Posted by Unifirst Financial & Tax Consultants

Essential Things You Need to Know about IRS Innocent Spouse Relief

Essential Things You Need to Know about IRS Innocent Spouse Relief

If you need ways to get full forgiveness on your tax debts, innocent spouse relief is one of the few options for you.

The IRS does not let off back taxes easily. There are, however, a few ways you can qualify for tax debt forgiveness, even if the forgiveness is partial. This is why innocent spouse relief is unique because it is one of the few options that can qualify you for complete tax forgiveness.

Understanding Innocent Spouse relief

The innocent spouse is a status with the IRS that people can apply for. Qualifying for such means, the IRS forgives you on back taxes accrued through joint fillings. There are, however, some factors that make one eligible for such. For instance, you should be able to prove that your spouse or ex-spouse accrued the tax debts without carrying you along.

However, there is more to an innocent spouse than proving that you are not aware of your spouse's tax liability. To qualify, you must offer solid proof that your spouse is guilty of the following without your knowledge:

  • Failure to report income

  • Reported less income

  • Fraudulently claimed deductions and credits.

You need to be able to prove to Uncle Sam that your spouse acted without your consent. In many cases, this could be hard, especially when there is your signature on the return.

How to file IRS Innocent Spouse tax relief

The first step is requesting for the IRS Form 8857 – request for Innocent Spouse Relief.

You must sign and complete this form. Providing inaccurate information on the way is enough grounds for perjury or other types of penalties.

On filing the form, Uncle Sam will notify your spouse or ex-spouse. The aim is to give relevant information to your claim.

Should the IRS discover that you know about the filling issues when you signed, you will be disqualified. The absence of any evidence of your knowledge, on the other hand, qualifies you for this status.

Meriting the IRS Innocent Spouse Status gives you access to complete forgiveness of all debts owed on the specific filing. 

Other forms of tax relief for spouses

Spouses can also enjoy other forms of IRS tax debt relief

Separation of Liability Relief.

This distributes part of the tax debt to each of the spouses. This will not give full tax debt forgiveness. You only pay a portion of what you owe. This will be divided between the parties involved.

Equitable Relief. 

For people that don't qualify for the above, there is the option to attempt the Equitable Relief. Equitable Relief involves Uncle Sam agreeing that it doesn't make sense to make you responsible for tax debt.

Essential Things to Note about Innocent Spouse

  1. This does not apply to Happily married Couples

According to the IRS, they reveal that they:

"consider all of the facts and circumstances of the case to determine whether it is unfair to hold you responsible for the understated tax."

In other words, the IRS is involved in making sure that it was done without your consent. For people married and getting a benefit from the understatement, your case will likely be dismissed.

In filling as an Innocent spouse, the status of your marriage and your reaction to your spouse's terrible filing matters.

  1. There is a 2-year Window for Innocent Spouse

Application for innocent Spouse and Separation of Liability must be done within two years. The IRS needs to have your Equitable Relief request during collection. An injured spouse is only applicable to the refunds statute, which is like three years after the return, or two years after payment.

As a result, if you owe back taxes some years ago, you split and file for Innocent spouse, it will not hold. Separation and divorce period is the only time this counts.

  1. "Should have known" matters.

There are cases you might be able to prove that you didn’t know of the income understatements yet, you will still be liable. In publication 971, there is a section that reveals "Actual Knowledge or Reason to Know." 

According to the section: 

if a reasonable person in a similar situation would have known about the issues, you are liable.

Hence, even if you are genuinely unaware and you should be aware, you will not qualify.

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