Although more couples these days are choosing to customize and personalize their wedding vows and break with the traditional “to honor and obey” language, it’s a safe bet that not even IRS agents who tie the knot promise not to burden their betrothed with an unfair tax liability.
However, that is indeed the financial problem — and sometimes nightmare — that many spouses find themselves struggling with, which is why the IRS offers “innocent spouse relief.”
What is Innocent Spouse Relief?
Innocent spouse relief is a tax relief method available to spouses who filed jointly, but due to errors made by their husband or wife, face an unfair and essentially illegitimate tax burden (illegitimate in the sense that they don’t technically owe it, but are nevertheless on the hook because of the filing mistake).
Qualifying for Innocent Spouse Relief
Taxpayers may qualify for innocent spouse relief if they meet all of the following requirements:
- The petition is made within two years after the IRS first attempts to collect on the amount owed.
- The petitioner’s spouse (or ex-spouse) made mistake(s), causing the petitioner to understate their tax obligation.
- The mistake(s) is related to a joint tax return — not an individual tax return.
- The petitioner can prove that they did not know about the mistake(s), or had no reason to know about it.
- The IRS ultimately determines that it would be unfair to make the petitioner liable for the mistake(s) and resulting tax obligation.
Provided that all of the above boxes are checked, the taxpayer who seeks innocent spouse relief is like to have their petition approved. However, as noted above, any relief granted will only apply to taxes that should not be owed due to mistake(s). All legitimate taxes are still owed and must be paid.
How to File for Innocent Spouse Relief
Taxpayers who wish to file for innocent spouse relief must complete and submit Form 8857 (the same form can be used to cover multiple years, if applicable). Keep in mind that filling out this form properly is not an easy task, because the IRS asks for a significant amount of personal and financial information (all of which must be properly dated and backed with appropriate paperwork).
There is also a section that focuses on whether a taxpayer was involved in making financial decisions and preparing tax returns. This is a difficult and confusing question for most people to answer, because in the real world things are not black-and-white.
For example, a taxpayer may have most (or perhaps all) control over buying groceries for the home, which represents a financial decision-making authority valued at $20,000 a year. But that same spouse may have no input whatsoever as to the representations their spouse makes to the IRS regarding business-use-of-home and vehicle deductions that are also worth $20,000.
Naturally, a taxpayer must never knowingly lie or misrepresent facts to the IRS — that is actually the worst thing they can do. But with this being said, how does one interpret the above (and very common) scenario? Does this taxpayer play a major financial role in their family’s finances? With respect to grocery shopping, yes. But with respect to business deductions made on the joint tax return, no. And yet, the taxpayer must make an honest and accurate representation on Form 8857, or else their petition could be denied — and they may even face deeper scrutiny of current and previous years’ returns.
If you are considering petition the IRS for innocent spouse relief, or you have been encouraged to do so by family members, friends, colleagues and so on, then contact the Law Offices of Jeffrey B. Kahn, P.C. today. All communication is protected by attorney-client privilege, and we have three decades of experience making sure that taxpayers are treated fairly by the IRS.
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