Many taxpayers that are married make the decision to file joint tax returns due to certain benefits that this type of filing status permits. However, both the taxpayers then become individually and jointly responsible for taxes along with any penalties or interest due on these joint returns. This still applies even if the couple decides to later divorce. This also applies even when the “divorce decree” states that the former spouse is responsible and liable for any amount that is due on joint returns that were previously filed. One of the spouses may be held liable for the entire amount of tax that is due, even when the other party (spouse) earned that income.
There are currently four types of relief available to you when the IRS states that you owe them money due to actions of either your former spouse or your current spouse. You will file a form known as Form 8857, for each type of relief.
Separation Of Liability
Under Separation of Liability, the IRS may decide to separate the tax debt that you owe from the tax debt that your spouse owes, even if your previously filed tax return was joint. Once the “liability” has been separated, you will no longer be held liable for the tax debt that your spouse owes.
Innocent Spouse Relief
Innocent Spouse Relief will provide relief from the taxes that you owe when your spouse failed to report their entire income or when they improperly claimed credits or deductions.
When you are unable to qualify for either “Separation of Liability” or “Innocent Spouse Relief” there is still the option to apply for something known as “Equitable Relief”. It is possible to qualify for this type of relief when, after taking all the facts into consideration, it is determined as unfair that you are held responsible for this tax. This type of relief is only made available on unpaid taxes. Unpaid tax is defined as the tax that has not been paid but is included in your return.
Community Property Relief
This form of relief will only apply to couples that reside in community property states. The community property states only include Wisconsin, Washington, Texas, New Mexico, Nevada, Louisiana, Idaho, California, and Arizona.
How Does Innocent Spouse Relief Work
Innocent Spouse Relief, unfortunately, does not cover all types of debt that result from incorrect tax filings. If you are approved for relief, the interest, taxes, and penalties that relate directly to “omitted” or “improperly reported items” on the joint tax return only can be taken or collected from either your former or current spouse.
There are several taxes that are exempt when it comes to Innocent Spouse Relief that the IRS may still collect from you. Some of these include business taxes, Individual Shared Responsibility Payments, Household Employment Taxes, Trust Fund Recovery Penalties for Employment Taxes, and any other tax that exists outside this relief. The IRS will first assess your entire tax liability (when applicable) after Form 8857 has been filed.
Do I Qualify For Innocent Spouse Relief?
Every situation will be different, but when you were not aware of one or more items on your tax return which is causing additional interest, penalties, and taxes, you might be able to qualify for Innocent Spouse Relief. Here is a list of a few of the qualifications that apply to Innocent Spouse Relief:
You are/were married and you jointly filed a tax return or tax returns
Your current/former spouse incorrectly reported their income on this return or returns
You are able to prove on signing this joint return that you either were unaware or had no valid reason to be aware that this income was improperly reported
When all these factors are accounted for, it would be deemed unfair that you are held responsible for these unpaid taxes
How To Apply For Innocent Spouse Relief:
Below are the steps involved to ask for Innocent Spouse Relief:
Step One: Complete and file the IRS Form 8857. You will also need to attach your statement giving an explanation of why you think you qualify. If you are requesting relief for over a year, it is only necessary to file a single form. But, you must include separate statements for every year, along with an explanation for why you might qualify for each of these years.
Step Two: In most cases, the IRS will put a hold on attempting to collect any taxes from each year you have requested for relief.
Step Three: The IRS will then inform your current or former spouse that you have made an application for Innocent Spouse Relief.
Step Four: Your current/ former spouse will then have an opportunity to also take part in this process, which means they could also ask for Innocent Spouse Relief.
Step Five: The IRS then sends a mail to both parties known as a “Preliminary Determination Letter”, after they have provided the opportunity for your current/former spouse to respond or take part in this process. The letter then states the decision of the IRS on you or/and your current or former spouse’s “request for relief”. Both parties can still appeal this decision with the IRS Office of Appeals.
Step Six: The IRS then files a “Final Determination Letter” to both parties. The IRS Office of Appeals will issue letters if the other spouse appealed the “preliminary letter”.
Step Seven: Either party is permitted to file an Appeal of the Final Determination Letter to the Tax Court.
Other Relief Types Available To Innocent Spouses
If you are not able to qualify for Innocent Spouse Relief, there are other options that you can try, as long as you qualify. The two main relief types made available to people that are married, include Equitable Relief and Separation of Liability Relief. Both these forms of relief will still require a Form 8857 to be filed initially. Each type also comes with different qualifications requirements.
Why Taxes? Why Now?
"We opened up shop here in the Wylie, Sachse, Murphy area in 2018 with a passion to help start-ups and small businesses get on top of their bookkeeping,” Allen explains.
“What we found was a lot of folks just don’t get the tax game. And now that there are new laws and regulations, many are starting to panic; but trust me, small businesses have everything to gain with the new Section 179 Deductions.
“After filing a few late returns, in that first year, we learned that there is a real need for some tax expertise. We spent a good part of 2018 getting up to speed on tax law, and now I am an Enrolled Agent, federally licensed to practice before the IRS on behalf of my clients and anyone else who may be facing the daunting ‘IRS boogie man.’
“During tax season, we are prepared to handle it all.
For individuals we have helped folks with past-due tax returns and work with the IRS to eliminate all penalties... sometimes we given get rid of the tax debt itself.
For companies the biggest problem businesses of all sizes have is filing and paying their payroll taxes - both state and federal - on time. The rules for 940s and 941s are extremely confusing so we have helped a lot of companies catch up.
If they like our work, they sometimes retain us for bookkeeping and payroll.
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