Innocent Spouse Relief: What to do when you didn’t know your spouse wasn’t paying the IRS.
When married couples file their tax return together using the Married Filing Jointly status, the task of filing and paying the taxes often falls to one spouse. Both spouses are required to sign the return, and both spouses are held responsible for the accuracy of the return and for paying any taxes due.
When a tax debt issue arises, such as an unpaid balance or an inaccuracy on the return, the IRS will pursue both spouses, even if they have subsequently divorced. Sometimes the tax issue comes as a surprise to the spouse who did not prepare the taxes, and had no idea they owed taxes or that their partner may have filed fraudulently. Often they will find out about the tax debt after they have divorced, and when filing as single for the first time since marriage, they find that their tax refund is seized by the IRS to pay the past due tax obligations.
Fortunately, if the responsibility for the tax debt lies solely with the spouse who filed the return, and the other spouse had no reason to know about the tax debt, the innocent spouse can apply for Innocent Spouse Relief. If the innocent spouse can show that it would be unfair to hold them responsible for the tax debt, the IRS will release that innocent spouse from the tax debt.
Full Relief from Tax Debt
Innocent Spouse Relief puts the entire tax burden on the spouse responsible for filing and paying taxes. The innocent spouse does not have to pay anything toward the tax debt. To get relief under this program, the innocent spouse must have had no knowledge and no reason to know about the underpayment of taxes.
Often, even though a divorce decree may hold one spouse responsible for paying any back tax debts from joint returns, the IRS still holds both parties responsible for the tax debt and will pursue both. This pursuit may include wage garnishment or bank levy. In order to receive full relief from the IRS tax debt, the innocent spouse must apply and qualify for Innocent Spouse Relief.
Again, to qualify, the innocent spouse must have had no knowledge of any balances due or inaccuracies on the joint return and must have had no reason to know. When considering a taxpayer’s innocent spouse claim, the IRS considers how the tax debt was incurred, you and your spouse’s financial situation, your education and experience, whether you failed to ask questions a reasonable person would ask, and whether the inaccuracies on the return were a big departure from other years’ returns.
If your spouse decides to take you on a Caribbean cruise after receiving a $10,000 tax refund even though you’ve never received that much previously, would it jeopardize an innocent spouse claim?
If you ignore signs that something isn’t right, the IRS is unlikely to grant you an Innocent Spouse Relief claim. The IRS does not consider willful ignorance a good reason not to know about a tax issue.
You need to remember that by signing a tax return, whether it is filing single or married filing jointly, you claim responsibility for any tax, interest and penalties incurred. Therefore, the IRS will hold both you and your spouse responsible for the payment of tax debt. For jointly filed tax returns, the IRS can collect taxes owed from either or both of the spouses, even after a divorce has been granted. The IRS will continue to pursue both spouses until the tax debt is paid in full.
Applying for Innocent Spouse Relief
Apply for Innocent Spouse Relief with Form 8857, Request for Innocent Spouse Relief.
- You will need to provide detailed information about you and your spouse.
- You will also be asked information regarding your level of education, whether you suffered from domestic abuse, and the state of your physical and mental health during the time the tax issue occurred.
- You will also need to explain why you agreed to file and sign the joint return.
The IRS will try to ascertain your level of involvement in you and your spouse’s finances and will also require an in-depth financial disclosure.
Professional assistance can be very helpful when applying for Innocent Spouse Relief. The application is extensive, and a licensed tax professional, such as an enrolled agent, CPA or attorney, will be able to help you with the paperwork and advise you on your options moving forward. If you need help, call us or fill out the form to the right to get started.