Traditional Innocent Spouse Relief
Do you remember the theme song to Married with Children? 🎼Love and marriage, love and marriage… If you haven’t heard it, give it a quick Google. Honestly, there should be a jingle about taxes and marriage, because they also go together like a horse and carriage.
When one spouse ends up saddled with a tax bill they didn’t create, that song isn’t as sweet. That’s where Innocent Spouse Relief comes in.
Innocent Spouse Relief vs. Injured Spouse Relief
To clear up a common error, innocent spouse relief is often confused with injured spouse relief.
Injured Spouse Relief involves retrieving a tax refund that was applied to a spouse’s debt (tax debt, student loan debt or child support). Innocent Spouse Relief deals with being relieved of a liability you didn’t create.
The Three Types of Innocent Spouse Relief
The IRS provides three forms of Innocent Spouse Relief, each with unique requirements. The three types of Innocent Spouse Relief are:
- Traditional Innocent Spouse relief
- Separation of Liability Relief
- Equitable Relief.
This article (Part 1 in a 3-part series) focuses on Traditional Innocent Spouse Relief.
When spouses file jointly (which typically yields a better result), each spouse is responsible for the debt both jointly and severally (separately). That means if there is debt on the joint return, caused by one spouse, the other spouse is also liable even if the marriage dissolves.
Traditional Innocent Spouse Relief
Traditional Innocent Spouse Relief is designed to protect an honest spouse who unknowingly ends up tied to a joint tax understatement. The IRS recognizes that not all spouses are equally involved in preparing tax returns. Sometimes one spouse is misled, left in the dark, or simply unaware of errors.
Requirements for Traditional Innocent Spouse Relief
Traditional Innocent Spouse Relief is under Internal Revenue Code 6015(b). To qualify for traditional Innocent Spouse Relief, the following conditions must be met:
- A joint return must be filed for a taxable year;
- There is an understatement of tax attributable to erroneous items of one spouse on the joint return.
- The non-offending spouse filing the joint return establishes that, even though he or she signed the return, they did not know, and had no reason to know, that there was such understatement;
- After reviewing all the facts and circumstances, it is inequitable to hold the other spouse liable for the deficiency;
- The non-offending spouse requests relief within 2 years of the start of the collection activities.
If a spouse meets all of these conditions, they will be eligible for innocent spouse relief of tax (including interest, penalties, and other amounts) for that year.
Example of Traditional Innocent Spouse Relief
Jose and Jasmine filed their taxes jointly. Jose owns a business as consultant for charitable organizations. Jose failed to report $50,000 in cash income. Jasmine is a nurse, and typically takes a subordinate role in the tax preparation process. Jasmine had no knowledge that Jose underreported income. Jasmine signed the return trusting Jose. Two years later, the IRS audits them and assesses $15,000 in back taxes, penalties, and interest. At this point, both Jose and Jasmine are responsible for the debt.
Because Jasmine had no involvement in the business, didn’t know about the unreported income, and didn’t benefit beyond their normal household spending, she may be eligible for relief under Traditional Innocent Spouse. Jasmine must file form 8857 – Request for Innocent Spouse Relief – to request relief from the tax liability Jose created when he underreported the income. Based on the facts and circumstances, the IRS agreed with Jasmine and she was released from liability. Jose is left solely responsible.
It is not uncommon for a spouse to be completely blindsided by an IRS letter that demands payment for a tax bill they didn’t even know existed. It is especially common in instances of abuse or divorce. If you’re facing this situation, don’t ignore it. The IRS has procedures to help you, but you must act quickly as the clock is ticking.
Traditional Innocent Spouse Relief provides a vital solution for spouses caught in unfair tax situations. If you’ve been caught off guard with a tax bill, schedule a call with us to see if you qualify for innocent spouse relief!
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LuSundra Everett, EA is The Home Biz Tax Lady. She is a tax expert located in Chester, VA who will find the right solution for you! As a As an Enrolled Agent licensed through the Internal Revenue Service, LuSundra is authorized to represent taxpayers in all 50 states against the IRS and your state!
Through her work with ETS Tax Relief, she helps high income non-filers and small-business owners face the IRS with confidence, clarity, and a plan.
When you’re dealing with IRS letters, tax debt, or business tax issues, the right representation makes all the difference. At ETS Tax Relief, we work with individuals and business owners across Virginia to resolve tax problems, prevent future issues, and restore peace of mind.If you’re ready to put your tax troubles behind you, visit http://www.etstaxrelief.com to learn more about how we can help.
