Can you qualify for this unique tax debt forgiveness status with the IRS to break free of your back taxes?
When it comes to back taxes, the IRS doesn’t let an unpaid debt go easily. In truth, there are very few ways to qualify for tax debt forgiveness – even partial forgiveness. That makes Innocent Spouse relief unique, because it’s one of the few ways you can qualify for full tax forgiveness.
What is Innocent Spouse relief?
Innocent Spouse is a status that you can apply for through the IRS. If you qualify, it means the IRS lets you off the hook for back taxes owed on joint filings. You can only get this if you can prove that your spouse or former spouse incurred tax debt without your knowledge.
But Innocent Spouse takes more than just proving your spouse filed and that you weren’t aware of the details. You must be able to show that your spouse did any of the following without fully informing you of the action:
- Failed to report income
- Underreported income
- Claimed deductions or credits fraudulently
It’s up to you to prove to the IRS that your spouse acted without your knowledge or consent. That can be tricky to pull off, especially when you signed the return.
How to file IRS Innocent Spouse tax relief
- First, you must complete IRS Form 8857 – Request for Innocent Spouse Relief
- You must sign the form
- If you lie on it, you can face penalties for perjury
- Once filed, the IRS will notify your spouse or former spouse, so they can provide any relevant information to the claim
- If the IRS finds that you had knowledge of the filing issues when you signed, you won’t qualify. However, if they can find no evidence that you had knowledge of it, you receive the status.
- Once you have IRS Innocent Spouse Status, you qualify for full and total forgiveness on all tax debt owed on that filing specifically.
Other forms of tax relief for spouses
There are two other forms of IRS tax debt relief for spouses:
- Separation of Liability Relief.
Allocates a portion of a tax debt to each spouse. Basically, instead of full tax debt forgiveness, this means you’re only on the hook for a portion of what’s owed. The IRS essentially splits liability (responsibility for a debt) between two parties.
- Equitable Relief.
If you don’t qualify for the other two, you can try for Equitable Relief. This is basically the IRS agreeing that it’s unfair to hold you liable for a tax debt owed.
In addition, there is also a status called “Injured Spouse.” This happens when someone garnishes your refund on a debt solely owed by your spouse. For example, if your spouse owes child support and they garnish your joint refund, you can file for Injured Spouse.
3 Important Notes about Innocent Spouse
#1: If you’re happily married, this probably won’t work
The IRS explicitly states that they, “consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax.”
That essentially means that they get into your business to make sure that your spouse did this behind your back. If you are still married and received a benefit from the understatement, the IRS will likely reject your claim.
Whether you benefited from the spouse’s bad filing AND the status of your marriage matter when you file for Innocent Spouse.
#2: Innocent Spouse has a 2-year window to qualify
For both Innocent Spouse and Separation of Liability, you must apply within two years of the initial IRS collection attempt. For Equitable Relief, the IRS must receive your request during the collection period. Injured Spouse only applies for the statute of the refund; that’s generally three years after the return or two years after a payment.
So, if you owe back taxes from a few years ago, separate and then file for Innocent Spouse, it won’t count. This basically only applies during separation and divorce at the end of a marriage.
#3: “Should have known” matters
Even if you can prove you had no knowledge of income understatements or over-claimed deductions, you could still be liable. There’s a section in Publication 971 that outlines eligibility titled “Actual Knowledge or Reason to Know”
This states that if a reasonable person in a similar situation would have known about the issues, you are liable. So, even if you didn’t know, if you should have known then it counts.