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Innocent Spouse Relief

Spouses are generally liable jointly and individually for the entire tax on a joint tax return. The question then becomes whether the innocent spouse, who merely signed a joint return, should be held liable for errors on the tax return caused by the actions of the other spouse. The question becomes even more critical if the couple has divorced and the government is attempting to collect from the income of the innocent spouse.

To obtain innocent spouse relief, one must elect the type of relief being sought within two years of the IRS beginning the collection of the tax deficiency or assessment. The three types of innocent spouse relief available to the electing spouse are: Innocent Spouse Relief, Separation of Liability, and Equitable Relief.

Any innocent spouse determination by the IRS is reviewable in tax court. Notice of the election for innocent spouse relief must be given to the non-electing spouse who may participate in any hearings on the relief requested.

Election 1: Innocent Spouse Relief

To qualify for the Innocent Spouse Relief election, the taxpayer must meet all the following requirements:

  • Filed joint return which has an understatement of tax due to erroneous items.
  • Establish that the at the time of signing the tax return the taxpayer did not know, or have any reason to know, there was an understatement of tax.
  • Taking into account all the factors and circumstances it would be unfair to hold the innocent spouse liable.

In determining whether to grant innocent spouse relief, a key element of the IRS will be whether the electing spouse received any substantial benefits or later was divorced, separated from or was deserted by the other spouse.

Election 2: Separation of Liability

The innocent spouse may elect to obtain relief by separation of liability. To qualify, an individual must have:

Filed a joint return, and either

Be no longer married to, or be legally separated from, the spouse with whom the joint return was filed or

Must not have been a member of the same household with the spouse for a 12-month period ending on the date of the filing of the request for innocent spouse relief.

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Election 3: Equitable Relief

If the taxpayer fails to qualify for either of the first two types of innocent spouse relief, one may still obtain innocent spouse relief from the tax liability, interest and penalties by electing equitable relief. To obtain this type of innocent spouse relief, the taxpayer must show that, under all facts and circumstances it would be unfair to be held liable for the understatement of underpayment of the taxes. Under the equitable relief provision, the innocent spouse can get relief from tax liabilities caused by underpayment of tax.