Marriages shouldn’t have secrets, but sometimes there are surprises. For example, if a spouse isn’t honest on their individual or business tax returns, there is a chance that both spouses could be in trouble. If you have a spouse that cheats the IRS, you could also be on the hook for the tax bill. Fortunately, there is a tax relief method that can help: innocent spouse relief. Find out how innocent spouse relief works and how to increase your chances of getting your request approved.
What is innocent spouse relief?
So, what does innocent spouse relief mean? Innocent tax relief is one of the three tax relief methods available to a spouse who files jointly and wants to avoid an unfair tax liability. Equitable relief and liability relief are the two other methods. If the IRS accepts your request for innocent spouse’s relief status, you will not be responsible for the tax liability caused by your spouse or former spouse. Of course, this doesn’t mean that the IRS will free you from all of your obligations for legitimate taxes.
What are the three types of innocent spouse relief?
In some cases, you can be relieved of the tax, interest, and penalties you were liable for on a joint tax return. You can ask for relief no matter how small the liability. There are three options available:
- Innocent Spouse Relief.
- Separation of Liability.
- Equitable Relief.
To apply for any of these methods of tax relief you must file Form 8857, Request for Innocent Spouse Relief. Let’s look into each of these options in more detail.
Relief by separation of liability
Under this tax relief option, you separate the understatement of tax (plus interest and penalties) on your joint return between you and your spouse. Typically, the understatement of tax allocated to you is generally the amount for which you are personally responsible. This type of relief is available only for unpaid liabilities resulting from understatements of tax. Refunds are not allowed.
If you do not qualify for innocent spouse relief, you may still consider relief by separation of liability. Unlike innocent spouse relief or separation of liability, you can get equitable relief from an understatement of tax or an underpayment of tax. If you receive this relief, you could get a refund of separate payments that you made after July 22, 1998. However, you will need to prove that you provided the funds used to make the payment for which you seek a refund. You are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made.
There are many advantages to filing a joint tax return with your spouse. You typically get a lower tax rate and earn more credits and deductions. However, the IRS takes unpaid debts very seriously and will levy your property and garnish your wages (not just your spouse’s) even if the tax issue is not your fault. Innocent Spouse Relief can help stop collection activities for one of the parties of a joint tax debt. To qualify, you need to file Form 8857 and request an exemption from tax liabilities triggered by a joint return involving a spouse or former spouse. A tax relief method you can use in this case is innocent spouse relief. Here’s how it works.
Who qualifies for innocent spouse relief?
Not everyone will qualify for spouse relief. To qualify for spouse relief, you must meet four conditions according to information from the IRS.
- You were (or are) married and filed a joint tax return.
- Your spouse (or former spouse) improperly reported income on the joint return.
- There is evidence that when you signed said joint return, you didn’t know or had no reason to know the income was incorrectly reported.
- It would be unfair to hold you liable for the unpaid taxes.
What qualifies as an erroneous item on the tax return?
An erroneous item can include unreported income or incorrect deduction, credit, or basis, as mentioned. Unreported income refers to any gross income that your spouse or former spouse didn’t report.
When determining whether you had a reason to know, the IRS will consider all of the circumstances and facts. This can include the nature of the erroneous item, the amount, your financial situation, business experience, educational background, participation level, and whether it was a departure from what happened in previous years with your tax returns.
In some cases, you might qualify for partial relief. This might apply to you if you did not have any knowledge or reason to know of only a portion of the erroneous item when the tax return was filed. You could be relieved of the understatement that occurred because of that portion of the item.
Why would anyone file a joint tax return?
If there is a risk that both parties could be in legal trouble if one of the spouses tries to defraud the IRS, why would people file a joint return? It’s because the IRS encourages the joint return by offering tax deductions that are often too good to pass up. For example, when the tax return is filed jointly, it’s easier to qualify for the Earned Income Tax Credit, the Child and Dependent Care Tax Credit, adoption expenses, and more. Not only will the chance to qualify be higher, but the amount received will often be larger, as well.
When each spouse files separately, there are fewer tax benefits. Most of the time, a joint return will make the most sense. However, this does come with some warning. When you file a joint return, both of the spouses are responsible for the entire tax debt. This applies even if the couple divorces and the divorce decree says that one of the spouses is responsible for all of the tax debts. Some exceptions to the rule are available when they filed a joint return, including innocent spouse relief.
How does the IRS determine unfairness?
The IRS will look at the facts and circumstances to get a better understanding of whether it would be unfair to hold you responsible. Some examples of what the IRS would consider include whether you receive a significant benefit directly or indirectly from the understatement, whether your spouse or former spouse deserted you, whether you are divorced or separated, and whether you had any benefit on the return from the understatement.
