When married persons file joint tax returns, they are jointly and severally liable for the tax, interest, and penalties on that return. This means the IRS can seek recovery of the full amount from either spouse. However, a spouse can ask the IRS for relief as an innocent spouse. Here are 5 things that you may not know about such relief.
1. Relief is gender neutral
There is a perception that innocent spouse relief is only for a stay-at-home wife who is ignorant of her husband’s financial affairs. While it is true that the vast majority of cases (one article reported that 85% of requesting spouses were wives), any spouse can make a claim and obtain relief if the conditions for relief are met. The sex of a spouse is not a condition for relief. This is especially true now that same-sex married couples are treated the same as opposite-sex married couples under federal tax law.
2. Relief is allowed on your own income
When you think about innocent spouse relief, you may picture a spouse with no knowledge of the other’s income asking for this relief. However, it is possible for a spouse to obtain the relief even though it is his or her income on the return. Take this example:
A self-employed taxpayer with a business of selling printer cartridges had his wife keep the books, pay invoices, and handle the checking account, as well as manage the household finances. She had no income. She gave their tax records to their tax preparer, the taxpayer signed the return, and she said she’d mail it. She never did and later died of cancer. After his wife’s death he discovered the return hadn’t been filed, so he filed it and paid the taxes owed. The IRS then came after the taxpayer for late filing and late payment penalties, plus interest; he claimed innocent spouse relief to avoid the penalties and interest.
The Tax Court ruled in his favor. The equitable innocent spouse relief that he claimed allows the court “to determine the appropriate relief available.” This includes the penalties and interest on the late return. He did not know or have reason to know that his wife had failed to file the return. He only learned of it after her death and promptly corrected the failure. He did not benefit in any way from her non-filing. The fact that all of the income on the return was his does not change the result.
3. You don’t have to be currently single to obtain relief
A spouse who is still married can obtain equitable innocent spouse relief. To obtain this relief the requesting spouse must show, among other things:
4. Tax Court has considerable latitude for review
A claim for innocent spouse relief is made by submitting Form 8857 to the IRS. If the IRS denies a claim, a taxpayer can seek relief from the Tax Court. The scope of review by the Tax Court is considerable.
For example, the Tax Court can consider information presented at trial even though it was not presented during the IRS’ administrative review. In effect, the court does not merely review the IRS’ determination but makes an independent determination based on information presented to it.
5. Injured spouse relief is different than innocent spouse relief
Do not confuse a claim for injured spouse relief with innocent spouse relief. Under injured spouse relief, a spouse can obtain all or part of a tax refund on a joint return that was applied to separate past-due federal tax, state tax, child support, or federal non-tax debt (such as a student loan) of the other spouse with whom a joint return was filed. A claim for injured spouse relief to recoup a share of the refund is made on Form 8379, Injured Spouse Allocation.
If you are married and have any concerns about your spouse’s income or tax exposure for past due liabilities, it is advisable to use married filing separately as your filing status. However, if you file jointly, don’t hesitate to seek relief if you’re entitled to it.