How to Determine If You Qualify for Innocent Spouse Relief

Any time a joint tax return is filed to the IRS, both spouses immediately assume full responsibility for everything they have entered on that return, as well as anything that the IRS later assesses, such as an additional tax due for unreported income or a reversal of a credit.

That being said, the IRS does recognize that there are times when it would be inequitable to hold one spouse liable for a tax balance that they had no knowledge of if the balance is accountable to the other spouse only.

If this is the case, then the IRS considers the other spouse "innocent" and that spouse can have that designation added to their account by way of Form 8857, Request for Innocent Spouse Relief.

This program is the only way one spouse can free themselves of the liability without making payment. The IRS does not allow two spouses who filed a joint return to amend the return to separate returns, nor do they recognize any divorce decree that may assign the responsibility of the tax debt to one spouse or the other.

In order to be eligible for the Innocent Spouse designation, you must meet a number of requirements.

The 8857 must be filed within 2 years after the IRS first begins to collect on a delinquent joint debt. According to the instructions on Form 8857, this 2-year window starts with the following actions:

• The IRS offsets your income tax refund against the tax debt.

• The IRS files a claim against your property, such as a Notice of Federal Tax Lien.

• A final notice of the IRS intent to levy is mailed out. This is a certified letter that requires signature at the post office.

Both spouses are kept informed of an Innocent Spouse request. This means that the IRS will notify your spouse, or formal spouse, that you have filed a Form 8857 and will ask them to participate in the process. The IRS will not disclose your personal information, such as your address, phone number or employer, but in an effort to reach an equitable decision, the requirement to involve both parties is without exception, even for those spouses involved in domestic violence or an abusive relationship.

Once the IRS considers the facts and circumstances of the case, they may grant one of three different types of relief.

Innocent Spouse Relief

This type of designation relieves one spouse of a liability if a joint return is filed, if there is an additional assessment of tax that arises from an audit due to unreported or underreported income, and if the non-liable spouse can show that they had no knowledge that the other spouse failed to report this income that belonged to the liable spouse only.

For example, a joint return is filed and the tax due is $2,000. The tax is paid in full. Two years later, the IRS audits the return and assesses additional tax for income that the husband earned from sales commissions that he failed to report on the return. The secondary taxpayer, in this case the wife, had no knowledge that the commissions were taxable or that they were not reported in the first place, so the IRS agrees to only hold the husband responsible for the tax.

Separation of Liability Relief

This type of relief may extend to one party if the other spouse is now deceased, or if both spouses are divorced, legally separated, or have not lived in the same household for 12 months or more prior to the filing of Form 8857.

In addition, at the time the joint return was signed, you still must demonstrate that you had no knowledge that income that belonged solely to your ex-spouse was not being reported.

Equitable Relief

Because the above two options will not cover every possible scenario, some claims will fall under the equitable relief allocation.

Per Form 8857, this is defined as "Taking into account all the facts and circumstances, the IRS determines it would be unfair to hold you liable for the understated or underpaid tax."

This is the only situation that allows for relief of an underpaid tax. Underpaid tax arises from an original return. If a joint return is filed, and signed by both taxpayers, and if that joint return showed a tax balance to the IRS which remains unpaid, then one spouse may only find relief under this provision. Innocent Spouse and Separation of Liability relief only allow relief from an assessment that arises from additional tax due, not from tax due per a taxpayer's original return.

If the IRS grants innocent spouse relief, they will agree to stop collecting or attempting to collect from the now non-liable spouse. This means that the non-liable spouse will not have his or her refund offset against the debt, and they will not receive any collection letters. Enforcement actions and attempts to collect the debt will be limited to the liable spouse only.

Don't confuse Innocent Spouse with the Injured Spouse. Injured spouse relief only prevents one spouse's refund from being applied against the other spouse debts.