IRS Spousal Tax Relief

It is not necessary that a couple be divorced for a spouse to seek tax relief. There are actually three different manners by which a single spouse may try to reduce his or her tax debt: innocent spouse relief, injured spouse relief, and equitable relief. We will discuss the first here, while the latter two topics can be found in the debthelp.com library.

Even the most successful of couples do not always communicate clearly about their finances. When it is time to file taxes, there may be confusion and miscommunication between partners. A situation that harms one spouse who is considered “innocent” often arises because of remarriage, separate assets of the spouses, one spouse starting a business after years of marriage, divorce, separation, and marriage later in life.

So, what is “innocent”?

Simply owing taxes does not make one “innocent” and is not grounds for relief. Rather, there must have been an understatement of taxes due based on an “erroneous item,” but not under the discretion of the innocent spouse. The innocent spouse did not know and had no reason to know about the error.

This ignorance is not presumed by the law. The innocent spouse must file for relief within two years of the IRS trying to collect the misrepresented tax. There are a number of factors the IRS will consider to determine whether or not a spouse is innocent:

• Is the couple still married?
• Was there abuse in the marriage?
• Is the debt tied to the non-innocent spouse?
• Is there an undue hardship to the innocent spouse?
• Is there a significant benefit to the innocent spouse if relief is granted?
• Did the following years’ tax returns show compliance?
• Is there a legal agreement regarding the tax debt, especially in a divorce decree?

Being an “innocent” spouse means more than just being married to someone who is terrible at the books. Married couples have made a declaration that they are together, and spouses consequentially are held “jointly and severally” liable. This means if one spouse makes money, both spouses own it... and both are responsible for the relevant taxes due. If a refund is due, both spouses may see the refund confiscated by prior year debts or liens, even if the tax debt was created before the couple married. Even after divorce, tax debt will follow both spouses “jointly and severally.”

It is entirely possible that one spouse may see his or her hard-earned refund seized to pay the prior tax debts, student loan debts, or child support of the other spouse. Some people do not see this as fair, and the tax code may agree under several conditions. To try to retain fairness, the IRS gives the “non-innocent” spouse the opportunity to explain the innocence of his or her partner.

After arguing your case as an “innocent spouse,” the IRS will look automatically at the two other grounds for relief. This review is automatic, and you will not have to reargue your case. Usually an innocent spouse gets the benefit he or she would have gotten if the spouses had filed separately. In other words, the mistake is no longer a shared responsibility, but becomes the responsibility of the spouse who made the error.

Currently, the definition of a “spouse” is changing and this will affect the tax code, as well as the definition of “innocence”. What is not changing is the ideal that people need to be open with their partners about their taxes. When you sign a tax form, you truly must be able to say, “For better, or for worse...”

Working with your spouse to ensure financial stability and responsibility will help you to avoid the most taxing experiences of all.