What are the four types of innocent spouse relief?
Taxpayers are usually required to file a joint tax return when they are married. Unfortunately, many married taxpayers do not have knowledge of this. A joint tax return offers more financial advantages to couples.
However, when spouses file a joint tax return, they are “jointly and severally liable” for any tax reflected on the return, or for any tax, penalty, and interest later reviewed by IRS. That implies that each spouse is individually legally responsible for the entire tax, penalty, and interest even if only one of the spouses earned all of the income or the error was made by only one of the spouses that caused additional tax to be reviewed.
IRS does not differentiate between the spouses when taking necessary steps to collect tax arising from a joint return. While IRS has numerous collection tools at its disposal, including levying wages, benefits, and bank accounts.
Many survivors of innocent spouse relief cannot obtain advice about whether to file a joint return with their abuser, nor are they safely able to turn down to file a joint return. Consequently, they may be in debt to IRS for thousands of dollars without having done anything to cause the debt or having had any way to prevent it from occurring.
IRS grants survivors and other taxpayers the chance to request “innocent spouse relief” which, if granted, can alleviate the survivor from some or all of the joint tax debt. Survivors who consider that only their spouse (or ex-spouse) should be held liable for all or part of the tax should request relief from the tax, including penalties and interest.
Types of Relief Offered
The IRS offers four types of relief. Although “innocent spouse relief” is precisely a term for one type of relief from joint and several liabilities, it is also the term that is used by many people to describe all four kinds. Generally, people who are not tax experts find it difficult deciphering the differences between the types of relief. The four types of relief are:
Innocent spouse relief
It is offered when the joint tax return understated the amount of tax due. To be eligible, you must explain that when you signed the return you did not know and had no reason to know that the tax return understated the amount of tax due. Taking into account all of the evidences and circumstances, it would be unjust to hold you responsible for the full amount of tax due. This type of relief must be requested within two years of the date that IRS took its first collection action against you.
Separation of Liability Relief
This type of relief is offered when the joint tax return understated the amount of tax due. It is only available when the requesting spouse is divorced, legally separated, or has lived apart from the other spouse for at least 12 months before asking relief. It is also available if the other spouse is late. IRS can separate spouses’ liability for the understated amount so that each spouse is liable for only the amount of tax that would have been theirs, had the spouses filed joint returns. This type of relief must be requested within two years of the date that IRS took its first collection step against you. Taxpayers offered this type of relief are not entitled to a refund of any amounts paid toward the tax liability from which relief has been sought.
Equitable relief
Equitable relief is offered when the tax return understated the amount of tax due as well as when the amount was accurately stated, but the total tax due has not been paid. This is known as an understatement. It is only available when the taxpayer is not entitled to Innocent Spouse Relief or Separation of Liability Relief described above. It requires IRS to take into account all vital facts and circumstances in deciding whether to grant relief.
What are the Factors the IRS Considers
There are guidelines put in place for taxpayers by the IRS on how it will manage equitable relief innocent spouse claims including a list of nonexclusive factors that it will take into consideration when resolving claims for innocent spouse relief. These factors include:
What is the requesting spouse’s current marital status? If, at the time innocent spouse relief is required, the requesting spouse is widowed, divorced, legally separated, or living apart for at least 12 months from the other spouse, this factor favors granting relief.
Would paying the tax cause the requesting spouse economic hardship? Economic hardship is supposed for those taxpayers whose household income is below 250% of the federal poverty guidelines. The existence of economic hardship favors offering relief.
If the tax debt is due to an understatement of tax on the return, did the requesting spouse know or have reason to know of the item giving rise to the understatement? Usually, the item would be unreported income or an incorrect deduction. If the requesting spouse is not aware or has reason to know, this factor favors granting relief.
If the tax debt is due to a failure to pay, is the requesting spouse aware or have reason to know at the time the return was filed that the other spouse would not pay the tax due? If the requesting spouse did not know or have reason to know, this factor favors granting relief.
Was the requesting spouse a casualty of abuse? If yes, it alters how IRS will see other factors including the knowledge factors. The non-requesting spouse’s alcohol and drug abuse can be considered abuse of the requesting spouse. Abuse of the requesting spouse’s child is considered as part of the abuse determination.
Has the requesting spouse complied with the tax laws in the years since the joint returns were filed? If so, this factor favors offering relief.
Who has the lawful obligation to pay the tax? If a divorce or separation agreement places sole responsibility for paying the tax on the non-requesting spouse, this factor favors granting relief, although it does NOT guarantee it. However, it is still essential that attorneys standing in for survivors in family court request that the judge holds the abuser solely legally responsible for the debt.
If the requesting spouse received an important benefit from the unpaid tax or from the deficiency, this factor will favor denying relief. A significant benefit must be a benefit past normal support.
The existence of the requesting spouse’s mental or physical health issues favors granting relief.