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What to do if your spouse has a tax liability that has nothing to do with you

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Claiming Innocent Spouse relief is one way that allows taxpayers to obtain relief from joint tax debt. If you are attempting to utilize this option, you will have to convince the IRS that holding you responsible for the tax debt is unfair.

To be eligible for Innocent Spouse Relief, certain qualifications have to be met. These qualifications will be discussed later.

In addition to meeting said qualifications, you will need to complete and submit the Form 8857, Request for Innocent Spouse Relief within the required time frame.

Following is some general information about Innocent Spouse Relief and a scenario of a situation where Innocent Spouse Relief comes into play.

Innocent Spouse Relief Breakdown

In an effort to reduce taxpayer burdens, the IRS offers three types of relief from the joint and several liability from a joint return.

Innocent Spouse Relief is one of those types of relief. So that you won’t be totally lost, let me first define what joint and several liability means. Joint and several liability means that the IRS is permitted to collect the entire tax liability from either taxpayer (husband or wife).

On a joint tax return, both the husband and wife are responsible for tax, additions to tax, interest and penalties that arise from the joint return. Even if the parties get a divorce, this will not let them off the hook. Following is a scenario of how joint and several liability works.

Scenario:

Bob and Mary have been married 10 years. To receive the benefits of filing jointly, they have always filed a joint tax return. In 2014, Bob earned $6,500 additional income that was reported to him on a Form 1099 that he chose not to report on the joint tax return. Mary knew nothing about this $6,500. Mary reported all of her income. For tax year 2014 they received a refund. Early in 2016, nearly two years later, the IRS sent Bob and Mary a CP-2000 Notice indicating that some income was not reported on their 2014 tax return. As a result of the unreported income, the notice shows that they now owe tax, interest, and penalties. Bob and Mary ignored the notice and filed their tax returns for tax year 2016. Even though their 2016 tax return indicated that they were due a refund, the refund was offset (taken) by the IRS because they owed for tax year 2014. A portion of the refund was due to Mary because she worked and taxes were taken out of her checks as well. Mary can do one of two things here. She could do nothing and let the IRS keep her portion of the refund, or she could apply for Innocent Spouse Relief so that her portion of the refund can be refunded back to her. Taking no action, Mary will unfairly lose her portion of the refund.

Qualifications for Innocent Spouse Relief:

Listed below are the qualifications that are required to be met to be eligible for Innocent Spouse Relief.

• The taxpayer filed a joint return that has an understatement (deficiency) that is solely attributable to the other spouse’s erroneous item. Erroneous items include unreported income, deductions, credits and property basis.
• The taxpayer establishes at the time that he or she signed the joint return, he or she had no knowledge that there was an understatement of tax.
• Taking into consideration, all the facts and circumstances, it would be unfair to hold you (the innocent spouse) liable for the understatement of tax

Mary meets all of the qualifications and completes the Form 8857. She submits the form to the IRS within the required time frame and awaits a response from them.

The Next Step
Link to Form 8857/instructions:

https://www.irs.gov/pub/irs-pdf/f8857.pdf
https://www.irs.gov/pub/irs-pdf/i8857.pdfbig

If you find yourself in this situation, know that you do have options. The IRS may be construed as a big, bad wolf, but you don’t have to let them unfairly (devour) keep money that is due to you. Knowing is half the battle.

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Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.