Lowrance Law, LLC


Innocent Spouse Relief

 There are of course benefits to filing a joint tax return with your spouse: eligibility for tax deductions and lower tax rates come to mind. However, there can be severe repercussions that come from filing jointly, and those occur when items are improperly reported on or when income is even omitted from the tax return. If the IRS determines there are erroneous items in your return, such as unreported income or incorrect deductions, and you and your spouse have filed jointly, then both of you will be held responsible for the liabilities.

However, situations arise where one spouse may not have known about the erroneous items, or may have been coerced into signing for them. To combat such situations, innocent spouse relief is available under Internal Revenue Code (IRC) (26 U.S.C. 6015).  Provided you meet the qualifications, you may qualify to be relieved of the joint tax liability. Applying for innocent spouse relief is not as simple as it may be described in some publications. I am listing the basic process in this post, but please consult a tax professional before filing out Form 8857 that starts the innocent spouse process.

Basic Qualifications:

  1. You and your spouse filed jointly
  2. On the return, there is an erroneous item that is your spouse’s fault
  3. You can prove that when you signed the return, you held no knowledge of the erroneous item
  4. The circumstance shows it would be unfair to hold you accountable

On the IRS website there is information for determining if you are eligible for Innocent Spouse Relief. It can be found Here

If your spouse has embezzled their income, for example, or attempted to defraud the IRS without your knowledge in any other way, even if you signed a joint tax return together, you can avoid the joint tax liability and penalties, provided you meet the qualifications of Innocent Spouse Relief, by filing Form 8857.  Filing this form will begin the process of detaching yourself from the liabilities. Keep in mind that the IRS generally requires this form to be filed within two years after they attempt to collect the tax, but there are exceptions. IRS Notice 2011-70 “expands the period within which individuals may request equitable relief from joint and several liability under section 6015(f) of the Internal Revenue Code (IRC). Specifically, this notice provides that the Internal Revenue Service will consider requests for equitable relief under section 6015(f) if the period of limitation on collection of taxes provided by section 6502 remains open for the tax years at issue.” See Notice Here

Equitable relief

Recently, the IRS announced new procedures (see Rev. Proc. 2013-34) for requesting equitable innocent spouse relief from joint liability under IRC section 6015(f). Equitable relief may be allowed by the IRS if “taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either)”; and relief is not available to the individual under the other subsections of 6015.

Rev. Proc. 2013-34, provides a streamline procedure if certain requirements are met, and, most importantly, this revenue procedure gives greater deference to the presence of abuse in claiming equitable relief. The IRS recognizes that  abuse can be relevant with respect to the analysis of other factors. The revenue procedure was intended to give greater weight to abuse when its presence impacts the analysis of other factors. The IRS broadens its view of how a person being subjected to financial control or abuse affects the other various prerequisites for relief.

If the requesting spouse was abused or the nonrequesting spouse controlled the finances by restricting access to financial information, and because of this “abuse”, the requesting spouse could not object or change the tax return or question the payment of taxes or was afraid to challenge the nonrequesting spouse’s preparation and control of the tax return because of fear of retaliation, then the abuse or control will support this factor for relief in consideration of  other factors.*

There are many factors to prove in requesting equitable relief. The facts and circumstances are very important, and it is very important that you present the information to the IRS in the proper way.

As mentioned above, applying and getting IRS approval for innocent spouse status is not simple. If you make a simple mistake on Form 8857, the IRS will most likely deny your application. Of course, there are appeals available, and your tax professional (or you) may file in the United States Tax Court for a determination of your claim for innocent spouse relief.

Contact me for more information on your options if you believe you may claim innocent spouse relief. I can assist you in filling out Form 8857 (very important), appeal the IRS denial and file a petition in the United States Tax Court, and, if necessary, litigate your case in the court.

Bill Lowrance
Your Virginia Tax Attorney

*For more detailed discussion see Journal of Accountancy article, September 2013

As usual this post is not a legal opinion and by reading this blog you are not my client.


irs_logo_5      Our friends, the IRS,  modified the “use-or-lose” rule for health flexible spending arrangements (health FSAs) so that at the plan sponsor’s option, participating employees may carry over up to $500 of unused amounts remaining at year-end. Previously, any amounts that weren’t used by year-end would be forfeited. Certain plan sponsors may be eligible to take advantage of this option as early as plan year 2013.

Health Flexible Spending Accounts

Health FSAs are benefit plans that many employers provide to employees to reimburse employees for health care expenses. The great deal for employees is that qualifying contributions to and withdrawals from FSAs are tax-exempt. Contributions to these FSAs are tax exempt–no tax paid.

Unused FSA contributions left over at the end of a plan year have historically been forfeited to the employer under the so-called “use-it-or-lose-it rule.” With the new changes if you have money left at the end of the year, you can now carryover $500 to the next year and use it in addition to the maximum contributions allowed by your employer’s plan. See all the boring “technical details” right here IRS Notice.

Annual Tax Inflation Adjustments

For tax year 2014, the Internal Revenue Service announced  annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

  • The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
  • The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
  • The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly).

See all the boring details: Here

All this wonderful information brought to you by Lowrance Law LLC, an experienced tax controversy/resolution law firm.

Call us to assist you with IRS and State tax issues. We help resolve your problems. Call 703 506 1600.

Bill Lowrance

No legal advice or client relationship here!


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