Innocent Spouse Tax Relief

(Also known as IRS Innocent Spouse Clause and IRS Innocent Spouse Rule.)

So what happens when two people who were married and filed a joint return during the time they were together end up getting a divorce and one of the people in the relationship didn’t report all of their income?

Many times, the IRS will come after the other person. Whether it’s the husband or the wife, receiving a notice from the IRS like this can be a very stressful event.

What happens if the innocent person didn’t know anything about it? They could be facing back taxes plus penalties and interest. If they signed the joint tax return, they could be facing wage garnishment or even stiffer penalties.

There are, of course, exceptions and unique circumstances. It could be the case of a spouse dying before the unreported income is found. Or, it could be the case of a spouse filing for bankruptcy before the problem is discovered; there are all types of special cases. But what happens if you are faced with this situation? How can you handle it?

The “Innocent Spouse” and the IRS Restructuring and Reform Act

In 1998, Congress dealt with the problem of the “innocent spouse” when it passed the IRS Restructuring and Reform Act. Essentially, the Act altered the tax code to make “innocent spouse relief” easier and more fair. 

Before 1998, the IRS provided an innocent spouse relief rule to taxpayers that “qualified” under a complex set of rules. It ended up that many taxpayers were actually denied relief. With the Innocent Spouse rules passed in 1998, you can qualify for “general liability relief”, “allocated liability relief,” or “equitable relief” if you fail to qualify for one of the first two types. It should be noted however that even with the changed rules, spousal relief isn’t always granted.

Are you eligible for Innocent Spouse Relief?

To qualify for Innocent Spouse Relief, certain criteria must be met. The IRS considers three types of relief under this program:

1. Classic Innocent Spouse Relief
   This relief is for spouses who can prove that they were unaware or had no reason to know about an understatement or incorrect reporting of income or deductions on a joint tax return.
2. Separation of Liability
   This option allows innocent spouses to allocate additional tax liabilities between themselves and their partners, based on each spouse’s proportionate share of income.
3. Equitable Relief
   For cases not covered by the above options, equitable relief may be granted if it is deemed unfair to hold the innocent spouse liable for the tax debt.

Key factors that the IRS considers in determining eligibility include whether the innocent spouse received any benefit from the understated tax, the financial and emotional hardship that the innocent spouse would face if held liable, and the presence of abuse or fraud within the marital relationship.

What to do if you are an Innocent Spouse?

If for whatever reason, you suspect that your joint tax return may be wrong, don’t sign it! File separately if you think your spouse falls into this category. Filing this way will result in a higher tax liability, but could save a lot of pain and aggravation – and expense later on!

If you think there are errors in the joint tax return you filed and you believe you qualify for Innocent Spouse Relief, it’s crucial to act promptly. The IRS imposes strict deadlines for filing such claims, typically within two years after the date it begins collection activities against you. To initiate the process, Form 8857, Request for Innocent Spouse Relief, must be completed and submitted to the IRS.

Gathering evidence to support your claim is vital. This may include documentation demonstrating your lack of knowledge or involvement in the erroneous tax reporting, as well as any evidence of financial hardship or abuse within the marriage.

Ready to request for Innocent Spouse Relief?

Understanding the ins and outs of tax law, especially when it comes to seeking Innocent Spouse Relief, can feel overwhelming. That’s where seasoned tax attorneys step in to help.

With years of experience and a proven track record of achieving positive outcomes for clients, the law office of Steven N. Klitzner has become a trusted ally for taxpayers navigating IRS disputes.

We are well-versed in the nuances of Innocent Spouse Relief and are here to support you every step of the way. Whether it’s assessing your eligibility, gathering evidence to strengthen your case, or representing your interests before the IRS, we ensure that your rights are upheld and that you stand the best chance of finding relief from unfair tax liabilities.

Call the law office of Steven Klitzner at (305) 564-9199 for a free and confidential consultation today!