While an Injured Spouse could get relief if the Internal Revenue Service keeps a joint tax refund because of the debts and obligations of the other spouse, an Innocent Spouse could get relief if the other spouse falsifies information on a joint return. This could include unreported income or improper deductions. In order to qualify, you must not have known, or had any reason to know, about the false reporting. The intent behind this program is to prevent you from unfairly being held accountable for a spouse's actions.
If your spouse falsified documents, and you were aware of it, then you and your spouse are both liable for the unpaid tax and any penalties. This includes having a reason to know that your spouse has been under-reporting tax liabilities. This may include a situation in which your spouse spends large sums of money on jewelry or buys a luxury car when reporting very little income. The IRS will assume you had a reason to know because any reasonable person should have asked where the money came from to purchase luxurious items. The IRS will also take into account your educational background to include business experience, your own financial situation, and whether or not you participated in the activities that involved fraudulent reporting.
Innocent Spouse Relief is requested when IRS Form 8857 is filed. The IRS will examine the entire case and determine whether your liabilities were fair or not. In addition, the IRS will look into whether you have already benefited or not from the original return as filed.
When filing the request form, you generally have a maximum of three years within the request. In the event that you are requesting a period of more than three years, a second form must be used. If you need to file a request, do so as quickly as possible. This is because there is a two-year limitation to filing an Innocent Spouse form once the IRS starts to attempt collecting. You should also submit your request via certified mail according to the directions outlined in the instruction booklet for Form 8857. Once this form is filed, the IRS will temporarily suspend the collection process.
Keep in mind that the IRS will notify your spouse that the Innocent Spouse request has been filed.
Most of these cases are finalized within six months. There are things, however, that can cause the case to take longer. If your spouse disagrees and provides contrary information or an IRS agent deems that more time is needed to collect additional information, the case will remain open. A petition to the US Tax Court can be filed if the IRS has not made a determination within 6 months. This route is very costly, however.
Once the outcome has been determined, you have 30 days to appeal to the Appeals Office or 90 days to appeal to the US Tax Court.
If you are no longer married, are now divorced, or are now legally separated, or have lived apart from your spouse for the last 12 months, you may be eligible for Separation of Liability Relief (see IRS Pub. 971 for more). You may also be eligible for Equitable Relief if you have any understated or unpaid tax and an appeal to the IRS Office of Appeals. Underpaid tax is simply tax that was properly reported but hasn't been paid.
Eileen Jacobs is an Enrolled Agent from Las Vegas, NV. She has over 30 years of income tax and accounting experience. You can view her website here: http://www.taxes-phd.com/ or her blog here: http://eileenejacobs.wordpress.com/.
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