Separation of liabilities can be defined as a legal concept that refers to the division of tax liabilities between individuals or entities. This is typically used in the context of joint tax obligations. It enables the IRS to allocate and collect taxes owed separately from each taxpayer involved. This article aims to pay closer attention to separation of liabilities and how it works:
When filing a joint tax return, like married couples would, both taxpayers are held jointly and severally liable for the taxes due. This means that regardless of who earned the income or incurred the tax obligation, each taxpayer is liable for the full amount of the tax debt.
When one spouse requests relief from joint and several liability, the separation of liabilities concept becomes relevant. If a spouse can show they meet the requirements for innocent spouse relief, they may be exempt from paying the tax, interest, and penalties due on a joint return.
In order for an individual to qualify for innocent spouse relief, they will have to prove that they have met the specific conditions established by the IRS. Generally, these conditions include:
The requesting spouse did not know, and had no reason to know, that there was an understatement or underpayment of taxes on the joint return.
The requesting spouse would suffer undue hardship if held liable for the tax obligation.
The requesting spouse can establish that they did not significantly benefit from the income that resulted in the tax liability.
The IRS will divide the spouses' tax liabilities if innocent spouse relief is granted. This means that the other spouse will still be liable for their share of the tax debt while the requesting spouse will be responsible for their portion.
Based on their respective income, deductions, and other factors, the IRS will divide up the tax burden between the spouses. Liabilities are typically divided according to the share of income and deductions that are attributable to each spouse.
The tax authorities can take legal action to collect the allocated portion of the tax debt from each spouse separately once the tax liabilities have been divided. This makes it possible for the IRS to collect money from each spouse separately and take the necessary enforcement actions.
There are other types of relief available in some circumstances besides the innocent spouse provision. For instance, injured spouse relief enables a spouse to receive their share of a joint refund if the other spouse would have to pay their past-due debts without it. Liability segregation is not relevant for injured spouse compensation.
The requesting spouse must provide the IRS with the required paperwork and forms in order to request separation of liabilities or any other type of relief. In order to establish eligibility, this typically entails submitting Form 8857 (Request for Innocent Spouse Relief) and supplying pertinent documentation.
Considering how complex the separation of liabilities and innocent spouse relief is, you are better off seeking the guidance of a qualified tax attorney or professional. These professionals can help you assess your eligibility, hold your hand throughout the process and ensure that you have all the necessary documentation to support your request.
When it comes to requesting separation of liabilities or requesting innocent spouse relief, there are time limits attached. Generally, you need to file the request within 2 years of the date from when the IRS first attempts to collect tax from you.
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