Generally, spouses may be held accountable for tax errors or fraudulent activities committed by the other. In these specific cases, the IRS offers Innocent Spouse Relief, under 26 U.S. Code Section 6015, a provision that can relieve you of tax obligations if you satisfy specific criteria.
Innocent Spouse Relief
There are numerous advantages to submitting a joint tax return with your spouse, such as the potential for reduced taxes and eligibility for specific credits. Nevertheless, it also implies that both spouses are jointly and severally liable for the tax owed, as well as any taxes, penalties, or interest that may accrue.
The IRS has the ability to hold both spouses accountable for the entire tax debt under the concept of joint and several liability. This implies that the IRS has the authority to pursue either spouse for the complete amount owed if it discovers an error or fraud in your return, irrespective of who caused the issue. However, it would be unfair to hold an “innocent” spouse liable for problems they were completely unaware of and that occurred due to your other spouse’s actions.
Thus, IRS Innocent Spouse Relief was created by the Internal Revenue Service in response to the potential injustice of imposing liability on an innocent spouse. It is intended to exempt a spouse from the tax, interest, and penalties associated with errors or fraud committed by their partner, provided that specific criteria are satisfied.
Relief for the Innocent Spouse Defined
To be eligible as an innocent spouse, you must satisfy the following criteria:
- Filing a Combined Return: You must have filed a combined tax return with your spouse.
- Understated Tax: The IRS has determined that the total tax due is greater than the amount displayed on the return, indicating that there is an understated tax.
- Erroneous Items: The understated tax must be the result of erroneous items, such as unreported income or inaccurate deductions, on the part of your guilty spouse.
- Lack of Knowledge: It is necessary to demonstrate that you didn’t know about the understated tax at the time the tax return was filed and had no adequate basis or cause to be aware of it.
- Unfairness: In light of all the facts and circumstances, it must be deemed unjust to hold you accountable for the understated tax.
Actual Knowledge vs. Reason to Know
One of the most critical components of Innocent Spouse Relief is the distinction between “actual knowledge” and “reason to know.” If you had actual knowledge of the erroneous items when you signed the return, the IRS will deny relief. It can be difficult to demonstrate a lack of actual knowledge, as the IRS only needs to establish that you should have had “reason to know” about the issue.
The “reason to know” standard is analogous to willful blindness in that you should have been aware of the issue in light of the circumstances. In order to determine this, the IRS evaluates numerous variables, including:
- The quantity and nature of the incorrect items on the tax return.
- Your financial situation and that of your husband or wife.
- Your educational background and business experience.
- The degree to which you were involved in the activity that resulted in the erroneous item.
- Whether you inquired about the items in the return prior to signing or agreeing to it.
- Whether the erroneous items deviate from a recurrent pattern in prior years’ returns.
Who Is Eligible for Innocent Spouse Relief?
To qualify for Innocent Spouse Relief, you must meet the criteria specified above. To be more precise, you must demonstrate that:
- The return you submitted was jointly filed with your spouse.
- Your spouse’s errors resulted in an understated tax on your return.
- When you signed the return, you didn’t know about the understated tax and had no reason to be aware of it.
- It would be unjust to hold you accountable in light of the facts and circumstances.
The IRS defines understated tax as the total tax owed is greater than the quantity shown on the return. It is crucial to comprehend this definition. This frequently occurs as a consequence of unreported income, inaccurate deductions, or errors in credit claims.
Time Limit for Relief Requests
You must act promptly if you believe you are eligible for Innocent Spouse Relief. You can complete and submit IRS Form 8857, Request for Innocent Spouse Relief within two years of the IRS’s initial attempt to collect the outstanding tax debt. Actions such as receiving a Notice of Intent to Levy or a Collection Due Process notice are examples of collection attempts.
What Transpires During the IRS Review?
Upon receipt of your request for Innocent Spouse Relief, the IRS will contact your spouse. The IRS is legally obligated to inform your spouse of your claim, regardless of whether you have experienced domestic or spousal violence.
Next, the innocent spouse unit will evaluate your case. The IRS will assess your application by taking into account the nature of the inaccurate items on your tax return(s), your financial situation, and other relevant factors. The IRS will generally suspend collection activities while your request is under review.
Alternatives to Innocent Spouse Relief
If you are not eligible for Innocent Spouse Relief or if your request is denied, you may wish to explore alternative forms of relief, including:
- Separation of Liability Relief: Available if you are no longer married by way of divorce, legally separated, or no longer residing with your spouse, and you can demonstrate that the erroneous items are attributable to your spouse.
- Equitable Relief: If you are ineligible for the other types of relief, but it would be unjust to hold you accountable for the tax, interest, and penalties, equitable relief may be an option.
Contact Delia Law
If you think you may be eligible for Innocent Spouse Relief, get in touch with our experienced team today. Contact Delia Law to get guidance and support. Let us help you secure the financial peace of mind you deserve.
