How Innocent Spouse Relief Unburdens Tax Debts

By Michael Murray, North Carolina Tax Controversy Attorney

Many couples choose to file joint tax returns to take advantage of the benefits this filing method affords married couples. Filing jointly results in joint and several liability of the taxes owed meaning that both taxpayers are legally responsible for the entire amount. This responsibility remains intact even if the marriage does not. Legal separation or a divorce decree will not wipe away this debt.

After noticing that spouses did not always paint their whole financial picture for one another, the Innocent Spouse Relief tax law was created to help provide some relief under the right conditions. An innocent spouse may become unburdened of these joint and several liabilities when the other spouse failed to report income, reported income incorrectly or took improper deductions or credits given certain criteria are met.

Qualifying Conditions

In order for the innocent spouse to be awarded relief under Innocent Spouse Relief, ALL of the following conditions must be met:

First, a joint return must have been filed with an understatement of tax that can be solely attributable to an error made by the other spouse. It can either be an error in the amount of income claimed or in a deduction or credit taken. The most common errors are unreported income or inflated deductions.

Second, when the innocent spouse signed it he or she did not know and had no reason to know of the error.  Court cases exist where the innocent spouse adequately proves not having actual knowledge of the mistake, but the court refuses to provide relief stating that the person should have known of the error. In making these determinations the IRS looks at the educational background of the parties as well as the amount of business experience each possesses and the complexity of the financial situation and tax requirements. The IRS will also review prior returns to determine if this is a recurring error. All of that will factor into whether the party should have known of its existence. Any tax return where the error is easily discoverable on its face will not meet this prong of the Innocent Spouse Relief test.

Third, the error does not involve a fraudulent scheme intended to defraud the IRS, creditors, business partners or any other third parties.

And finally, by taking all facts and circumstances into consideration, the IRS concludes it would not be fair to hold the innocent, unknowing spouse accountable for the understatement and resulting penalties assessed.

Time Restrictions

Additionally, you must file your complete application with all required documentation seeking Innocent Spouse Relief no later than two years from the date the IRS first attempted to collect the taxes owed under the joint return.

Burden of Proof

While most tax controversy matters require the IRS to prove non-compliance on behalf of the taxpayer, Innocent Spouse Relief shifts the burden of proof to the claimant to show all requirements are met. The claimant must timely file Form 8857 under penalties of perjury along with all supporting documentation.

Seek an Experienced Tax Attorney’s Advice

Getting advice from an experienced tax controversy attorney is key to moving forward on a claim for Innocent Spouse Relief. The tax attorneys at Murray Moyer, PLLC will be happy to discuss your situation and make sure you proceed in the best manner to resolve your tax debt issues. Contact us today for a consultation.

Written by Justin Moyer on March 4, 2020.