IRS And The Innocent Spouse

IRS And The Innocent Spouse Related Information:

If you are married, then you have an option to file a joint income tax return with your spouse. Many married couples opt to file a joint return instead of separate returns because it offers them many benefits that can reduce their tax liability. But sometimes, filing a joint return can prove to be costly for a spouse if the other spouse has knowingly reported lesser income, has overstated any expenses, and therefore underpaid taxes.

Those who file a joint return are together as well as separately responsible for any interest, penalties, or other payments regarding their joint return. So even if all the income in your joint return was earned by your spouse, you are still liable to pay taxes and any penalties, along with your spouse. This liability often increases the tax burden of spouses who are innocent and were not aware of the underhanded activities of the filing spouse.

Prior to 1998, innocent spouses could get tax relief if they could prove that the income reported in the returns was not beneficial to them. This was very hard to prove, in fact almost impossible, as even though an innocent spouse may not have been aware about what went into his or her joint return, they could have still benefited by the erroneous return. But with new provisions to the Innocent Spouse Program from 1998, it has now become much easier for innocent spouses to get tax relief.

The Innocent Spouse Program

This program, from the IRS, allows for certain tax relief to innocent spouses, if their spouse has done anything illegal or has underpaid taxes which resulted in any penalties or an extra tax liability on their joint returns.

If you are married and have filed a joint tax return with your spouse, which has then been audited resulting in additional taxes, then you can qualify for tax relief under the Innocent Spouse Program if the following two conditions are met:

The underpaid taxes or misreporting of income has been done solely through your spouses actions;
You were not in any way connected to these actions and were also unaware of them.

Under this program, three types of relief are available to innocent spouses. These are:

1) Innocent Spouse Relief: Those applying for innocent spouse relief may be relieved of their liability in paying taxes, interest, or penalties arising out of the erroneous tax returns filed by their spouse. If the IRS can show that there has been some transfer of property between spouses, for the specific purpose of avoiding tax, then the request for innocent spouse relief may not be granted. The innocent spouse will still be held responsible for any liability that does not qualify for innocent spouse relief.

2) Separation of Liability Relief: By this rule, you can separate the understated tax, interest, and any penalties from your spouses to the extent for which you are responsible. If you have not paid your liabilities arising out of understatement of taxes, only then can you receive this type of relief. If your liability has already been paid, then you cannot claim a refund in terms of innocent spouse relief.

To qualify for this type of relief under the innocent spouse program, you must fulfill the following:

You should be divorced or legally separated from your spouse;
You should not have been living in the same house as your spouse for a minimum period of one year prior to the date of filing for innocent spouse relief.

3) Equitable Relief: If your joint tax return has underpayment or understatement of taxes, which was a result of your spouse’s actions, then you can file for equitable relief. This type of relief, will however, only be applicable to you if you do not qualify for the other types of relief under the innocent spouse program, namely the innocent spouse relief, separation of liability relief, and relief by community property law.