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The 3 Types of Innocent Spouse Relief & What They Mean

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    Did you know that you may be subject to accuracy-related penalties if you underpay your taxes by not reporting all your income or claiming deductions or credits for which you don’t qualify? Penalties are as high as 20 percent of the underpayment amount.

    But what if the errors were made by your spouse? Can you be held responsible for paying taxes, interest, and penalties for errors made by your spouse on a joint return? Luckily, you can get some relief by filing an innocent spouse tax relief form.

    To take advantage of this rule, you can choose from three different innocent spouse relief types. Keep on reading for your complete innocent spouse relief guide.

    Filing Jointly With Your Spouse

    Married couples can choose to file jointly or separately. Your filing status determines your filing requirements and your deductions and credits. By filing jointly, you can benefit from lower tax rates and earn more credits and deductions. 

    When you file jointly, you are also both jointly and severally liable for the taxes. That means you are both legally responsible for the entire amount that you owe the IRS, even if you are divorced or separated. The amount you owe the IRS includes unpaid taxes, penalties, and interest. 

    Three Different Types of Innocent Spouse Relief

    Let’s face it, errors on your tax return are inevitable. Filing your tax is complicated from the customer service issues with the IRS to delays in receiving your refund. 

    A marriage is a partnership, and you are a solid team. But both of you don’t need to be punished for an error on your return. This is where you have the option to choose from the three innocent spouse relief types:

    1. Innocent spouse relief
    2. Relief by separation of liability
    3. Equitable relief

    Each of the options has different requirements that you need to meet. You can either get full relief under innocent spouse relief or allocate the understatement of taxes between you and your spouse.

    What Is Innocent Spouse Relief?

    This is the classic or traditional form of innocent spouse relief. It’s the first step you need to consider when you are dealing with erroneous tax returns. If you meet all three requirements, you can get relief from the additional tax you owe if your spouse or former spouse made errors on your joint tax returns.

    Errors on your joint tax returns include unreported income or incorrect deductions or credits claimed by your spouse. You could receive full credit if you had no knowledge or no reason to know of the error. 

    1. File Jointly on an Erroneous Tax Return

    The first requirement is that you and your spouse must have filed the erroneous tax return jointly. It must have an understatement of tax because of errors.

    Remember that you need to file your innocent spouse relief tax form less than 2 years after the IRS first attempted to collect the unpaid tax.

    2. No Knowledge of Error

    You need to show that you had no knowledge or no reason to know about the error and the understatement of tax. This could be because your spouse filed the tax returns on his own, and you were not involved in the finances.

    Partial knowledge means that you will be allocated a portion of the understatement of taxes.

    3. Unfairness

    Finally, you need to show that it would be unfair to hold you liable for your spouse’s understatement of tax, given your facts and circumstances. You will be asked to provide details about your financial situation including a summary of your assets, income, and expenses. The IRS also considers whether your spouse deserted you and whether you or your spouse are divorced or separated.  

    Another factor that the IRS considers is whether you received a significant benefit directly or indirectly because of the understatement. A significant benefit is something more than your normal support. For example, if you receive money from your spouse that is more than your normal support and it can be traced back to lottery winnings that were not included in your joint tax return.

    Separation of Liability Relief

    Under the separation of liability relief, you may be allocated a portion of the understated tax, including interest and penalties. To qualify for separation of liability relief, you need to file a joint tax return and meet one of the following requirements that you are:

    1. No longer married or separated
    2. Not a member of the same house

    You should not have received any property or assets from your spouse or former spouse as part of a fraudulent scheme. Finally, you should not have had any knowledge of the tax issues that gave rise to the errors on the tax return. This type of relief only applies to unpaid taxes, and refunds are not allowed for any taxes that are paid.

    Marital Status

    To get relief under this type of innocent spouse relief, you should be either not married or separated or not part of the same household with the spouse you filed the joint return with. You are no longer married if you are widowed.

    You are not members of the same household if you are living apart or separated. Living apart or separated can mean that you don’t reside in the same house. It can also mean that you are living in separate homes but are not estranged, and one of you is temporarily absent from the other’s house.

    Temporarily absent means absences because of imprisonment, sickness, business reasons, vacation, military service, or education. The key here is that you expect them to return, even if it’s been a long time since they have left.

    You are also not members of the same household if your spouse is temporarily absent from the house, but you anticipate that they’ll come back. You are maintaining your home or a separate house in anticipation of their return.

