Innocent Spouse Tax Relief

Filing taxes has become infinitely more complex, in this changing world we’re living in. Divorce rates are roughly 50% of all US marriages, with the rate of separated married couples being more difficult to ascertain, but it has been estimated at 2.3% of married couples.

In the case of divorce or separation, you may be eligible for innocent spouse tax relief.

What Is Innocent Spouse Tax Relief?

Innocent Spouse Tax Relief
Innocent Spouse Tax Relief

A lot of married – as well as separated – couples file their tax returns jointly, to take advantage of certain tax benefits. Filing jointly means both parties are responsible for the return, including any tax additions, accrued interest or fines that come from the jointly filed tax return even if they eventually divorce. Each is responsible for the back taxes due, even if a spouse was the principal wage earner or was responsible for the incorrectly filed return.

In some instances, a spouse may be granted relief from mutual liability.

Innocent spouse tax relief may be granted when your spouse or ex-spouse incorrectly reported or filed income properly or filed improper deductions or tax credits.

Taxpayers have to ask for innocent spouse relief not longer than two years after the IRS initially attempted to collect the back taxes due.

To be eligible for innocent spouse relief, an individual must:

  • Have filed a joint return that understates the taxes due, which is known as a deficiency, that is solely attributable to your spouse’s error. An example of this includes income from your spouse that has been omitted from the joint return. Improper Deductions, tax credits and unclaimed property can also be in error if they are reported incorrectly.
  • Establish that at the time of filing, you had no idea that there was an understatement of tax.
  • In light of these facts, it would be unjust to hold you responsible for the understated taxes
Innocent Spouse Tax Relief
Innocent Spouse Tax Relief

Further examples of erroneous item reporting include:

  • Unreported income. Any income earned by your spouse, or former spouse, that goes unreported
  • Incorrect credit, deduction, or property. This includes any improper deductions, tax credits, or property claimed by your spouse or former spouse.

Here are some examples of erroneous items:

  • A filed expense was never paid. For example, your spouse deducted $10,000 for advertising on Form 1040 but never had any advertising expenses.
  • The expense is ineligible as a deduction. For example, if your former spouse claimed a business expense of $5,000 that was for paying fines. Fines are not tax deductible.
  • Expenses cannot be defended factually. If your spouse claimed $6,000 for expenses related to a home office, when they were actually for rent and utilities for your family’s home.

Determining Eligibility

While determining if you are responsible for your jointly filed tax return, here are some questions to ask yourself.

  • Did you file a joint Federal tax return?
  • Did the IRS take your refund to satisfy your past due taxes or student loans?
  • Did you personally report income on your jointly filed income tax return? This wages earned, taxable dividends and interest, or pension and retirement plans.
  • Did you report payments like the withheld income tax from your wages or tax payments, or have you claimed earned income credit or other tax credits?
  • Was the refund garnished because of your spouse’s back taxes, for which you are not responsible?

If you answered ‘yes’ to any of these, you might be an injured spouse, and eligible for injured spouse relief. If so, you must file Form 8379 with the IRS.

Innocent Spouse Relief Strategies

  • Separating your life and finances from someone you’ve been connected with for years can be notoriously difficult to prove. If you hope to prove eligibility for innocent spouse relief, here are some effective strategies to keep in mind.
  • File a separate return instead of a joint return. If you anticipate tax problems, filing separately eliminates the joint return and liabilities associated with a joint return.
  • Prove that you’ve been separated for longer than 12 months.
  • Extension of time to file a claim. Taxpayers who missed the deadline, two years after the original debt was incurred, can apply for a tax extension to file their Innocent Spouse Tax Relief claim.

To find out more about innocent spouse tax relief, or other fine points of marriage and divorce litigation,contact us today!