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.
- You and your spouse filed jointly
- On the return, there is an erroneous item that is your spouse’s fault
- You can prove that when you signed the return, you held no knowledge of the erroneous item
- 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
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.
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.