When you sign a joint tax return with your spouse, you are signing a legal document that holds both signatories in "joint and several liability" for the information on the return. In other words, each of you can be held liable for the entire tax amount, including penalties and interest if you underpay or do not pay at all.
But what if your spouse underpaid your joint taxes without your knowledge? What if, when your spouse prepared the tax return, he or she did not report one or more items, used the wrong tax basis, or did something else that caused your joint taxes to be underpaid?
You may be able to file for innocent spouse relief. It is not easy to qualify; the IRS receives over 50,000 requests a year but grants less than half. However, innocent spouse relief is determined on a case-by-case basis, so your request will have the same fair hearing as the rest.
Types of Relief
Innocent Spouse Relief is but one form of relief you are filing for with Form 8857. With this form you are attempting to qualify for one of the following forms of relief:
- Innocent Spouse Relief: full or partial
- Separation of Liability
- Equitable Relief
Qualifying for Innocent Spouse Relief in full requires you to meet all of a set of criteria. If you do not, you may still be granted partial relief if, at the time the return was filed you had no knowledge or reason to know of only a portion of an erroneous item or you can be relieved of understatement of tax due to a particular item on your return.
Separation of Liability is a method to divide (separate) the tax understatement plus the penalties and interest between you and your spouse. Along with filing a joint return, you must meet one of the following criteria for Separation of Liability:
- You are no longer married to or are legally separated from the spouse with whom you filed the joint return. If you are widowed, it counts as no longer married in this circumstance.
- For the past 12 months, you have not been a member of the same household as the spouse with whom you filed the joint return. The 12 month period ends on the date you filed form 8857. This criterion does not apply to temporary absences due to military service or similar reasons.
To qualify for Equitable Relief, you must meet all of the following conditions:
- You do not qualify for innocent spouse relief or separation of liability.
- After taking into account all facts and circumstances, the IRS determines it is not fair to hold you liable for the tax understatement.
How Does the Need for Innocent Spouse Relief Arise?
There are several examples of ways in which spouses find themselves liable for understated taxes.
A wronged spouse without a college degree and in an abusive marriage may be forced to sign an erroneous return by threat of injury or other abuse. If the wronged spouse can show he or she feared bodily harm by questioning the return, innocent spouse relief may be granted.
In some marriages, one spouse takes on all financial responsibilities, including preparing the income tax returns. The other spouse may sign the return without understanding or questioning it.
Remember, you are signing a legal document agreeing to be held liable for the tax debt incurred by you and your spouse. If you were not involved in preparing the return, you should read it carefully and ask for clarification for anything you do not understand before signing it.
How to Qualify for Innocent Spouse Relief
To qualify for Innocent Spouse Relief, you must meet all of these criteria:
- The tax understatement was due to erroneous items entered or claimed by the other spouse.
- You did not know and had no reason to know that there was an understatement when you signed the return.
- It would be unfair to hold you liable for the understated tax.
The IRS also takes into consideration the following information about you:
- Work experience
- Relationship status: married, divorced, separated
- Physical or mental disabilities
- Level of involvement in household finances
There is no single deciding factor although being divorced or in the process of getting divorced is a positive factor toward qualification. On the other hand, simply stating that your spouse lied to you or that you did not know what you were signing are insufficient reasons for the IRS to grant relief.
Why Are Innocent Spouse Relief Requests Denied?
If you file Form 8857 and it is rejected, it may be due to one of the following issues:
- You failed to file for relief within two years of receiving a collection notice.
- You failed to convince the IRS that you did not know and had no reason to know about any tax underpayment when you signed the return.
- The IRS determined that a “reasonable person in similar circumstances: would have known of the underpayment.
- You received a benefit from the filing of inaccurate returns.
If you had any reason to know about your spouse cheating on your taxes or suspected at the time you signed that the return was inaccurate, you would not qualify for innocent spouse relief.
How to File for Innocent Spouse Relief
IRS Form 8857 is used to determine whether someone qualifies for innocent spouse relief (full or partial), separation of liability, and equitable relief. A single form can be filled out to cover multiple tax years.
You should file as soon as you become aware of a tax liability that you believe your spouse or ex-spouse should pay. You can learn of the liability through:
- The IRS is examining your return and proposing to increase your liability.
- The IRS sends you a notice.
That second one is pretty plain, isn’t it? You have two years after an IRS attempt to collect the tax from you to file Form 8857; receiving a notice from the IRS counts as a collection attempt. File the form even if you do not have all the required documentation.
Caution: Form 8857 can be tricky, and it is easy to make mistakes that can hurt your chances of qualifying for relief. Many of those turned down annually by the IRS are due to procedural errors. For example, they applied for relief for a year in which they did not owe taxes.
You are allowed to include a letter and any other evidence you want the IRS to use in consideration of your case. No matter how uncomfortable it is, you should definitely provide details about domestic abuse of any kind, physical or mental, or other problems with your marriage.
That being said, the IRS is required to notify your spouse of your filing so he or she can have the opportunity to appeal a preliminary determination of relief. You should take this into consideration as you proceed with your request.
In any circumstance, you should get help from an experienced attorney to make sure your Form 8857 filing is completely accurate. If your request is turned down, your attorney can appeal. Also, an attorney can also advise you on obtaining protection if needed.