Among the things that married couples share, their tax returns can be the most damaging if one spouse fraudulently or falsely reports information to the IRS. This person's actions could adversely affect the other spouse, who may be unfairly held liable for any money owed to the government.
However, the unknowing wife or husband may escape this burden by filing for innocent spouse relief. Before doing so, it is important that this person know how and when to request this reprieve.
What is Innocent Spouse Relief?
In simple terms, innocent spouse relief exempts an unsuspecting husband or wife from paying any tax burden due to the other spouse's fraud or dishonesty. Each case is evaluated on a case-by-case basis.However, it generally applies to people whose spouses failed to report income, under-reported income, or claimed exemptions and deductions to which the married couple was not entitled. It also can apply to people who are either separated or getting a divorce or to spouses who are victims of domestic violence and were coerced into falsely reporting information on their tax returns.
The IRS will examine each innocent spouse relief case individually. Some of the criteria it considers before making a determination include the applicant's:
- Education
- Work history
- Relationship status (whether the person is married, divorced, separated, or widowed)
- Physical or mental disabilities
- Incidences of reported domestic violence in the marriage
- Level of involvement in the couple's household finances
Based on these facts, the IRS will decide whether or not to grant the applicant a total or partial reprieve.
When to File for Innocent Spouse Relief
People wanting to seek this reprieve may wonder when they are required to file for it. The IRS requires that husbands and wives file within two years of the date that the government attempted to collect the delinquent tax.
The application must demonstrate that the applicant filed a joint return with an understatement of tax due directly to the other spouse's failure or refusal to accurately report the couple's combined income. The return also may have reported deductions or exemptions that the couple cannot legally claim.
The person making the request should also demonstrate that he or she did not know or did not understand that the other spouse was defrauding the IRS. The application should clearly demonstrate that it would be unfair to hold the person responsible for the burden based on the actions of the other person in the marriage.
How to File for Innocent Spouse Relief
As noted, people wishing to make this request of the IRS must do so within two years of the IRS first making contact to collect the past due amount. They should use IRS Form 8857 and also read IRS Publication 971 to file for innocent spouse relief.
They can fill out the form themselves and submit it to the IRS for consideration. However, to expedite the process and to ensure that the request is made successfully, people may wish to use the services of a professional tax adviser.
It can take two months or longer for the IRS to make a decision regarding the innocent spouse's case. Applicants may be granted a total exemption from paying the tax burden. They also may be granted a partial exemption, which would require them to pay a stipulated portion of the owed taxes.
Married couples who file joint returns are obligated to report their incomes honestly and only claim exemptions and deductions to which they are legally obligated. When one spouse commits fraud and falsely reports information to the IRS, the other person in the marriage may escape liability by filing for innocent spouse relief.
