Innocent spouse relief can subdue a married or divorced taxpayer of responsibility for paying tax, interest, and penalties arising from additional tax assessments related to ‘married filing joint’ tax returns. The IRS receives tens-of-thousands of innocent-spouse applications a year, and grants fewer than half of them; largely due to the complexities involved in successfully demonstrating to the IRS that the taxpayer’s claim should be approved.
Despite high divorce rates in the United States, most married couples file their tax return as ‘married filing joint’. There are additional tax benefits available to married couples to file jointly, primarily when it comes to families with children, those having education-related costs, or expenses great enough to allow for itemizing on IRS form Schedule A. Many tax deductions and credits are sacrificed if the couple chooses to prepare ‘Married Filing Separate’ tax returns; the only other alternative available to them as a married couple.
Once a married couple files a joint tax return, both are fully liable for what’s on the return; each spouse is jointly and individually responsible for any tax, interest, and penalties and the IRS can collect any amounts due from either spouse, even if just one spouse is responsible for an understatement of tax.
In addition to the underlying factor, the ‘Married Filing Joint’ tax return, there are other facts to consider before filing a claim for Innocent Spouse Relief.
An understatement of tax is also required in order to advance a claim for Innocent Spouse Relief. What that means is that whatever tax is reflected on the original Married Filing Joint tax return filed with the IRS, signed by both spouses, is usually ineligible for claims of relief. There must be a new assessment of tax after the original return has been filed. A new assessment arises from something that was overlooked, intentionally omitted, or discovered by the IRS. There must be new taxes, interest and penalties that one spouse believes they should be relieved of responsibility for paying. Critical for the spouse making the claim is, can they show that they didn’t know, or especially, had no reason to know about the erroneous item creating the new liability.
As a married couple, it can be difficult to prove one spouse was unaware of the financial activities of the other; although it happens regularly. Many issues relating to claims for Innocent Spouse Relief arise after divorce relating to tax years during which the taxpayers were still married. As the IRS sifts through the facts and circumstances related to claims for relief, many factors are considered:
Taxpayers’ education and business background.
Would a reasonable person in similar circumstances have known of the understated tax?
The extent of your participation in the activity that resulted in the erroneous item.
Frequently the spouse of a self-employed taxpayer has working knowledge of the other spouse’s business activities.
Financial situation as/while a married couple.
Did the erroneous item represented a departure from a recurring pattern reflected in prior years’ returns?
Whether the claiming taxpayer has been the victim of spousal abuse.
The IRS will want to know whether the claimant failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question (spousal abuse is often cited as a cause for not making reasonable inquiries).
The points above are not exhaustive by any means, and highlight the importance of seeking assistance from professionals with expertise in evaluating and filing claims for Innocent Spouse Relief with the IRS.
If the IRS proves that at the time a spouse signed the joint return, the taxpayer had actual knowledge, or should have reasonably known of any erroneous items giving rise to a deficiency allocable to the other spouse (or former spouse), Innocent Spouse Relief will not apply to any part of the understated tax due to ‘reasonable knowledge’ by the claimant. For this reason, it is wise to have someone with expertise speaking on your behalf with the IRS. Simply saying the wrong thing can drastically alter the outcome of an innocent spouse claim for relief.
Since the IRS will reject a claim for relief if it believes the spouse benefited from the tax avoidance, a trained expert can help demonstrate that despite best efforts to ensure the joint income tax return was correct, it would be unfair to hold the spouse filing a claim liable for the understated tax; deception by the other spouse or being tricked into signing the return are common arguments due to the fact one spouse often handles the finances, prepares the income tax return, and the other just signs it.
While partial relief may still be available to the spouse filing the claim, requesting relief is definitely a situation where you want someone on your side when communicating with IRS personnel. If the spouse filing the claim cannot get relief from all of a liability, relief from some of the liability may be the best available outcome. At the very least, partial relief from liability may well be part of an overall strategy for resolving the entire dispute. Working alone, the spouse likely has no strategy other than wanting the debt to go away. With experts in your corner many aspects of the tax code can be layered in securing a desired outcome for resolving a tax problem.
Another detriment to successfully navigating the IRS in seeking any type of relief from liabilities is seeking the wrong type of help. While knowing exactly who to turn to may be difficult, look to those with a documented history of experience and a proven methodology. CuraDebt, as an example, employs three distinct steps to success in resolving any IRS issue:
Sometimes, the success or failure of filing a claim for Innocent Spouse Relief ends up in the U.S. Tax Court; other times, streamlined determinations are utilized, especially if the innocent spouse suffers economic hardship for the IRS action. Every Innocent Spouse claim must be evaluated on the unique facts of each request, and like most IRS tax debt issues, the outcome can have more than one resolution.