Innocent Spouse Relief

What is "Innocent Spouse Relief" from Taxes?

Internal Revenue Code authorizes a joint tax return for husband and wife. In general, spouses are jointly and severally liable for any tax interest, or penalties for a year in which they filed a joint tax return, meaning that the IRS can pursue either spouse for any tax delinquencies.

In some circumstances, some taxpayers may be eligible to obtain relief from joint and several liability for the federal taxes plus penalties for its nonpayment by filing the IRS Form 8857, Request for Innocent Spouse Relief.

Taxpayer May Obtain Relief from Joint and Several Liability

Three opportunities for tax relief exist under I.R.C. §6015, also known as “an innocent spouse relief.” In other words, the innocent spouse defense provides relief from additional tax you owe if your spouse or former spouse: failed to report income on filed joint returns, or reported income improperly, or claimed improper deductions or credits. Sections 6015(b), (c), and (f) provide relief from all or some of the joint tax liability if certain requirements are satisfied:

1. Through traditional innocent spouse defense

A requesting spouse must prove that when the return was signed, s/he “did not know, and had no reason to know, that there was an understatement” of tax, and that it would be inequitable to hold him or her responsible for the understatement.

The typical person seeking relief could be a married woman with kids who lives with her spouse. She has no control or little knowledge of the family finances. The husband is usually self-employed or has a side business that is the source of the joint return tax issues. He may be convicted of a tax fraud or other financial crime. Such relief is also available to a divorced, separated or widowed spouse who has already paid the deficiency and seeks a refund.

2. Through a new procedure for electing separate liability

An electing spouse must prove that:

  1. S/he “did not have actual knowledge of the receipt of the income,
  2. There is no evidence of scheme or fraudulent transfers between spouses, and
  3. The electing spouse has not received disqualified assets (except as part of a dissolution of marriage).

It should be noted, that relief can be barred even if the spouse had no knowledge of the tax law and didn’t know the tax consequences of that income, depending on each taxpayer’s individual situation.

The typical person seeking relief is someone who is divorced, separated, or widowed for the 12-months period before making the election, and who filed joint returns while married. More often than not, the joint liability arose after the separation event as a result of an IRS audit the non-requesting spouse did not disclose and without the knowledge of the spouse seeking relief. A widow(er) is treated as not married, and may make the election without regard to the twelve-month separation rule.

3. Through a new rule permitting equitable relief under certain circumstances

This Code section is a fallback provision when relief under other sections is not available.

A typical scenario involves one spouse who has taken responsibility for the family’s finances, including the filing of annual tax returns, and paying taxes due, and another spouse reasonably relying on such promise. The responsible spouse did file the returns, however made no payment owed. However, no payment was made, and the couple may now be separated or divorced, or the spouse has died, and collection activity has begun.

To Qualify for Section 6015 Relief, Requesting Spouse Must Prove All these Facts

  • The relief sought relates to a jointly-filed income tax return. The most important factor is whether the taxpayer intended to file jointly with his/her spouse. Join and several liability does not exists if either spouse did not intend to file a joint return, if it was illegal to file a joint income tax return, or if a spouse signed the return under duress. It should be noted, that factors that demonstrate intent include the couple’s prior filing history.
  • In signing the return, the spouse seeking relief did not know or have reason to know of the understatement on the return;
  • To elect equitable relief, the marital status of the electing spouse must meet the specified requirements.
  • The election must be timely made
  • No assets were transferred between the spouses as part of a fraudulent scheme;
  • There is an understatement or deficiency of tax attributable to erroneous items of the nonrequesting spouse.

When all these facts are proven, the requesting spouse may succeed in making the proportionate liability election allowed by the IRS.

NOTE: If only one spouse makes the election and relief is granted in whole or in part, that spouse is responsible only for whatever portion of the understatement or underpayment (if any) is attributable to his or her “items”; the other spouse remains severally liable for the entire understatement or underpayment (depending on the provision under which the taxpayer elects relief). If both spouses requested relief as to different items on the return, and both are granted relief, then each owes only his or her proportionate share of the understatement (liability that arises from a deficiency adjustment) or underpayment (liability that was properly reported, but not paid).

Innocent spouse defense is a very complicated and difficult process and should be carried out by a tax attorney to ensure that the taxpayer receives the best chance at reducing past debts. As outlined above, the rules and procedures by which the examining IRS agent is deciding relief involve complex questions and knowledge of intent. Because U.S. tax law and regulations are complicated and constantly changing, it is important that you obtain up to date information about the provisions that apply to you to prevent costly mistakes. To read more about the innocent spouse relief, see IRS Topic 205 - Innocent Spouse Relief (Including Separation of Liability and Equitable Relief).

We Can Help You

At Guzhva Law Firm, we are providing thoughtful solutions and measurable value to each individual situation. Because U.S. tax law and regulations are complicated and constantly changing, it is important that you obtain up to date information about the provisions that apply to you to prevent costly mistakes.

To schedule a free phone consultation with an IRS collections attorney, please contact us today. With offices in Bellevue, we work with tax clients throughout Seattle and Washington State, and elsewhere.

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