Married couples often file joint tax returns due to certain tax benefits that are available to them. Those who file joint returns share all tax liabilities, including interest and penalties. However, if one spouse commits a tax offense like concealing income, without the knowledge of the other spouse, the Internal Revenue Service (IRS) may allow the innocent spouse to apply for one of four programs that could absolve him or her of the related tax liabilities.
If your spouse violated the tax code without your knowledge and you would like to learn more about innocent spouse relief, consider contacting an experienced tax attorney at Damiens Law by calling (601) 957-9672.
How does joint and several liability apply to taxes?
Joint and several liability is a legal term that applies to any situation in which two or more parties share liability, including lawsuits and taxes. When this concept applies, both parties may be held liable for damages up to the full amount.
In general, according to the Internal Revenue Service, both spouses are jointly and severally liable for taxes from jointly filed returns. This means that the full tax liability may apply to both spouses, even if only one of the spouses earned income that year. However, Section 6015 of the Internal Revenue Code offers three forms of relief for innocent spouses in certain situations.
What are the types of innocent spouse relief?
The IRS offers three opportunities for relief from joint and several liability at the federal level. In addition, taxpayers who lived in community property states and did not file joint taxes with their spouses may qualify for relief under their state’s community property laws.
Who can file for innocent spouse relief?
While the term “innocent spouse relief” is often used in a general way to refer to any form of relief from tax liability in a jointly filed return, the IRS also has a specific innocent spouse relief provision. This form of tax liability relief is available if a person’s spouse or former spouse did not report his or her full income, improperly reported income, or claimed erroneous deductions or credits.
A taxpayer who wishes to apply for innocent spouse relief will need to meet certain conditions to qualify, including all of the following:
- The joint return understated taxes solely related to one spouse’s error
- The innocent spouse can show that he or she was unaware of the understatement of tax when signing the joint return
- The innocent spouse has not lived with the other spouse at any time during the one-year period ending on the date of the relief request
Separation of liability
In some situations, taxpayers who do not qualify for innocent spouse relief may be eligible for relief through separation of liability. This provision is available to taxpayers who are separated from the spouse responsible for the tax understatement. Those who wish to apply must do so within two years of the date the IRS began collections activities. One of these three conditions must be met to qualify for separation of liability relief:
- Divorce or legal separation from the spouse who made the error
- The other spouse has passed away since filing the return
- The spouse applying for relief has not lived with the other spouse in the 12 months leading up to the request for relief
Applicants must also establish that they had no real knowledge of the issue that caused the tax dispute when they signed the joint return or that they were forced to sign the return even with knowledge. You can learn more about applying for separation of liability relief from a skilled tax attorney at Damiens Law.
Taxpayers who qualify for neither innocent spouse relief nor relief through separation of liability may have the option to apply for equitable relief. The applicant must show that, based on his or her unique situation, holding him or her liable for tax underpayments and deficiencies would be unfair. Equitable relief may be an option if an error on the tax return is attributable to a person’s spouse, or if the amount of tax was reported correctly but was not paid. The IRS will consider several factors when determining whether to accept a request for equitable relief. The relief is only granted, however, if the following three conditions are met:
- Marital status—The spouses must be either divorced, legally separated, or living in different households for at least one year prior to the request
- Knowledge—The spouse applying for the relief had no knowledge or reason to know about the tax return inaccuracies when signing the return
- Economic hardship—The applicant will suffer economic hardship if the IRS does not grant equitable relief
Other factors that may be considered include but are not limited to the following:
- The spouse’s legal obligation to pay the tax liability based on a divorce decree or other agreement to pay the liability
- The spouse to which the liability is attributable
- Whether the requesting spouse stands to gain a significant benefit by receiving relief
- The mental and/or physical health of the requesting spouse at the time the return was signed and at the time relief was requested
- Compliance with income tax laws in the years following the taxable year or years related to the request for relief
- Whether there was abuse in the marriage
Community property relief
In certain states, this fourth form of relief may be available. Community property laws declare that any assets acquired during a marriage are considered community property, regardless of who purchased the assets. In these states, spouses can also face tax liability for community income, even if they file their taxes separately. In this scenario, spouses may request relief from all or a portion of the liability. Neither Mississippi nor Tennessee is a community property state, so there is more flexibility when dividing a couple’s assets and liabilities.
How to apply for innocent spouse relief
Taxpayers who wish to apply for innocent spouse relief, separation of liability relief, or equitable relief must submit one of two documents—IRS Form 8857, Request for Innocent Spouse Relief, or a written statement that contains the same information found on that form. The application process is generally the same for all three types of relief, but the responses and information provided will vary.
IRS Form 8857—request for innocent spouse relief
IRS Form 8857 is a seven-page document used to request innocent spouse relief. This complex form includes extensive questions regarding the applicant’s situation and the circumstances that may qualify him or her for relief. These questions cover a wide range of relevant subjects.
The responses can determine whether the request will be accepted, so the applicant must carefully consider how to answer each question. For example, the IRS may ask about the taxpayer’s education and work experience to determine if he or she were educated enough or had enough business experience to know that something was wrong with the return.
Innocent spouse relief letter
All applicants have the option to submit an innocent spouse relief letter instead of IRS Form 8857, as long as the letter includes the same information. However, spouses who are filing for relief based on being victims of abuse from a spouse or former spouse are required to file this letter.
A letter can be beneficial for all applicants, as it provides the opportunity to fully explain responses to the questions in Form 8857. These extra details can help to establish the circumstances that qualify a taxpayer for relief.
How long does it take for innocent spouse relief to be approved or denied?
According to the Internal Revenue Service, it may take up to six months to determine whether to accept or deny a request filed under Form 8857. During this processing period, the IRS requests the applicant’s tax information and contacts the other spouse. The IRS is legally required to contact spouses in all situations, regardless of the circumstances. Unfortunately, there are no exceptions for spouses who have been victims of abuse.
The IRS informs the other spouse that Form 8857 was filed and gives him or her the option to involve in the proceeding. The spouse is also informed of the preliminary and final determinations regarding whether to accept the request. However, the personal information of the applicant is kept confidential in the interest of protecting privacy.
Contact a tax attorney to learn more
If you are facing tax issues with the IRS based on poor decisions by a spouse or former spouse, it is important to be aware of your options for relief. Depending on the circumstances of the situation, you may qualify for one of three forms of innocent spouse relief. Relief is available to protect spouses who were unaware of unreported income, erroneous deductions, and other tax issues that result in penalties and interest. However, filing an application for relief can be a complicated process, and errors can result in a request being denied.
If you are applying for innocent spouse relief to avoid liability for your spouse’s tax issues or need help resolving other tax disputes with the IRS, consider contacting an experienced tax attorney at Damiens Law today by calling (601) 957-9672 to schedule a consultation.