April 12, 2011 2:07 pm

Innocent Spouse versus Injured Spouse

The tax law provides relief to certain married or previously married individuals under certain circumstances. There are two types of relief available from the IRS: innocent spouse relief and injured spouse relief. Here are the differences to note.

Innocent Spouse Relief

Filing jointly with your spouse makes you jointly and severally liable for the tax on the joint return, plus any interest and penalties. However, under special conditions, you can be relieved of this liability by claiming to be an innocent spouse. There are three types of innocent spouse relief:

  1. Innocent spouse relief provides you relief if your spouse or former spouse failed to report income, reported income improperly, or claimed improper deductions or credits.
  2. Separation of liability relief means you are liable only for the tax allocated to you, based on your income and other factors; your spouse bears the rest of the tax responsibility.
  3. Equitable relief applies when it would be unfair to hold you liable for the tax that is outstanding on a joint return, or where the liability is attributable to your spouse and you don’t qualify for innocent spouse relief or separation of liability relief.

To claim any type of innocent spouse relief, you must file Form 8857, Request for Innocent Spouse Relief. The claim must be made within 2 years of the date that the IRS first attempted collection from you.

Injured Spouse Relief

If you are married and the IRS has applied a refund from your joint return to cover your spouse’s liability, you can file for injured spouse relief to recoup your share of the refund. Also, if you are filing a joint return now and you’re not responsible for the debts that your spouse has outstanding and you are entitled to a portion of the refund, you may request your portion of the refund. If you can prove you are an injured spouse, the IRS will allocate the tax refund and give you your share rather than applying it to your spouse’s liability or debt.

Liabilities for which the IRS can use a tax refund, in addition to outstanding federal taxes, include:

  • Child support
  • Spousal support
  • State income taxes
  • Student loans
  • Unemployment compensation debts owed to a state

To claim injured spouse relief, you must file Form 8370, Injured Spouse Allocation. If you are filing to recoup a previously applied refund, send Form 8370 by itself. If you are filing for relief the current year, include Form 8370 with your return. You can still file your return electronically, but the IRS says to expect about 11 weeks for the matter to be resolved. If you file a paper return, expect to wait 14 weeks for your share of the refund.

Spouses in Community Property States

If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, special rules apply for both innocent spouse and injured spouse relief.

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Factoids
FACT: 

From 1997 to 2007, federal income tax credits claimed by individuals rose from $15.7 billion in 1997 to $63.8 billion in 2007. The child tax credit, created in 1998, accounted for about half ($31.6 billion) of the total credits in 2007 in terms of dollars.

Source: Statistics of Income Bulletin Spring 2011

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