Innocent Spouse Relief

What Is Innocent Spouse Relief?

Innocent Spouse Relief relieves you from paying any penalties, interest or taxes for which your spouse is ultimately responsible for. For instance, this relief applies if your spouse (or former spouse) omitted or improperly reported items on your joint tax return without your knowledge. Therefore, you are not liable for penalties, interest or taxes on the misreported or unreported items on the returns. However, this must be approved by the IRS. The IRS may also relieve you from some but not all of the responsibility for the misreported taxes. So, you are responsible for paying whatever fees apply to the portion the IRS did not approve for relief. The IRS will calculate for you what fees you are and are not responsible for. But first, you must file the form for Innocent Spouse Relief (IRS Form 8857).

What Types Of Tax Returns Does Innocent Spouse Relief Apply To?

Per the IRS, Innocent Spouse Relief only applies to individual or self-employment taxes. It does not apply to business taxes, household employment taxes, individual shared responsibility payments or trust fund recovery penalty employment taxes.

How Can I Qualify For Innocent Spouse Relief?

According to the IRS, you must meet the following conditions to qualify for Innocent Spouse Relief:

  • You filed a joint return with an understatement of tax due to unreported income or incorrect deduction(s), credit(s) or basis(es)
  • You proved that when you signed the joint return you did not know or had no reason to know that there was an understatement of income
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of income and tax
  • You and your spouse (or former spouse) have not transferred property to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party (creditor, ex-spouse, or business partner)

What Counts As Unreported Income?

Unreported income is any gross income that is not reported by your spouse (or former spouse).

For example:

  • If your spouse received a 1095 from any self-contractor work and did not report it.
  • Any income from a W-2 that was not reported.
  • Any income that the IRS might be made aware of that has gone unreported.

What Counts As Incorrect Deduction, Credit Or Basis?

This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse).

For example:

  • The expense for which a deduction is taken was never paid, such as making a deduction for office supplies but never purchasing office supplies.
  • The expense does not qualify for a deduction.
  • No factual argument can be made to support the deductibility of the expense.

What Counts As Reason To Know?

The IRS will look into whether you had any actual knowledge of the misreported or omitted taxes. If you did not, they will determine if you are telling the truth by whether or not there is a basis for you to be unaware.

According to the IRS:

“The IRS will consider all facts and circumstances in determining whether you had reason to know of an understatement of tax due to an erroneous item. The facts and circumstances include:

  • The nature of the erroneous item and the amount of the erroneous item relative to other items.
  • The financial situation of you and your spouse (or former spouse).
  • Your educational background and business experience.
  • The extent of your participation in the activity that resulted in the erroneous item.
  • Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question.
  • Whether the erroneous item represented a departure from a recurring pattern reflected in prior years’ returns (for example, omitted income from an investment regularly reported on prior years’ returns).”

In addition to figuring out whether or not you had actual knowledge or reason to know of the misreported tax return, the IRS will also determine whether or not it is fair to hold you liable for the return.

The following are examples of factors the IRS will consider whether:

  • you received a significant benefit (defined next), either directly or indirectly, from the understatement
  • your spouse (or former spouse) deserted you
  • you and your spouse have been divorced or separated
  • you received a benefit on the return from the understatement

Next Steps:

Claiming Innocent Spouse Relief can often be tricky and may require further assistance from a tax professional in order to receive approval for a claim. To find out if claiming Innocent Spouse Relief is best for your situation, give us a call and we can guide you through on how to best file a claim. We will also inform you of any other alternative options to relieve you of your tax liability. Check out the page for tax problem resolution that we have to offer.

Visit our FAQ section for more information on this topic as well as other important topics.


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