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Thursday, November 28, 2019

Topic No. 205 Innocent Spouse Relief

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Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows them. When filing jointly, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise from the joint return even if they later divorce. Joint and several liability means that each taxpayer is legally responsible for the entire liability. Thus, both spouses on a married filing jointly return are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits. This is also true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. In some cases, however, a spouse can get relief from being jointly and severally liable.

Types of Relief

There are three types of relief from the joint and several liability of a joint return:
  1. Innocent Spouse Relief provides you relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
  2. Separation of Liability Relief provides for the separate allocation of additional tax owed between you and your former spouse or your current spouse you're legally separated from or not living with, when an item wasn't reported properly on a joint return. You're then responsible for the amount of tax allocated to you.
  3. Equitable Relief may apply when you don't qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. You may also qualify for equitable relief if the amount of tax reported is correct on your joint return but the tax wasn't paid with the return.

Note: You must request innocent spouse relief or separation of liability relief no later than 2 years after the date the IRS first attempted to collect the tax from you. For equitable relief, you must request relief during the period of time the IRS can collect the tax from you. If you're looking for a refund of tax you paid, then you must request it within the statutory period for seeking a refund, which is generally three years after the date the return is filed or two years following the payment of the tax, whichever is later. See Publication 971, Innocent Spouse Relief for additional restrictions on refunds available under innocent spouse relief, equitable relief, and relief based on community property laws. Refunds aren't available under separation of liability relief.

Innocent Spouse Relief

You must meet all of the following conditions to qualify for innocent spouse relief:
  • You filed a joint return that has an understatement of tax that's solely attributable to your spouse's erroneous item. An erroneous item includes income received by your spouse but omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they're incorrectly reported on the joint return
  • You establish that at the time you signed the joint return you didn't know, and had no reason to know, that there was an understatement of tax and
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax

Separation of Liability Relief

To qualify for separation of liability relief, you must have filed a joint return and must meet one of the following requirements at the time you request relief:
  • You're divorced or legally separated from the spouse with whom you filed the joint return
  • You're widowed, or
  • You haven't been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you request relief

If you had actual knowledge of the item that gave rise to the deficiency at the time you signed the joint return, you don't qualify for separation of liability relief.

Equitable Relief

If you don't qualify for innocent spouse relief or separation of liability relief, you may still qualify for equitable relief. To qualify for equitable relief, you must establish that under all the facts and circumstances, it would be unfair to hold you liable for the deficiency or underpayment of tax. In addition, you must meet the other requirements listed in Publication 971, Innocent Spouse Relief. See Revenue Procedure 2013-34 (PDF) for information about how the IRS will take into account abuse and financial control by the nonrequesting spouse in determining whether equitable relief is warranted.

Form to File

To seek innocent spouse relief, separation of liability relief, or equitable relief, you should submit to the IRS a completed Form 8857, Request for Innocent Spouse Relief (PDF) or a written statement containing the same information required on Form 8857, which you sign under penalties of perjury. You may also refer to Publication 971, Innocent Spouse Relief for more information. If you request relief from the joint and several liability of a joint return, the IRS is required to notify the spouse you filed jointly with of your request and allow him or her to provide information for consideration regarding your claim.

Community Property States

If you lived in a community property state and didn't file as married filing jointly, you might qualify for relief from the operation of state community property law. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Refer to Publication 971 for more details.

Injured Spouse vs. Innocent Spouse

An injured spouse claim is for allocation of a refund of a joint refund while an innocent spouse claim is for relief or allocation of a joint and several liability reflected on a joint return. You're an injured spouse if all or part of your share of a refund from a joint return was or will be applied against the separate past-due federal tax, state tax, child or spousal support, or federal non-tax debt (such as a student loan) owed by your spouse. If you're an injured spouse, you may be entitled to recoup your share of the refund. For more information, see Form 8379, Injured Spouse Allocation (PDF) or refer to Topic No. 203.

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