Innocent Spouse Relief for Houston Individuals
Innocent spouse relief is a tax provision that the IRS offers to people who believe they have wrongly been assessed a tax that should be assessed to a spouse or former spouse. It’s a very common tax problem, so the agency has a form dedicated to it known as Form 8857 (Request for Innocent Spouse Relief).
As joint filers are exposed to tax liabilities knowingly incurred by either spouse, the IRS gives those taxpayers relief options in a few circumstances. Innocent spouse relief is one of those options, offering protection from tax debts and penalties in certain instances.
Who May Qualify for the Innocent Spouse Relief Provision?
Innocent spouse relief can be used to eliminate an outstanding tax liability (and its associated interest and penalties) for those who can prove the following three conditions:
- The applicant submitting Form 8857 must have filed a joint tax return with a current or former spouse that, due to erroneous reporting on the return, resulted in an underpayment of tax.
- The applicant was not aware of the erroneous filing and had no reason to be aware of the tax reporting error at the time of tax filing.
- It would be unfair to hold the applicant responsible for the underpayment in tax. The IRS considers multiple factors when determining whether a spouse can be considered “innocent” when determining unfairness.
If the IRS does determine that a person qualifies for relief through Form 8857, the agency will eliminate part or all of the tax liability – depending on the specific circumstances surrounding the case – as well as part or all of the associated interest and penalties.
How Does the IRS Determine Unfairness for an Innocent Spouse Relief Applicant?
The IRS’s decisions regarding innocent spouse relief are made on a case-by-case basis. This includes whether it would be unfair to hold the applicant responsible for the tax liability that’s been assessed to their account. Some of the factors the agency will use when assessing a Form 8857 submission include:
- Whether you and your spouse are divorced or separated, and how long ago the separation occurred.
- Whether your spouse or former spouse deserted you.
- Whether you received a “significant benefit” due to the tax underpayment. This could be a direct or indirect benefit.
This last point is where the IRS will focus most of its efforts when reviewing a submission for innocent spouse relief.
From the IRS’s perspective, a significant benefit refers to additional financial support that goes beyond “normal support,” which is based on the taxpayer’s financial circumstances. If a spouse buys their husband or wife a luxury car during the same tax year that the filing error occurred, for example, and if the tax return indicated a level of income that doesn’t square with a major luxury purchase (like a luxury vehicle), the IRS will likely use that as evident that the ”innocent” spouse may not be innocent about the tax underpayment and may reject their application as a result.
Further, the IRS will look for any evidence of fraudulent transfers made by either spouse at the time of the erroneous tax filing. Fraudulent transfers are property transfers made to avoid paying creditors following a judgment. This is a common tactic that is used to avoid paying creditors prior to filing bankruptcy. Fraudulent transfers will disqualify the applicant from innocent spouse relief.
What’s the Difference Between Innocent Spouse Relief and Injured Spouse Relief?
Innocent spouse relief is often confused with injured spouse relief, a separate tax relief option for people who have been incorrectly assessed a tax that they do not owe. However, innocent spouse relief (Form 8857) and injured spouse relief (Form 8379) address different tax problems.
Specifically, innocent spouse relief is used by taxpayers to contest a tax liability incurred while both spouses were married. Injured spouse relief, though, is an option reserved for people who have been assessed a tax incurred by their spouse (or former spouse) before marriage or after separation.
In general, Form 8379 is submitted when the IRS takes part of a person’s tax refund following a joint tax filing. The IRS may do this to resolve outstanding income taxes, child support or another federal or state debt. However, if this debt was incurred before marriage or after separation, the agency cannot hold the spouse who was not part of the tax debt at the time responsible and take their refund. Form 8379 is used to resolve this and restore their owed refund.
If you’re unsure whether you should pursue innocent spouse relief or injured spouse relief, consider partnering with a tax problems consultant to pick the correct relief option.
An Experienced Tax Expert and Bookkeeper in Houston Can Help Resolve Unfairly Assessed Taxes
The Internal Revenue Code is complex, and it may feel like it’s designed to confuse individual taxpayers. However, there are beneficial provisions in the tax code that can help people resolve unfairly assessed tax liabilities. This includes Form 8857 for innocent spouse relief. However, to qualify applicants must make a convincing case to the IRS.
If you are unsure how to do this, a knowledgeable tax expert can assist with preparing the form and providing the IRS with any information needed to verify that their client should not be held responsible for another person’s tax problems.
