Taxpayers who file joint tax returns are jointly and severally liable for any liability arising from that tax year. This means each spouse is 100% personally liable for any tax, interest, and penalties owed so one spouse may be held responsible for all the tax due. This is true even if they later divorce and even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. However, in certain circumstances, the IRS allows Innocent Spouse Relief for qualifying joint filers.
When does spousal relief apply?
The IRS provides 3 categories of relief from joint and several liability: Innocent Spouse Relief; Relief by Separation of Liability; and Equitable Relief.
Innocent spouse relief allows for the relief of tax, interest and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. The understated tax must be due to your spouse’s error. You must be able to show that when you signed the return you did not know, and had no reason to know, that the understated tax existed.
With Separation of Liability, the understated tax on the joint return is allocated between the two spouses. This relief is only available if you are no longer married to (or are legally separated from) that spouse. You also cannot have been a member of the same household as that spouse at any time during the 12-month period ending on the date the request was made.
Equitable relief is available if you do not qualify for either innocent spouse or separation of liability relief. In order to qualify for this relief, you must establish that, considering all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax.
You do not need to separately apply for each category of relief. If you request innocent spouse relief or separation of liability, the IRS will automatically consider equitable relief.
There is a limited timeframe to submit a request for Innocent Spouse Relief, and taxpayers who may qualify should seek their options sooner rather than later.
Can the spouse appeal an adverse decision?
From date of the preliminary determination letter, the requesting spouse has 30 days to appeal the determination. The Tax Relief and Health Care Act of 2006 gives the Tax Court authority to review IRS denials of equitable innocent spouse relief. The Code also provides for Tax Court review of denial of Innocent Spouse Relief.
If you are facing tax liability based on the actions of your current or former spouse, contact us to discuss options for resolving your matter. Our team represents taxpayers who request Innocent Spouse Relief from the initial request through the appeal and litigation process if necessary.