Innocent Spouse IRS Request
If you filed a return jointly with your spouse and accrued tax liability, the resulting debt, including penalty and interest, becomes your shared responsibility, even if you later get divorced. Fortunately, in some cases it is possible for the innocent spouse to get relief from the IRS for paying tax, penalties and interest on a joint return.
There are three types of relief: Innocent Spouse Relief, Relief by Separation of Liability, and Equitable Relief. Innocent Spouse Relief can be granted if your spouse did something wrong on a tax return that was filed jointly; something which you did not know and had no reason to know. Also, your spouse must not have used a fraudulent scheme to transfer property to you in order to avoid paying tax. You have to prove that it would be unfair for the IRS to hold you responsible for the debt.
What exactly can the responsible spouse do wrong on the delinquent tax return? The IRS list of erroneous items includes unreported or underreported income, incorrect deductions, or false credit. For instance, incorrect deductions could be deductions for expenses that never occurred, or expenses that are not allowable for deductions.
If these erroneous items were listed on your return, and you did not know about it, you need to be prepared to prove to the IRS that you had no reason to know about the understatement. Although the IRS often cannot prove otherwise, there are some criteria that can be used by the IRS to determine your ability to avoid this situation.
First of all, the IRS looks into the nature of the item that had an error on your return to determine how difficult it might be for you to detect an error before signing the tax return. You will be asked to provide information about your educational background, business experience (if your spouse has an income from self-employments and that erroneous item appeared on the business schedule of your joint tax return), and your involvement with this business.
However, even if you prove that you do not have a sufficient educational background to be able to detect the error, and were not involved with the business, your Innocent Spouse Relief request still can be denied if the IRS determines that a “reasonable person would question” that particular item before signing a return. Another avenue the IRS can take to prove your liability is to show that the erroneous item made this particular tax return look very different from all other returns you and your spouse filed in previous years, which should have caught your attention.
If you were aware of some errors that occurred on your joint return, but do not have knowledge about all of them, you may be eligible for a partial Innocent Spouse Relief.
In order to determine that holding you responsible for your spouse’s tax debt would be unfair to you, the IRS needs to do some additional research of the case. Factors such as divorce or separation can be important in their decision, but not necessarily play a major role. However, if the IRS proves that you significantly benefited from the understatement on the return, even though the understatement was made by your spouse, your Innocent Spouse Request will be denied.
About the Author
This guest post was provided by Ian Jackson, a tax professional who writes for one of the premier tax resolution companies. Find out more at 20/20 Tax Debt Help.