Innocent Spouse Relief for Income Tax Filings


Once a married couple files a joint tax return, each partner is by law accountable for the full tax liability, regardless if just one of the spouses is accountable for the failure to pay. Referred to as a joint and several liability, this particular legal principle still is applicable following a divorce as well as in cases of misrepresentation or fraud. In past times, the IRS provided Innocent Spouse Relief as a way to protect a spouse who didn’t know or have reason to know that an understated tax existed.


Just last year, the IRS introduced a revision of the Innocent Spouse Relief program so that knowledge that the tax return was incorrect is no longer fatal to a claim for relief.
Once taxpayers sign their tax returns, they’re expressing to the IRS their particular return is correct. With a joint tax return filed from a married couple, both spouses are accountable for the entire amount owed, which means that if the IRS in the future decides that a joint return was inaccurate, they can go after either spouse for the complete amount of any additional tax, interest and penalties. The IRS isn’t even bound by a divorce decree proclaiming that just one of the spouses is entirely accountable for back taxes.


Realizing this conceivable injustice, the IRS has provided several forms of Innocent Spouse Relief since 1971. Even so, the program has several restrictions. For example, relief was denied for spouses that knew or had reason to believe that they signed an inaccurate return, whether or not the signature was made under duress. Additionally, to apply for relief, the IRS imposed a two-year statute of limitations from the date with which the IRS first contacted the innocent spouse to collect the tax. Due to these restrictions, many otherwise-qualified innocent spouses were found liable for taxes in which the other spouse should’ve been held accountable; 85 % to 90 % of these were women.


This past year, the IRS revamped the Innocent Spouse Relief program. Located in Florence, Ky., the Innocent Spouse unit was given increased staff and agents were provided training on domestic abuse and how to interview petitioners. The IRS also increased the statute of limitations to apply for relief to 10 years and relaxed the requirement that the innocent spouse didn’t know the return was incorrect once it was signed. Now the IRS is much more likely to grant relief in cases of abuse or when one spouse had financial control over money matters throughout the marriage. Cases can also be evaluated to ascertain whether or not the innocent spouse signed the joint return while afflicted with physical, psychological, sexual or emotional abuse.


To obtain Innocent Spouse Relief taxpayers need to file Form 8857, which the IRS uses to start its evaluation under a facts and circumstances test. Form 8857 contains questions relating to how involved the spouse was in the household’s finances, whether he or she have helped to prepare the joint tax return, and whether or not the spouse suffered from abuse.


Innocent Spouse Relief is one way to prevent joint and several liability, but the most straightforward technique is to not file a joint tax return to begin with. All married couples have the choice to file under the Married Filing Separately designation. In reality, the benefits of joint returns are not as abundant as is commonly believed, particularly for two-income households where each spouse earns a similar amount.


A joint return will really only lower the overall tax bill when one salary is responsible for the majority of the income. Even so, those filing taxes under the Married Filing Separately designation are ineligible for specific tax breaks, such as the Earned Income Credit, child and dependent care credits and the student loan interest deduction.


We can provide assistance in deciding whether a joint tax return or a Married Filing Separately return is right for your specific situation. Additionally, with so many more people now eligible under the Innocent Spouse Relief Program, seasoned tax professionals are suggested for the often long and complex application process.