IRS Tax Problems

What Is Innocent Spouse Relief?

What Is Innocent Spouse Relief?

If you're married, chances are that you file your tax return jointly with your spouse, since Married Filing Jointly (MFJ) is usually the most beneficial filing status. As a married couple filing jointly, you are considered to be one taxpayer instead of two separate single taxpayers. However, it also means that both of you are jointly liable for the taxes owed as well as penalties and interest that can be incurred. There is an exception for innocent spouse relief, which is a form of tax relief that the IRS offers to spouses of taxpayers who failed to report their income, took deductions they weren't entitled to, or committed other reckless actions on their joint tax returns.

The IRS considers you to be “jointly and severally liable” for not only what you report on your tax returns, but also tax debts for the years that you filed jointly with your spouse. Both of you are equally responsible even if one spouse has no income at all. If you get divorced and your divorce decree states that your former spouse will take responsibility for paying outstanding tax debt related to tax returns that you two had jointly filed, the IRS still considers both of you to be equally responsible. This is true even after your divorce finalizes and the IRS happens to examine tax returns for the years that you were married and filed jointly.

Innocent spouse relief is an exception to the “jointly and severally liable” aspect of using MFJ filing status so that you are not held responsible for paying tax bills and associated penalties because of your spouse's errors or willful wrongdoing.

Do I Qualify for Innocent Spouse Relief?

Innocent spouse relief is solely for missing or incorrect items on your tax return that caused your joint tax bill to be lower than it was supposed to be. It frequently gets confused with the two other kinds of tax relief for spouses: separation of liability and equitable relief. Separation of liability is more for widow/ers, and long-term separations and equitable relief is meant for proving it's unfair to hold you liable for the understatement of taxes (such as your spouse's income being significantly higher than yours).

In order to qualify for innocent spouse relief, you must meet all three of the following conditions:

  • You and your spouse filed jointly, and your tax bill was understated solely because of one or more errors that your spouse made. These errors, or willfully improper entries, only apply to income and deductions that belong to your spouse. They include improper deductions and credits, incorrectly reporting basis in property such as securities and business inventory, under-reporting income or omitting items.
  • You have to establish that you didn't know your spouse did this and had no reason to know when you signed your tax return.
  • Prove that in light of the facts and circumstances surrounding your case, it wouldn't be fair to hold you responsible for the resulting underpayment.

Every tax return has unique circumstances surrounding it, and the same is certainly true of every marriage. If your spouse is not transparent about finances with you, and you didn't find out about what they did until long after the tax return was filed, you're more likely to qualify for innocent spouse relief. Since “having a reason to know” about your spouse's activity quickly falls into a gray area, you would be less likely to qualify for innocent spouse relief if you had a good reason to be aware of what your spouse was claiming. For instance, if the two of you ran a business and you had access to inventory records, but the overstatement on your tax return didn't match what was on the books.

In the event that you don't qualify for innocent spouse relief, you may still seek out separation of liability or equitable relief.

Spencer Wilson, EA writes for TaxBuzz, a tax news and advice website. Reach him at [email protected].

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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