Really What Happens if the Joint Taxpayers Separate or Divorce?
NOTHING. The IRS is still after both spouses for the taxes they owe.
The IRS will pursue both taxpayers if they do not pay their back taxes. IRS can collect from both taxpayers if they don’t pay or make payment arrangements. The IRS can pursue wage garnishments, levies or tax liens as well as passport restrictions if the tax bill is large.
Innocent spouse relief can stop these collection efforts for one party to a joint debt. You can ask for innocent spouse relief by submitting IRS form 8857. This will allow you to request that the IRS exempts you from the entire or a portion of the debt resulting from a joint tax return you filed with your spouse, current or past.
However, beware. The IRS takes joint filing and joint liability very seriously. In 2021, the IRS received 26179 innocent spouse requests. Only 4,807 applications were fully approved by the IRS. The moral: There are many applications, but only a few are approved.
Most people don’t qualify because the decision to accept a request from an innocent spouse is based on facts, but is subjective. There are many rules and no clear-cut test to determine if you qualify for relief.
Three Types of Relief for Innocent Spouses
The innocent spouse relief allows for one or both of the two taxpayers involved to be relieved of all or part of their joint federal tax debt. This includes taxes, penalties and interest.
Innocent spouse relief comes in three different types:
1. Innocent Spouse Relief
If your spouse made a mistake on your return, you may be eligible for innocent spouse relief. This will relieve you of the responsibility to pay owed taxes, interest and penalties. You must not have known about the mistake that resulted in tax being due on your return. It would be unfair to make the other spouse responsible for taxes based on facts and circumstances.
As you can imagine, it can be difficult to determine whether someone had “reasonable cause” to believe that something was unfair. If, for example, the spouse received a benefit from an item on the tax return (such as unreported income), then the chances of receiving relief are reduced. These criteria are outlined in many court cases and IRS rulings.
2. Relief From Liability by Separation
The IRS will divide the tax understatement (plus penalties and interest) from your joint return among you and your spouse, whether it is your current or ex-spouse. This relief is similar to innocent spouse relief. It begins with a tax assessment that results from an audit, or a question about underreporting. The spouse who claims ignorance of the error in the return is a different person. “Facts and circumstances are relevant”.
The spouses that are the victims of domestic abuse can show they did not contest the return filed because they feared retaliation from the other spouse. Separation of liability is only available to those who are separated from or divorced by their spouse.
The relief for the innocent spouse and the relief for separation of liability both apply to additional tax assessments, such as those resulting after a return has been filed from an audit or Underreported Inquiry (CP2000). This relief is available for understatement in taxes due to audits, IRS challenges or tax debt resulting from joint returns.
3. Equitable Relief
If you do not qualify for innocent spouse relief, or separation of liabilities, this type of relief could apply to you. The IRS has a number of conditions for qualifying for equitable relief: knowledge, domestic violence, separation/divorce, benefit, health at the time you signed the return and future compliance. There is no clear-cut test for eligibility.
What Is the Innocent Spouse’s Relief?
For relief from joint liability, a spouse must meet the requirements, submit an application, and undergo the innocent spouse investigation. The taxpayer may appeal the IRS’s decision if it denies relief.
Four Steps to Relief:
- Determine if you qualify. Consider the relief factors and choose the right type of relief. If you choose innocent spouse relief, or separation of liability relief, and the IRS denies your request, they will check to see if equitable relief is applicable. Understanding the rules, and applying your facts to them is crucial.
- Apply. You would need to file Form 8857 – Request for Innocent Spouse relief – in order to request innocent spouse relief. This seven-page document requires that you provide detailed explanations as well as additional documents in support of the facts stated in your application.
- Investigation. Mail the application to IRS innocent spouse unit, Covington KY. The IRS examiner is going to look at your facts and circumstances and will probably ask for more information. The IRS will also include the spouse who does not request a refund in its decision. The IRS can request information from spouses who do not file a claim. The non-requesting spouse may also appeal any innocent spouse approval.
- If you need to appeal, do so. IRS statistics indicate that the IRS denies many requests from innocent spouses. You can appeal the decision and document your disagreement by using Form 12509 Statement of Disagreement. If you are unable to reach an agreement with IRS Appeals you may petition the U.S. Tax Court. Usually, this process takes over a year. The IRS should be contacted promptly by innocent spouses who make a request. The IRS will close the case if you do not respond to an information request.
The IRS will only be able to collect from your spouse if the IRS grants your relief request. This includes taxes, penalties, and interest directly related to items that were incorrectly reported or omitted on your joint tax return.
Other Relief Options for Innocent Spouses
In certain circumstances, a spouse may sign both names (or electronically file the return without the consent of the second spouse). In such cases, the spouse may claim they didn’t file a tax return. It is not a request from an innocent spouse, but rather a declaration that the taxpayer has not filed the return. In such cases, it is the taxpayer’s responsibility to file their own tax return. The taxpayer should not “tacitly consent” to the spouse filing a tax return in their name. This is the same as a request from an innocent spouse.
When Should You Contact a Tax Specialist?
In general, filing Form 885 means that your tax situation is significantly more complicated than the average American taxpayer. Tenina Law is ready to help you if you are unfamiliar with the tax laws and don’t know how to proceed.
If you have already filed Forms 8857, but the IRS has denied your request, you may still have other options. For more information on these options, and to learn which ones may be applicable to you, visit Tenina Law tax resolution.
Alla Tenina is Here to Help You.
Tenina Law has a team of professionals who are equipped with a variety of tools for managing tax issues. Our team has the training to deal with any tax issue, no matter how simple or complex. We will keep you informed throughout the entire process. Contact Us To learn more about our resolution processes and to see how Tenina works hard to help the most diligent workers.
