When Do You Qualify For Innocent Spouse Relief?
November 21, 2018 in Tax Tips & Tricks
When a married couple signs a joint tax return, they are signing a legal document that will hold both signatories in joint and several liability. That applies to the information shown on the return. Next, the spouse of each person can be held liable for the entire tax amount (if the bill is underpaid or not paid at all), interest and penalties included. In some cases, a spouse may underpay their joint taxes without the knowledge of his or her partner. That’s when you can file for innocent spouse relief. However, the IRS receives over 50,000 requests annually. That’s why it is not easy to qualify for it. Oftentimes, innocent spouse relief is determined on a case-by-case basis.
Common Scenarios that Lead to Innocent Spouse Relief
- Scenario A
One spouse may take on all financial responsibilities in his or her marriage. The individual may prepare the income tax returns each year. The other spouse is not familiar with the filing process and just signs the return without questioning it.
- Scenario B
A spouse in an abusive marriage may sign an erroneous return without his or her full consent (the person may receive a threat of injury or other forms of physical and mental abuse). If the wronged spouse can prove that he or she has suffered bodily harm by questioning the return, their request for innocent spouse relief may be granted.
Warning: When you sign a legal document, you will be held liable for the tax debt incurred by you and your spouse. If you are not the one in charge of preparing the return, you should still peruse the document and point out any discrepancies that catches your attention.
Innocent Spouse Relief Eligibility
The criteria for innocent spouse relief include:
- It would be unfair for the IRS to hold you liable for the understated tax
- You were not informed that there was an understatement before and after signing the return
- The tax return contained erroneous items that were claimed by the other spouse
Next, the IRS will consider the following information about you:
- How involved you are with household finances
- Your mental or physical disabilities (if any)
- Your current relationship status (e.g. separated, divorced, or married)
- Your work experience or employment history
- Your education
Although divorcees (or those who are in the process of getting divorced) have a higher chance of qualifying for innocent spouse relief, there is still no single deciding factor. You cannot simply state that your spouse lied to you.
The Filing Process
You should file an IRS Form 8857 as soon as you become aware of an understated tax. After the IRS attempts to collect the tax from you, you have two years to file the Form 8857. One form can be used to cover multiple tax years. You should keep in mind that receiving an IRS notice counts as a collection attempt. That’s why you should still file the form even if you do not possess all of the documentation.
Filing the Form 8857 can be tricky. Easily made mistakes can hurt your chances of qualifying for relief. Procedural errors are the most common mistakes that taxpayers make. For example, the individual may apply for relief for a year in which no taxes were owed.
Remember, you are allowed to include letters or other forms of evidence you want the IRS to use when vetting your case. Although it may be uncomfortable to reveal details such as domestic abuse or marriage problems, you should still inform the IRS about the truth.
Causes of Rejected Innocent Spouse Relief Requests
Rejections could be the result of:
- The IRS discovers that you were aware of being cheated on your taxes
- The IRS discovers that you knew that the signed return was inaccurate
- The IRS determines that an individual, in similar circumstances, would be aware of an underpayment
- The IRS did not receive a request for relief from you within two years of sending the collection notice
In any circumstance, you can increase your chances of success by consulting a tax resolution specialist. A professional can help you ensure that your Form 8857 filing is completely accurate.