A significant benefit is defined as anything that exceeds normal support. Evidence that would show direct and indirect benefits could include property transfers, for example.
What if I didn’t prepare or sign the joint tax return?
What happens if you didn’t file a joint return? It will depend on whether you consented or knew your spouse was signing the return for you. However, this can be difficult to prove, which means there could still be a tax obligation on your part. If you have a pattern of filing joint returns rather than filing an individual return, the IRS may believe that you gave inferred consent. If you provided your spouse with your W-2 forms and 1099s and did not object to filing the return, it could also imply consent.
Unfortunately, the IRS might believe that you provided consent even if your spouse or former spouse forged your signature on the tax returns. In these cases, you would need to try to prove that your signature had been forged. If you can prove the forgery, you can ask the IRS to cancel the joint return. If they agree, you will then only be responsible for your individual tax liability. You will not be held accountable for mistakes made by your spouse on the tax return.
How long do you have to file for innocent spouse relief?
If you qualify for innocent spouse relief, you will have two years after the first time the IRS tries to contact you to file your claim. If you do not have all of the information you need at the time, you are still required to file Form 8857 within the two years. In the case of taxpayers filing for equitable relief, which is a similar type of tax relief, you will have longer. As long as the statute of limitations hasn’t expired on the tax return, equitable relief might be an option to consider. Typically, you will want to speak with an attorney to determine whether you qualify for innocent spouse relief, equitable relief, or separation of liability.
In addition to the exception for equitable relief, there could also be an exception for relief based on community property laws. If you are requesting this type of relief, you will have to file Form 8857 within six months before the expiration of the limitations on assessment, including extensions for the year you are requesting. If the IRS starts an examination of your tax return within the six-month period where you have to file, the latest time for requesting relief is 30 days after the date the IRS initially contacts you. It’s best to talk with a tax attorney to determine what relief is best for you and to ensure you can file for the tax relief in time.
How to file for innocent spouse relief
The first thing you need to do is file Form 8857, the Request for Innocent Spouse Relief. You will only need to file Form 8857 once, as it will cover multiple years. You must file this form as soon as you realize there is a tax liability where you believe that your spouse or former spouse should be held liable, but not you. Often “innocent spouses” find out about the unexpected tax liability when the IRS audits their tax returns. Remember that you will typically have just two years to file your claim.
The form will ask for a range of information about you and your spouse or former spouse. This will include personal and financial information. If your spouse has died, or if you are separated or divorced, you will need to provide the IRS with all of the proper paperwork and dates. The IRS requires this material to ensure that your claims are legitimate.
Form 8857 will also ask if you were involved in the financial decision-making and if you were part of preparing the tax return. Additionally, the IRS wants to know about any large purchases made as a couple during the years you are requesting innocent spouse relief. The IRS wants as much information as possible, and it can sometimes be difficult to prove that you didn’t know anything untoward was happening. This is especially true if you were signing tax returns that claim there was a business loss, but you were also making large purchases or taking vacations during those years. If you were aware of what was happening, you might not qualify for innocent spouse relief.
Help filling out Form 8857
If you have any questions regarding innocent spouse relief claims, or you need to know more about how to fill out and file Form 8857, you can contact the IRS by calling 1-855-851-2009.
In some cases, you might have additional evidence that you feel would help your case with the IRS. If you do have other information, you can attach a letter with Form 8857, so the IRS can consider all of the information on your tax return at the same time.
It is not overly difficult to fill out the forms for the innocent spouse’s relief. However, there can still be some issues that could crop up or questions that you might have. If you do not feel comfortable talking with the IRS directly, you should work with a tax attorney. This can provide you with a better understanding of your tax debt, how to fill out the form, and whether it’s the right option for you or not.
Where should I file Form 8857 Innocent Spouse Relief?
You will find there are several ways to file the Innocent Spouse Relief Form 8857. You can opt to send it through the mail, by private delivery, or you could fax it to them. There is no means to file the tax relief form online currently. Additionally, you should not file Form 8857 with your tax return or take it to tax court.
If you are mailing Form 8857 using the U.S. Postal Service, you can send your Request for Innocent Spouse Relief to the following address:
Internal Revenue Service
P.O. Box 120053
Covington, KY 41012
If you will be using a private delivery service for Form 8857 instead, the address is different. The Request for Innocent Spouse Relief should go to the following address:
Internal Revenue Service
7940 Kentucky Drive, Stop 840F
Florence, KY 41042
When you are faxing, you can fax Form 8857 and any other attachments, such as a letter, to the IRS at 855-233-8558. Make sure that you have your name and your social security number written on any attachments you include. This will ensure they stay with the form.
