Innocent Spouse Relief
Most married couples choose status of married filing jointly (“MFJ”) regarding filing their income tax returns because of tax benefits associated with MFJ status. Under MFJ, both taxpayers are jointly and severally liable for the tax liability and any additions to tax, interest, or penalties that arise from MFJ, even if they divorce later.
Joint and several liability means that each spouse is legally responsible for the whole tax liability on their MFJ return, even if only one spouse earned all the income or claimed improper deductions or tax credits. This is true even if a family court divorce decree states that a former spouse will be responsible for any amounts due on previously MFJ returns.
Under certain circumstances, one spouse may seek relief from joint and several liabilities and the other spouse may be held responsible for the entire or most of the taxes.
Types of Relief
There are three types of relief from joint and several liabilities for spouses who filed MFJ; a) Innocent Spouse Relief, (b) Separation of Liability Relief, and (c) Equitable Relief.
1- Innocent Spouse Relief
The Innocent Spouse Relief provides one spouse relief from additional tax she or he owes if the other spouse or former spouse failed to report income, improperly reported or claimed tax deductions or used tax credits. To qualify under the innocent spouse relief, you must meet all of the following three requirements:
1- You filed MFJ tax return that has an understatement of tax that is solely due to your spouse’s erroneous item, which includes income received by your spouse but omitted from the joint return, or deductions, tax credits, and property basis are incorrectly reported.
2- You establish that at the time you signed the joint tax return you did not know, and had no reason to know, that there was an understatement of tax; and,
3- Taking into account the totality of the circumstances, it would be unfair to hold you responsible for the understatement of tax.
2- Separation of Liability Relief
This relief calls for an allocation of additional tax owed between one spouse and the other or former spouse from whom one is separated because an item was not reported properly on a MFJ return. The tax allocated to one spouse is the amount for which she or he is held responsible alone.
To qualify for this relief, you must have filed MFJ tax return and must meet one of the following requirements at the time you seek relief:
1- You are divorced or legally separated from your spouse with whom you filed the return;
2- You are widowed; or,
3- You have not been a member of the same household as your spouse with whom you filed MFJ at any time during the 12-month period ending on the date you seek relief.
Note: In addition, you must not have had actual knowledge of the items that gave rise to the understatement of tax when signed the joint return.
3- Equitable Relief
Equitable relief may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a MFJ return attributable to your spouse. You may also qualify for equitable relief if the correct amount of tax was reported on your joint return but the tax remains unpaid.
If you do not qualify for innocent spouse relief or separation of liability relief, you may still qualify for equitable relief. To qualify for equitable relief, you must substantiate that under the totality of the circumstances, it would be unfair to hold you liable for the understatement of income or underpayment of taxes.
In addition, you must meet the other requirements listed in IRS Publication 971, Innocent Spouse Relief. See Revenue Procedure 2013-34 for information about how the IRS will take into account abuse and financial control by the non-requesting spouse in determining whether to grant equitable relief.
What form to file to seek innocent spouse relief ?
To seek innocent spouse relief, separation of liability relief, or equitable relief, you should complete and submit to the IRS Form 8857, Request for Innocent Spouse Relief. Otherwise, you must write a statement containing the same information required on Form 8857, which you sign under penalties of perjury. You may also refer to IRS Publication 971, Innocent Spouse Relief, for more information.
If you request relief from the joint and several liability of a MFJ return, the IRS is required to notify the other spouse, 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 such as California and did not file as MFJ, you may 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 IRS Publication 971for more details.
Injured Spouse or Innocent Spouse
An injured spouse claim is for allocation of a tax refund of a MFJ return. Innocent spouse is for relief or allocation on a joint and several liability of a MFJ return. You are an injured spouse if all or part of your share of a refund from a MFJ return was or will be applied against the separate non-paid federal income tax, state income tax, child support, or federal non-tax debt items such as a student loan owed by the other spouse.
If you are an injured spouse, you may be entitled to recover your share of the refund taken for the liability of your spouse. For more information, see IRS Form 8379, Injured Spouse Allocation.
We Can Help
Zaher Fallahi, Tax Attorney, CPA, practices tax law in Los Angeles and Orange County and assists taxpayers in obtaining “Innocent Spouse Relief”, “Separation of Liability Relief” and “Equitable Relief”.
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