More than a few married Americans have gotten an unexpected surprise from their marriage, an IRS tax liability. Fortunately, federal tax law provides these unhappy spouses (and former spouses) with possible relief under the Innocent Spouse Program.
By requesting Innocent Spouse consideration, you can be relieved of responsibility for paying taxes, interest, and penalties if your spouse improperly reported items or omitted items on your joint tax return. According to the IRS, the following conditions must be meet before Innocent Spouse relief will be granted:
- You filed a joint return which has incorrect information relating to your spouse;
- You prove that, at the time you signed the joint return, you did not know, and had no reason to know, that there was an error on the return; and,
- The IRS determines that, given all of the facts, it would be unfair to hold you responsible for the errors on the return.
For the purposes of this program, an error on the tax return could be either unreported income, or an incorrect deduction or credit. Typical errors are fabricated business deductions or failure to report 100% of income.
Additionally, the IRS states that, if you knew about the error at the time the return was prepared and filed, you do not qualify for Innocent Spouse Relief. You and your spouse will remain jointly liable for all of the taxes, penalties and interest. Furthermore, the IRS states that, if you had reason to know about an error, they will not grant you this relief. However, the IRS also states that they will consider all facts and circumstances in determining whether you had reason to know of any error on the return, including:
- The nature and size of the error.
- Your financial situation.
- Your educational background and business experience.
- The extent of your participation in the activity that resulted in the error.
- Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question.
- Whether similar errors appeared on previous returns.
The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the error, including the following:
- Whether you received a significant benefit either directly or indirectly, from the error.
- Whether your spouse deserted you.
- Whether you and your spouse have been divorced or separated.
- Whether you received a benefit on the return caused by the error.
Not all divorced or separated taxpayers will qualify for Innocent Spouse Relief. However, if you can show that you had no knowledge of your spouse’s incorrect tax filing, the law may offer you a welcome relief from IRS collection.