Owe Taxes Thanks to a Spouse? Explore Innocent Spouse Relief from the IRS
(DailyDig.com) – Many couples file joint tax returns to take advantage of the tax benefits granted to married people. This sometimes causes issues for those going through a divorce. A joint tax return means both people are responsible for taxes, interest, and penalties even after their divorce is finalized. Sometimes, a court order makes one spouse responsible for the entire obligation, even when the tax burden results from income earned by the other person. Fortunately, those who find themselves in this situation have some options for relief, including innocent spouse relief.
Here is a description of three types of relief and how to know if you qualify for this type of assistance.
Innocent Spouse Relief
Some people qualify for innocent spouse relief if their spouse or former spouse filed taxes incorrectly. In addition to filing a joint return, you must meet these conditions to qualify for innocent spouse relief:
- Your tax return shows you owe fewer taxes than you actually do because of an error (unreported income or an incorrect deduction) made by your spouse or former spouse.
- You can prove that you did not know about the error when signing the joint return.
- The IRS cannot find evidence that you and your spouse or former spouse fraudulently transferred property to another party to avoid taxes.
The IRS reviews applications for relief on a case-by-case basis. They also consider whether you received significant direct or indirect benefits from the error, whether your spouse deserted you, whether you were separated or divorced, and whether you benefited from a return that showed fewer taxes than you owe.
Separation of Liability Relief
If your divorce is final or you are legally separated from your spouse, you might be eligible for separation of liability relief if an error on your tax filing shows you owe fewer taxes than you should. You might also qualify for relief if you and your spouse did not share the same home at any time in the previous year before you file for relief. Temporary absences due to imprisonment, illness, work, vacation, military service, and education do not qualify as separation.
Separation of liability relief divides tax liability, including interest and penalties, between you and your spouse or former spouse. In most cases, liability is allocated based on the portion of the taxes you are responsible for. To qualify for this relief, you must also prove that you did not fraudulently transfer property to avoid tax.
This type of relief serves as a catch-all for those who do not qualify for innocent spouse relief or separation of liability relief. Even if you did not file a joint return with your spouse or former spouse, equitable relief could reduce or eliminate your responsibility for tax, interest, and penalties. It’s often used when one partner has a significant tax burden because of an item that falls under the umbrella of community property. Another big difference between equitable relief and other relief is that you can receive relief from unpaid taxes—taxes reported but not yet paid.
Applying for Innocent Spouse Relief
Receiving innocent spouse relief or another type of tax relief requires filing Form 8857 with the IRS. You need to file the form as soon as you learn about any tax liability you believe should be the sole responsibility of your spouse or former spouse. Usually, you receive some type of notice from the IRS that informs you that you owe them money or that they have increased the amount you owe. In most cases, you have two years to file Form 8857 before the IRS increases its collection activities, so make sure to file as soon as possible, even if you do not have all the needed documentation.
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