If a husband and wife sign a joint tax return, then both spouses are jointly and severally liable for the full amount of the tax shown due on the return or later determined to be due. If one of the spouses who signs the joint tax return does not believe he or she should be liable for the full amount of the tax liability, that spouse may seek relief from liability under the innocent spouse rules. The Internal Revenue Manual and case law addressing issues affecting entitlement to relief are continuously changing so constant research is necessary to be aware of new developments that are beneficial in representing a client.
- The innocent spouse must establish that when he or she signed the return he or she did not know (and had no reason to know) of the understatement of tax.
- Taking into consideration all of the facts and circumstances, it is inequitable to hold the innocent spouse liable for the joint tax deficiency, penalties, and/or interest.
- The spouse claiming relief elects the benefits of innocent spouse relief not later than two years after the date the IRS begins collection activities.
- Separate Liability Election – the understatement of tax is allocated between the taxpayers
Frequently Asked Questions About Innocent Spouse Relief
When dealing with the IRS you may hear the term “actual knowledge”. Actual Knowledge is defined as you or your spouse knowing that an error has been made. In this case you will not qualify for innoncent spouse relief, and both you and your spouse will remain liable.
In most scenarios you must file for innocent spouse relief within two years of when the IRS first tried to collect the tax from you.
If you choose to file for Innocent Spouse Relief, the IRS will contact your former spouse and give him or her the option to participate in the process. There are no exceptions to this rule.
You would file Form 8857 to request relief from tax liability, plus related penalties and interest when they believe only their spouse or former spouse should be held responsible for all or part of the tax.
An understatement of tax is when on your return you say that you owe less tax than what you really owe. This is one of the main reasons why a person may file for innocent spouse relief.
When the person paying taxes does not pay the full amount owed on their tax return.
No, a person cannot qualify for innocent spouse relief if you have already qualified and settled your taxes due to an offer in compromise.
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