Innocent Spouse Relief
In most cases, married couples file tax returns "jointly" to receive more income tax benefits versus filing individually. One consequence of filing this way is that both spouses are "jointly and severally liable" for the tax and any additions to tax, interest, or penalties that arise as a result of the joint return even if they later divorce. What this means is that each taxpayer is legally responsible for the entire liability.
Therefore, a married couple may want to consider speaking with a tax professional before filing jointly, especially if only one of the spouses is earning all of the income.
Fortunately, there is relief from this joint liability available to spouses in certain circumstances and there are three types which are explained below.
Innocent Spouse Relief
This type of relief provides you relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
To qualify for this type of relief, the requesting spouse must meet all of the following conditions to qualify:
- You filed a joint return that has an understatement of tax (deficiency) that is solely attributable to your spouse's erroneous item. An "erroneous item" includes income received by your spouse but which was omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they are incorrectly reported on the joint return;
- You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax; and
- Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.
Separation of Liability
This type of relief provides for allocating the tax deficiency of improperly reported items between the spouses so that each is only responsible for the amount attributed to them individually.
To qualify for Separation of Liability relief, you must have filed a joint return and must meet one of the following requirements at the time you request relief:
- You are divorced or legally separated from the spouse with whom you filed the joint return
- You are widowed or
- You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you request relief
- If, at the time you signed the joint return, you had actual knowledge of the item that gave rise to the understatement of tax, you do not qualify for separation of liability relief.
If you do not qualify for either of the above types of relief, you may still qualify for Equitable Relief. To qualify for equitable relief you must establish that, under all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax.
Innocent Spouse & Equitable Relief are the most difficult to get of the three, mostly because of the requirement that the requesting spouse had no reason to know of the error. Of course, if at the time you signed the joint return, you had actual knowledge of the item that gave rise to the understatement of tax, you do not qualify for separation of liability relief.
Even though there are three specific types of relief regarding spouses, you will most often hear all three types referred to in shorthand as Innocent Spouse Relief.
Relief from joint and several liability should not be confused with an injured spouse claim. You are an "injured spouse" if you file a joint return and all or part of your share of the refund was, or will be, applied against the separate past-due federal tax, state tax, child support, or federal non-tax debt (such as a student loan) of your spouse with whom you filed the joint return. If you are an injured spouse, you may be entitled to recoup your share of the refund.
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