Innocent spouse relief may be something to consider when determining how to address your back tax issue with the IRS. However, not everyone qualifies for this type of relief. Below are 5 things to know before filing for innocent spouse relief.
WHAT IS INNOCENT SPOUSE RELIEF?
Innocent spouse relief under Internal Revenue Code (“IRC”) § 6015 (a) is available to a spouse that unknowingly signed a joint return where the other spouse did one or more of the following:
1) Under-reported income
2) Overstated deductions
3) Improperly claimed credits
Generally, these items are discovered later in an audit and assessed against both taxpayers. If you qualify for innocent spouse relief, the entire assessed balance will become your spouse’s sole responsibility.
The two individuals involved are commonly referred to as the requesting spouse (the spouse filing for innocent spouse relief) and the non-requesting spouse (the spouse who has under-reported their income, overstated deductions, or improperly claimed credits).
EXAMPLES OF WHEN INNOCENT SPOUSE RELIEF MAY BE USED
There are several different scenarios that may be resolved by requesting for innocent spouse relief but, most fall into three main cases. The most common examples of when innocent spouse relief may be applicable are when erroneous deductions were claimed either on a personal or business tax return, there were additional sources of income that the non-requesting spouse did not make the requesting spouse aware of and did not report on the jointly filed return, and when there was involvement in criminal activity that produced income that became taxable.
See Treasury Regulation (“Treas. Reg.”) § 6015-2 (e)(2) for additional examples.
QUALIFICATIONS FOR INNOCENT SPOUSE RELIEF
After determining that you have incurred a joint liability due to the under-reporting of income, overstating of deductions, or improper claiming of credits by your spouse, you need to prepare Form 8857 – Request for Innocent Spouse Relief.
Let’s take a look at some of the qualifications under Treas. Reg. § 1.6015-2 (a).
1) In order to submit Form 8857, Request for Innocent Spouse Relief, you must have filed a Married Filing Joint tax return. This is what links you and your spouse to both being fully liable for any tax liability.
2) The liability must arise from the under-reporting of income, overstating of deductions, or the improper claiming of credits.
3) The requesting spouse, when signing the return, was unaware or had no reason to be aware of the under-reporting of income, the overstatement of deductions, or credits that were improperly claimed.
4) Due to the circumstances it would be unfair to hold the requesting spouse accountable for the liability caused by the under-reporting of income.
5) IMPORTANT: The submission of Form 8857, Request for Innocent Spouse Relief must generally be made within two years of the IRS first having taken collection action against you and your spouse (limited exceptions).
In certain cases the requesting spouse may still be eligible to pursue innocent spouse relief if the requesting spouse knew of the issue. In order to still be eligible, the requesting spouse must have been unaware of exactly how large of an income amount was being under-reported or exactly how much in deductions/credits were being over-stated.
WHAT DO I DO IF I DON’T QUALIFY FOR INNOCENT SPOUSE RELIEF?
Not to worry, there are other types of relief even if your situation doesn’t meet the innocent spouse relief qualifications.
Similar relief options and related areas include: