Innocent Spouse Relief

When seeking innocent spouse IRS debt relief, your tax defense lawyer will file IRS form 8857.

Pre Requirements of Bringing an IRS Innocent Spouse Case

First and foremost, it is impossible to bring an innocent spouse case unless the married couple files a joint tax return. This makes sense - if each spouse files individually, it would be impossible to claim that one did not know what was being reported to the IRS and their liability is their own.

If a married couple files a joint tax return, the next steps are (a) the couple must still be together and (b) there must be an understatement of tax liability on the filed tax return, then can request innocent spouse tax relief from the IRS on Form 8857.

So if a couple understates the taxes but pays the deflated amount owed, then your IRS tax defense lawyer can help bring an innocent spouse case against the IRS (if you are the spouse who is not responsible).

What is an “understatement” of tax liability?

Income earned that isn’t fully reported results in a lower level of income tax that would show up as due on the tax return. In this scenario, the gross level of income reported on the tax return, would be considered “understated.”

An understatement of tax liability can also occur when expenses are inflated or overstated, which results in the artificial reduction of taxable income.

How to Show that the Innocent Spouse Should Receive Relief from the IRS

Your IRS tax lawyer must demonstrate that it is unfair to hold the innocent spouse responsible for the tax liability. In order to do so:

  • The “understatement” must have been due to an error committed by the other spouse.
  • The “innocent spouse” had no knowledge of the error committed by the other spouse.
  • The “innocent spouse” did not benefit from the error committed by the other spouse.

If you are seeking innocent spouse relief from the IRS, be aware that the IRS will be contacting the non-innocent spouse to get his or her side of the story.   

The most typical IRS innocent spouse case is where one spouse runs a business and the other spouse has nothing to do with earning money. So they file together and the breadwinner is the one doing all the tax returns. In these cases it is easy for the innocent spouse to explain that they had no knowledge of the error committed by the other spouse.

However, if the innocent spouse derived benefit from the actions of the other spouse (i.e. lives a very lavish lifestyle because of the non-innocent spouse’s actions, then the IRS may reject the innocent-spouse claim due to the no-benefit requirement. However, your tax lawyer may be able to argue that the innocent spouse would have conducted him/herself the same (i.e. had the same lifestyle) even if the other spouse fully reported and paid taxes on their actual income.

Domestic Abuse Victim Innocent Spouse Cases

If the innocent spouse had knowledge of the understatement but only sign under duress (Domestic Abuse Victim), then the IRS may take the position that the joint tax return was not filed properly and ask both spouses to file individually. Once a domestic abuse case is brought to the IRS’s attention, they will not divulge the domestic abuse victim’s new address.

Alternative to Innocent Spouse Cases

Remember that IRS innocent spouse cases require that the individuals actually still be together (and have understated their taxable income).

If a couple filed a joint tax return but (a) are no longer together - divorced, legally separated (or lived apart for one year prior to filing IRS Form 8857) or one spouse has passed away - and (b) there is an understatement, then would request a separation of tax liability on Form 8857.  

This is essentially asking the IRS to go back to what was once a jointly-filed tax return and “unjoining” them, effectively causing both individuals to file separate tax returns - thereby separating liability.

Requesting a separation of tax liability will not result in a refund on taxes already paid to the innocent former spouse (goal is then only to remove the innocent former spouse’s tax liability only).  

If the filed tax return includes an underpayment of tax liability (there may or may not be an understatement of tax as well) then must request equitable relief on Form 8857 (and are not eligible for either innocent spouse or separation of liability). If the tax return understated the tax liability and the taxpayer didn’t even pay what was understated on the return, would also seek equitable relief as well.

Injured Spouse vs. Innocent Spouse

“Injured Spouse” is a different concept from “Innocent Spouse” in the world of IRS tax defense law.

When one taxpayer with an excellent tax payment history marries a taxpayer with tax liability, they need to file an “injured spouse claim and allocation” with IRS Form 8379. Without filing this form any refund that would have normally gone to the good taxpayer would be offset by the tax liability of the other taxpayer, if both are filing jointly.

The injured spouse claim allows the IRS to provide some portion of the refund to the good taxpayer.

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