What is innocent spouse relief?
Under federal law, if a joint income tax return is filed, signed by both husband and wife, both spouses are 100% responsible for taxes owed. There are narrow exceptions to this rule. Under the current tax code, the IRS has the power to release a spouse from direct financial liability for unpaid taxes. This release from responsibility from having to pay tax debts of the other spouse (or estranged spouse) is called innocent spouse relief.
The IRS understands that there are some unique situations in which a spouse cannot be held responsible for mistakes solely attributable to the other spouse. However, innocent spouse relief is very difficult to obtain and granted on a case-by-case basis.
Requirements to qualify for innocent spouse relief
The IRS will conduct an evaluation of the spouse’s education, work experience, relationship status (still married, divorced, or separated), physical or mental disabilities, and level of involvement in household finances to determine whether the spouse can qualify for innocent spouse relief.
Several factors will be considered; no one factor will be the ultimate deciding factor in favor of relief. Being divorced or in the process of getting a divorce from the spouse that filed the false return on your behalf are positive factors that work in favor of the wronged spouse. Simply saying that your husband lied to you or that you did not know what you were signing is not sufficient to obtain innocent spouse relief. If you had a reason to know about the tax cheating or suspect that the return was not accurate, you will not qualify for relief. You will also not qualify for relief if you received some type of benefit from the filing of an inaccurate return.
A taxpayer filing a joint tax return and seeking innocent spouse relief must meet all the following conditions:
1. the understatement of tax was due to erroneous items of the other spouse; and
2. you did not know, and had no reason to know, that there was an understatement when the return was signed; and
3. it would be unfair to hold you liable for the understated tax.
For example, if the wronged spouse does not have a college degree and is in abusive marriage, her petition for innocent spouse relief will likely be granted if she can prove that she feared bodily harm would occur if she questioned her spouse about the return.
Those seeking innocent spouse relief will have a good chance of obtaining relief if they can show that despite their best efforts to ensure the joint income tax return was correct, they were deceived by their spouses or tricked into signing the return. It is quite common that one spouse handles the finances, prepares the income tax return, and the other just signs it with little understanding or questioning its contents. Quite often, the spouse responsible for preparing the return omits income or claims an improper deduction without informing the other spouse. If you were not actively involved in preparing the return, it is important to read and fully understand what you are signing.
The income tax return is a legal document. Why this is important is that husband and wife are both jointly and individually liable for everything stated in the income tax return, even if you divorce. Once the IRS discovers errors on an income tax return and calculates the amount of unpaid tax and penalties due, both spouses are responsible for paying the additional tax and penalties regardless of whether the errors were caused by you, your spouse or your ex-spouse. Even if you later divorce your spouse and the divorce decree requires the former spouse to pay any unpaid tax liabilities, the IRS will still hold you liable for any unpaid taxes.
In certain circumstances, the IRS will grant partial relief to the spouse seeking innocent spouse relief if she does not meet all the requirements for full relief. Partial relief is granted if at the time the return was filed, the spouse had no knowledge or reason to know of only a portion of an erroneous item. Under partial relief, you can be relieved of an understatement of tax due to a particular item on the income return. Erroneous items are usually unreported income and falsely claiming deductions or credits.
If you believe you may qualify for innocent spouse relief, consider consulting an attorney who can help you determine whether you are a good candidate for relief, file the necessary form (Form 8857) and explain your situation in a way that will likely get your petition for innocent spouse relief approved by the IRS.