meet the following requirements:
- You filed a joint tax return, and it understated the amount of tax owed due to underreported income or erroneous information submitted by a current or former spouse.
- You did not know about the tax being understated at the time the tax return was filed and had no participation or reason to know that the tax due was minimized based on the information submitted by the other spouse.
- When all facts and circumstances are considered, it would be unfair for the spouse requesting relief to share responsibility for the additional tax due based on the actions of the other spouse who filed the incorrect information or withheld income, causing the understated tax due amount on that joint return.
All three of the above requirements must be met to apply for relief via the innocent spouse IRS rule. The relief is to avoid being responsible for the additional tax that is due for a joint tax return based on incorrect items filed by the other spouse or former spouse.
The IRS publication regarding the innocent spouse tax relief rule specifically gives guidance on;
- Types of incorrect items that appeared on the joint tax return and resulted in understated tax liability – 1) underreported income and 2) wrong basis, credit or deduction, along with examples of both.
- The threshold for meeting the requirement that you did not know or have reason to know of these erroneous items.
- Examples of the types of circumstances the IRS considers when determining if it would be unfair to hold the spouse requesting relief for the unpaid taxes
Time Limit
To request relief under the innocent spouse option, you have two years. The clock starts once the IRS attempted to first collect tax from you and your spouse or current spouse. The same statute of limitations applies to a request for separation of liability. For equitable relief requests, you have the time that the IRS can collect tax to submit your request to the IRS.
For those requesting a refund for taxes previously paid, the timeline is the same statutory period for refunds typical for other tax situations. It is the later of two dates:
- Three years from the filing of the tax return that you are requesting a refund for; or
- Two years from when the tax was paid.
Filing Form 8857
To request relief under the innocent spouse rule, you file Form 8857 with the IRS. It is recommended that you submit it as soon as you become aware of the tax liability which may occur from situations such as the IRS sending you a notice of an additional tax amount due or the IRS examining or auditing your tax return and determining that additional tax was due.
Other circumstances that may begin the two-year clock since the IRS inform you of them trying to collect tax on this joint return include:
- The IRS offsetting a tax refund on a later year tax filing and expressly informing you that you have a right to file a Form 8857;
- The IRS brings a claim in court in which you are a party to the case, and your property is involved, which can include bankruptcy matters;
- The U.S. brings a suit against you for collecting upon joint liability;
- The IRS sends you a section 6630 notice notifying you that it is planning to place a levy on your property and informing you of the related collections process.
When Can You Not Request Relief?
Typically, the exceptions to being able to request relief under the innocent spouse rule include those in which a court ruled that you are not entitled to it or to the subject of the claim for which you are requesting relief. Another situation is if you have reached an agreement with the IRS already on a similar matter or regarding that joint tax return.
Get Tax Relief from the IRS
If you think you qualify for tax relief based on the innocent spouse rule, or another similar rule, then it is wise to begin gathering relevant information immediately, given the timeline for filing for this relief. Consulting with a tax professional to ensure you have a good case is essential, especially in cases such as married couples that did not file a joint tax return, community property laws, hardship due to the tax liability, and much more.
Contact our Houston tax professionals for help on your IRS Back tax today.