First, let’s start with what innocent spouse relief is. Innocent spouse relief can only be granted by the Internal Revenue Service when they deem that one spouse is not responsible for the taxes owed by both spouses jointly. It only applies to individual income tax and self-employment tax, not payroll taxes, or offshore bank account problems. However, other types of relief may be available for you even if your tax problems don’t relate to income taxes.
Even if your spouse agrees they are 100% liable for the taxes or agrees to accept responsibility for the entire tax liability, for example in a divorce proceeding, that does not have any legal standing with the IRS. Even if a family law court judge issues an order that only your ex is liable for the taxes it makes no difference. Only the IRS can make the determination on whether you are or are not responsible for any portion of the tax. The IRS will continue collection efforts, including lien and levies against you until the tax is paid in full, or you have filed your innocent spouse application, and ultimately successfully obtain innocent spouse treatment.
If you are granted innocent spouse relief, you will be absolved of liability for the tax, interest and penalties owed, and the IRS will not attempt to collect from you. In fact, that portion of the tax liability will be solely the responsibility of your spouse. If any tax liens have been filed against you, they will be released and even withdrawn. (Note: If the tax lien has been filed against community property then the tax lien may not be released; however, it is important to investigate whether the property in question is actually community property, or instead held jointly).
There are three different types of innocent spouse relief. This includes “traditional innocent spouse relief”, “separate liability relief”, and “equitable innocent spouse relief.” A tax attorney can determine which type of relief applies in your case, and whether or not you will qualify. In many situations more than one type of innocent spouse relief will apply, and your application needs to request all potentially applicable relief. Timing is a factor too. if your case has been in IRS collections for more than two years you will be limited to equitable innocent spouse treatment.
A request for innocent spouse relief is made on IRS Form 8857. It is six pages long, and the instructions to the form run another six pages. Once the IRS has made its determination you do not get a do-over. If you appeal to the Tax Court, you generally cannot supplement your innocent spouse application with additional information at that time. This means that all relevant facts and circumstances must be included and substantiated to the best of your ability when submitting your initial request. Sometimes these facts can be difficult, embarrassing or painful to discuss. Physical, mental and emotional abuse, mental illness, the loss of a child, and other deeply personal matters are not easy to relive or share, especially with strangers. But, if they are a contributing factor as to why you didn’t know about the underreporting or underpayment of the tax, failure to disclose it in your filing could affect whether you receive relief.
Unfamiliarity with the criteria for filing your innocent spouse request, including the deadline and what information to provide could be the difference between being granted relief or being held responsible for all or a portion of the liability. You could potentially owe tens or hundreds of thousands of dollars through no fault of your own, just because you didn’t know what to include in your request for relief.
If you think you may qualify for innocent spouse relief, contact the tax attorneys at Brager Tax Law Group to discuss whether you meet the criteria. We are non-judgmental and want to make sure that you have the best chance at receiving innocent spouse relief.