Escaping the Web: Innocent Spouse Relief From Tax Liability
As we approach tax season, many people have already begun working on their returns. Married couples often file joint returns, as doing so frequently carries with it financial benefits. Filing jointly also, however, exposes spouses to joint and several liability for all taxes and penalties due – meaning each of you is responsible for the entire amount – even if only one spouse earned income or claimed deductions or credits.
Unfortunately, people sometimes claim improper deductions or fail to fully report income. This can lead to an unwelcome surprise when you suddenly receive a notice from the IRS, stating that you owe back taxes, interest, and penalties because your ex-spouse cooked the books. Under the law, you are liable, even if a divorce decree places responsibility for any amounts due solely on the other spouse.
In certain circumstances, however, the IRS will release you from liability under what is called “innocent spouse relief.” Such relief is difficult to obtain and must be requested no later than two years after the date that the IRS originally attempted to collect the taxes from you, but it can provide a reprieve for spouses who truly are “innocent.”
To qualify for innocent spouse relief, you must be able to establish ALL of the following conditions to the satisfaction of the IRS:
1. You filed a joint return that understates the amount of taxes due AND that understatement is solely the result of your spouse’s erroneous item. Erroneous items include income received by your spouse by not reported on the return, as well as incorrectly reported deductions, credits, or bases in property.
2. At the time you signed the joint return, you didn’t know, and had no reason to know, that the tax liability was understated.
3. Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.
Even if you can’t meet the requirements for innocent spouse relief, you may be able to qualify for separation of liability relief, in which you are only responsible for your share of the tax liability, if you can demonstrate ONE of the following:
1. You are divorced or legally separated from the spouse with whom you filed the joint return.
2. You’re widowed.
3. You haven’t been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you request relief.
To seek innocent spouse or separation of liability relief, submit a completed Form 8857
to the IRS. Refer to Publication 971 for more information.
For assistance with a divorce or post-decree matter call Kruse Family Law PLLC at 612.231.9865 or email corwin@krusefamilylaw.com
