Spokane Innocent Spouse Relief

Innocent spouse tax relief is a very specific type of relief meant only for a narrow band of situations. In order to qualify, all of the following must be true:

• You and your spouse (current or former) filed a joint tax return
• The return understated the amount of taxes owed
• You had no knowledge of the errors that led to the understated tax
• You are now facing demands to pay additional taxes because of these errors

Importantly, innocent spouse relief is only available as a response to new tax burdens stemming from errors (or fraud) on old tax returns. The couple must have filed their return and paid all estimated tax liability stated on the return at the time of filing.

If there was an unpaid balance for taxes declared on the return at the time of filing, and these declared taxes are what the IRS is pursuing, you will not qualify for innocent spouse relief.

The IRS lists several types of spousal errors that could lead to this type of scenario:

• Unreported income
• Incorrect deductions or credits
• Incorrect values given for assets

Crucially, this income must have come from income sources that are listed on a typical 1040 individual tax return, and it must be related to income earned directly by the other spouse. The IRS does not allow for innocent spouse relief when the taxes are related to:

• Income earned by the person seeking relief
• Payments made to a household employee
• Earnings on businesses (non sole-proprietor/non-self-employed)
• Trust fund recovery penalties for employment taxes

No matter the actual reason for a filer’s underassessment, the end result is that the IRS must later double-check the math and issue a new tax assessment. This unpaid amount will come with penalties and interest retroactively applied from the date the amount should have been due.

They will then pursue all who are responsible for this amount, which includes both spouses whose names are listed on the return. Most forms of legal or financial defense cannot help a spouse avoid this situation, but innocent spouse relief can.

One crucial component of innocent spouse tax relief is proving the “innocent” part. The spouse must not have had any actual knowledge of the errors made on the return.

That knowledge can include knowledge of income that wasn’t reported or reasons that a deduction or credit would not have been allowed but was claimed anyway.

The IRS will also consider whether the spouse should have known about the errors, as a reasonable person in similar circumstances might. This test not only ensures that the spouse claiming innocence has done their due diligence, but it also helps the IRS establish responsibility for individuals who claim innocence but had no reason not to know about the error.

Exceptions for Domestic Abuse Victims

One exception for spouses who had actual knowledge is if they had a credible fear of harm or retaliation if they challenged the spouse to commit fraud. They can also state that they were forced or pressured into signing the return.

To claim a domestic abuse victim exception, there must be proof that the filer had been the victim of abuse at some point prior to signing the return. This proof can include a finding of abuse by a court or evidence that would allow the IRS to reasonably conclude that abuse had taken place.

In cases where innocent spouse relief is not available, a filer may still be eligible for separation of liability relief. This form of relief is only available if the claimant is currently divorced or separated (not living together).

In these cases, both filers are still responsible for the underreported tax, but they may be able to separate their liability and reduce it according to the portion of tax assessed from their own income or activities.

For example, some spouses may split the tax liability 50/50 after being granted separation of liability relief, whereas a spouse who didn’t earn much income may be able to split it closer to 10/90. The ultimate decision comes down to the IRS and how much they assess each spouse’s contribution to creating the back taxes.

“Equitable relief” is a catch-all term for spouses who do not technically qualify for innocent spouse relief but have some other valid reason not to hold liability for the unpaid tax amount. This type of relief is only approved on a case-by-case basis, often with unique facts for the IRS to consider as they weigh their decision.

Injured spouse relief is similar to innocent spouse relief, except it is applied retroactively after the IRS has already taken tax refund payments meant for you in order to pay the other spouse’s tax balance. In other words, if the spouse would have qualified for the relief before the tax refund was taken, or if there are other valid reasons that they shouldn’t be held responsible for the back taxes, they can have the refund returned to them by the IRS.

In order to receive innocent tax relief, you cannot have already made a deal with the IRS in connection with the same tax debt. You also cannot have been denied similar relief through a court decision.

Additionally, in court cases where you had knowledge of unpaid taxes, and you believed you were innocent of having to pay these taxes, but you did not request relief from the court, then the IRS will deny relief.

Innocent tax relief can be granted in the same year as other forms of tax relief that don’t fall under the above circumstances.

Anyone who signs a joint tax return is considered liable for taxes on all income that was reported (or should have been reported). Getting a divorce or separation does not automatically free you from this obligation.

While you are not responsible for the returns your ex-spouse files after the divorce, you remain responsible for all balances on returns filed prior. Notably, you cannot be freed from tax liability simply because your former spouse agrees to it on the divorce decree.

A divorce decree is not sufficient to separate the tax liability that was incurred during the marriage. A separate, specific decision must be made by a court in connection with that liability.

The one bit of solace someone who is divorced but unable to prove innocence may be able to find is through separation of liability, which reduces the amount they owe but does not always eliminate it entirely.

Unlike other forms of relief, the IRS may not pause collection on an assessed tax debt while it is evaluating your application for innocent spouse relief.

Instant Tax Solutions can help you explore all of your options for avoiding penalties connected to this unpaid tax debt. We can also help you establish innocence, prove domestic abuse, and supply the IRS with solid reasoning for why you should qualify for relief.

Instant Tax Solutions has extensive experience helping individuals apply for relief. We know what forms of relief should be available and what evidence the IRS looks for when weighing the merits of an application.

We are prepared to help you appeal an unfavorable decision, as well as give you every chance possible to find the relief you need.

When you are ready to start seeking the relief you need, we are here to help. Call us at (888) 886-5526 or contact us online to schedule your free consultation and financial review today.