Innocent Spouse Relief

In this blog, let’s dive into Innocent Spouse Relief.

What is Innocent Spouse Relief, you might ask?

If:

• Your spouse made errors on a Married Filing Joint tax return,

• You were unaware of these errors, and

• You now owe additional tax due to these errors; you may qualify for relief and be released from owing the tax amount due.

Let’s dive a little deeper into this topic.

If you file a Married Filing Joint tax return, the IRS holds both parties jointly and severally liable for any tax due on a tax return. What does this mean? Basically, it means that the IRS expects both the taxpayer and spouse to do their due diligence to prepare an accurate tax return. Both spouses are equally responsible for the information on any Married Filing Jointly tax returns.

If a couple has a balance due on the tax return when it is filed, the IRS will hold both parties liable jointly and equally responsible for paying the amount that is due, regardless of which person’s income or deductions resulted in the liability.

But what if your spouse filed the tax return? What if your spouse failed to report certain income or overstated your deductions – and you had no idea?

It’s not uncommon for one spouse to be the “take charge” person when it comes to getting tax returns filed. And, in cases where one spouse may be abusive to the other spouse, the spouse who prepares the tax return may not even share the tax return information with the other spouse, resulting in the abused spouse not having any idea what kind of income or deductions are claimed on the tax return.

This is where Innocent Spouse Relief comes in. Innocent Spouse Relief allows you to ask the IRS to hold only the spouse whose income or deductions resulted in the liability responsible for paying that liability. For example, your spouse has their own business but does not share information regarding their income and deductions from that business and maintains separate bank accounts. They prepare the tax return and send it without your knowledge or consent. The return is audited, and many deductions are disallowed, resulting in a large tax liability. In these types of circumstances, you may be able to claim relief.

If you’d like to handle this on your own, the first step is to file Form 8857, Request for Innocent Spouse Relief. This form requires taxpayers to elaborate on the circumstances surrounding the tax liability. Many of these questions will be quite personal. For example, they will ask you to discuss your marital status, share your education level, elaborate on any physical or mental health issues you were dealing with around the time of filing, share any financial difficulties you incurred around the time of filing, etc.

Once you have completed this form, you will then need to attach it to the corresponding notice and mail it to the address listed on the notice. Make sure to keep copies of both the notice and the form for your records.

After the IRS reviews your request, they will respond by mail and let you know their decision.

If the IRS approves your request, you will no longer be responsible for paying the tax due.

If they deny the request, you do have appeal rights – and if you lose an appeal, you can also appeal the IRS’ decision to the United States Tax Court.

While we are happy to share how to navigate this process, we recommend that you do so only with the assistance of an experienced tax professional.

For example, a few years ago, we had a client who had a $1.3 million tax liability assessed against her from a three-year audit that was entirely attributable to the actions that her husband took in preparing their tax returns – all of which she was unaware of. Our client’s spouse was running a business where he claimed substantial losses every year. Our client was at a loss, herself. She didn’t know what to do. Fortunately, we were able to step in when we did. The $1.3 million liability went to the Tax Court, and, at the Tax Court level, we were able to request Innocent Spouse Relief. In turn, the IRS conceded that our client was not liable for any of the $1.3 million tax liability.

This is why we recommend speaking to a Tax Professional, like the experts at Lisa Brugman, EA & Associates. Click the link to book an appointment.