Taxation & Estate Planning

Innocent Spouse

By Darrin Mish

Unfortunately, in marriage and life, everything is not always "Happily Ever After". If that is the case, now what? In order to qualify for Spousal Relief, you must meet all of the following conditions to qualify for innocent spouse relief: 1. You must have filed a joint return which has an understatement of tax due to erroneous items of your spouse (or former spouse); 2. You must establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax; and 3.      Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax. It?s important to note that a request for innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner.

By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. The IRS can collect these amounts from either you or your spouse (or former spouse). The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understatement.

Some of these facts and circumstances include whether or not the taxes owed are your spouse's or ex-spouse's, if you are no longer married to that spouse, if you thought your spouse would pay the taxes on the original return, if you didn't know about the items changed in the audit, if you would suffer a financial hardship if you were required to pay the tax (ie: you would not be able to pay for basic living expenses like food, shelter, and clothing), if you did not significantly benefit (above normal support) from the unpaid taxes, and if you suffered abuse during your marriage. To claim innocent spouse relief you must complete IRS Form 8857, and because the circumstances surrounding this type of relief is unique and varied, professional assistance is recommended.

For more information about Innocent Spouse see the video below.

Full post as published by IRS Problem Solver Blog on August 04, 2008 (boomark / email).