The IRS will contact your spouse
Something to keep in mind is that the IRS will contact your spouse or former spouse you claim is responsible for the tax obligation. The other spouse needs to have a chance to be involved in the process and be given the ability to appeal any decisions that the IRS may make. The IRS will contact the spouse even when there is a history of domestic abuse, as they do not make exceptions.
After you have filed Form 8857, you can expect to wait a while for a determination to be made by the IRS. In some cases, it may take up to six months before the IRS decides on your spouse’s relief claim. This is because they have to verify all of the information. They are requesting the tax information and are contacting your spouse or former spouse.
If you receive a denial on your innocent spouse’s relief claim, it may be possible to file the claim again. You can file a second claim, but you need to provide new information for it to be considered. You will not have tax court rights on the reconsideration. It is a good idea to ensure that the new information will be enough to potentially change the minds of those at the IRS. If the evidence is not strong enough, they may still deny your request for innocent spouse relief.
Those who are filing an innocent spouse relief claim should not wait to file their current tax return pending the outcome of their claim. The good news is the IRS will not hold tax refunds while processing an innocent spouse relief application.
What qualifies as a mistake to the IRS?
The IRS may consider any number of issues when examining your tax return, including items reported improperly or omitted from the tax return. This could include improper deductions, unreported income, credit, or property basis. An example might be a spouse that claimed a deduction that was not legitimate, such as for an office in the house that doesn’t exist. It might also include a deduction on a work computer that was never actually purchased.
Typically, the tax, interest, and penalties that qualify for relief can only be collected from your spouse or former spouse if you are divorced. However, according to the IRS, people are individually and jointly responsible for tax, interest, and penalties that do not qualify for relief. The IRS can collect that which is owed from you or your spouse.
Innocent spouse relief will only apply to individual income or self-employment taxes. Some of the items that are not going to qualify for innocent spouse relief include household employment taxes, business taxes, individual shared responsibility payments, and trust fund recovery for employment taxes.
Innocent spouse relief and the statute of limitations
There are limits to the time the IRS is allowed to collect taxes. In most cases, this period is 10 years. After the statute of limitations expires on the tax liability, the IRS is no longer allowed to collect it. However, it is important to note that some actions could extend this period. One of those is filing for innocent spouse tax relief. The law states that if you file for innocent spouse relief, the IRS collection period will be suspended until 90 days after the filing of the tax court petition.
However, the IRS will also stop collection efforts when it is considering your application. This is important to consider because you want to be sure that filing for the innocent spouse’s relief will make sense for you since it will extend the timeframe where the IRS can collect. Each situation will be different, and it’s best to speak with a tax attorney who knows the law before making your decision.
Understanding all of the ins and outs of tax law and how it pertains to innocent spouse relief can be daunting. From the request for innocent spouse relief to tax liability, separation of liability relief, tax interest and penalties, filing status, and more, there is a lot of information to consider. Many taxpayers choose to hire a tax professional to guide them through the process.
Get help from a tax professional
Not only is there the complexity of filing for a request for the innocent spouse relief form and other types of tax relief, but there are potentially other issues the IRS could have missed. The IRS may decide to audit any tax return that’s mentioned in the innocent spouse relief form, as well. There could be issues in the joint tax return you’ve missed, too. Whether you are worried about your current tax obligation, the request for innocent spouse relief, or any other issues related to your taxes, it’s time to talk to the tax pros.
Before you hire a tax pro, though, you should make sure they can handle your type of case and requests. Working with a tax relief firm like Optima Tax Relief can provide you with the help you need. However, you should make it a point to check their site to get a better understanding of the types of cases the firm will take. In addition to looking at the site, be sure to be clear about your needs during the consultation.
How to find the best tax relief companies
The best tax relief companies will have reputable tax attorneys and be able to provide a money-back guarantee. Additionally, they will have competitive rates. When you have a tax pro look over your taxes, they may also find other tax relief options you weren’t aware of, such as separation of liability. Of course, they can also let you know if there are any other errors on your taxes that may need to be addressed.
Trying to do what’s right for your finances is important, but it can also be rather intimidating to attempt to take on the IRS all on your own. Sometimes, it’s a good idea to talk with a professional that can guide you through the process. This way, you will be fully apprised of what the IRS is doing, what’s happening with your request for innocent spouse relief, and more.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.