    No Knowledge

    One of the requirements for the availability of this relief is that you had no knowledge of the tax issues that gave rise to the errors on the tax return at the time you filed the joint return. You are considered to have actual knowledge if you knew the unreported income was received, you knew the facts that made an incorrect deduction, or you knew that expenses were not incurred.

    Unlike innocent spouse relief, you need to show actual knowledge, not that you had no reason to know. You don’t need to know the tax impact of the error. For example, if you knew about additional dividend income that was not reported on the tax return, the separation of liability relief will not be available to you. You don’t need to know whether the amounts would be taxable or not.

    Even if you had actual knowledge, you could get relief if can show that you are the victim of domestic abuse before signing the return. If you signed the tax return under duress, you are not liable for the tax since it’s not a true joint return. You will need to file your own separate return for that year.

    Equitable Relief

    If you don’t qualify for the first two types of innocent spouse relief, you may still be able to apply for equitable relief. To get equitable relief, you need to meet certain conditions including:

    • Not eligible for innocent spouse relief or separation of liability relief
    • No fraudulent transfers to a spouse
    • No knowledge of filing a fraudulent tax return
    • Tax liability attributable to your spouse

    Once you meet these conditions, you can get equitable relief if you can show that it would be unfair to hold you liable for the unpaid taxes. The IRS looks at many different factors and evaluates each one depending on your particular circumstances.

    Some Factors the IRS Will Consider

    One of the factors the IRS will consider is whether you are still married or what your marital status is. If you are not married, the IRS will see it in your favor.

    Another factor the IRS will consider is the economic hardship you will face if relief is not granted. They will look at your assets, income, and expenses to determine economic hardship. They will also consider whether you have a legal obligation to pay the outstanding tax liability, including an obligation arising from a divorce decree or other legally binding agreement.  

    The IRS will look at whether you have had a significant benefit from the unpaid tax liability. For example, if you own luxury assets or go on expensive vacations. If you have made a good faith effort to be compliant with your income taxes in the past, this will be seen in your favor.

    The IRS also considers your physical or mental health at the time your returns were filed. They will consider the nature, extent, and duration of your condition, including how it impacts your finances.

    How to File an Innocent Spouse Tax Relief Form

    Understanding IRS Forms can help you manage a lot of issues. Rather than being stressed and worried about filing your taxes, you can be better prepared to meet your tax obligations and deadlines. For example, knowing the right innocent spouse tax relief form can make your life easier. 

    To get the benefit of the innocent spouse tax relief, you need to file Form 8857, Request for Innocent Spouse Relief. You need to file this form as soon as become aware of the unpaid tax liability and you believe it’s because your spouse made an error. Remember you don’t file this form with your tax return, but mail or fax it to IRS separately.

    Form 8857 requires you to describe your involvement in preparing the returns, including gathering receipts, canceled checks, or other documentation. You also need to explain what you knew about any missing information on the tax returns.

    Question 11 on the forms also asks about how involved you were in the household finances and your role in how the money was spent. In Part IV of the form, you will need to give a summary of your current financial situation including assets, income, and expenses.  

    Innocent Spouse Relief Tips

    By filing an innocent spouse tax relief form, you can reduce the financial penalties that arise from an erroneous tax return. Having explained innocent spouse relief, we thought we would offer some tips to keep in mind when filling out the form. 

    Timeline

    Remember to file your form within 2 years from the time the IRS first attempted to collect the unpaid taxes. It will take the IRS 6 months before they will make a decision. During this time, the IRS will contact your spouse to get more information.

    Injured Spouse vs. Innocent Spouse

    Another thing to note is that an injured spouse is different from an innocent spouse. Injured spouse relief applies where your tax refund was applied towards your spouse’s errors or past tax liability.

    Innocent spouse relief applies where you signed a joint return but did not have any knowledge of the understated tax liability.

    Get Expert Help When Needed

    Did you know that the IRS received more than 100 million calls in 2020? Unfortunately, the IRS was only able to answer about 24 million of those calls. Taxpayers had to wait an average of 18 minutes to get some help. 

    Rather than trying to get through to the IRS, you may want to reach out to experienced tax attorneys to get the help you need. Taxes are already complex, taking about 11 hours to complete a basic tax return, and dealing with erroneous tax returns adds additional complexity. 

    Contact Experienced Tax Attorneys Today

    Now you know exactly what to do if you make errors on your joint return. You and your spouse are a team who are always ready to tackle problems together but remember you both don’t have to get punished for an erroneous tax return. 

    You may be stuck dealing with errors that are more complex and need additional support. If you are looking for qualified tax attorneys who are willing to listen and are on your side, contact us today! We are here to answer all of your tax-related questions. 

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