Types of Innocent Spouse Relief
We talked previously about what innocent spouse is and how it works. Now we can discuss the three types of relief you can request. As you can guess by now, nothing is quite so simple when it comes to taxes. I will do my best to guide you through each type. The three types of relief are: (1) Innocent Spouse Relief (2), Separation of Liability Relief, and (3) Equitable Relief. Each type of relief has its own peculiarities and some details have been omitted for brevity’s sake.
Innocent Spouse Relief
Innocent spouse relief is available when you request to be relieved of responsibility for paying any taxes, interest, and penalties related to an erroneous item which resulted due to your spouse’s negligence or malfeasance. In other words, you are seeking to be relieved from a tax debt which is your spouse’s fault.
You will need to show that not only is this tax your spouse’s fault as well as that you had no knowledge or reason to know of the erroneous item giving rise to liability. The knowledge or reason to know requirement often be a problem. If you knew your spouse was up to no good (or should have known) then your chances of getting relief will be slim. That does not mean relief is unavailable, just harder to obtain.
Finally, you will need to show that it is inequitable to hold you responsible for the tax debt. Here the IRS would look at all the facts and circumstances of your situation to see if it would be unfair to hold you liable. Examples of facts and circumstances are (to name a few): your education and business experience, you and your spouse’s financial situation, and the nature of the erroneous item.
If the IRS finds for you then the IRS will relieve you from some or all the taxes related to the erroneous item. So, you won’t necessarily be relieved of any taxes due related to other known tax items – such as properly reported wages, business income and investment income.
A request for this relief must be made within 2 years of collection action by the IRS.
Separation of Liability Relief
Under this type of relief, you are requesting the IRS to allocate (divide) any tax debt related to a joint tax return, where there is an erroneous item of your spouse. The allocation process is a bit complicated. Assuming you had no knowledge of your spouse’s erroneous item(s) then the end result should be an allocation of income and expenses between you and your spouse – similar to you filing a return as married filing separately.
Additionally, unlike other forms of relief, you must be divorced or legally separated within 12 months of your request for relief. You also cannot live together, even if divorced, at the time you are requesting relief.
Like innocent spouse relief, a request for this relief must be made within 2 years of collection action by the IRS.
If you do not qualify for innocent spouse relief or separation of liability, you may request relief under equitable relief. Equitable relief can be sought if you are seeking relief from a joint tax debt due to an erroneous item of your spouse. You can also request equitable relief for an underpayment of tax due to your spouse’s income.
Equitable relief can be quite complicated so I will condense the discussion a bit. Generally, the IRS is going to consider all facts and circumstances of your situation. The IRS usually breaks this analysis down into various factors to consider. For each factor, the IRS will consider your situation and then decide if the factor ends up in your favor, neutral, or negative.
Here is a non-exhaustive list of factors considered.
- Marital status
- Economic hardship
- Knowledge or reason to know of erroneous item
- Non-requesting spouse’s legal obligation to pay taxes
- Significant benefit
- Compliance with tax laws
- Abuse by non-requesting spouse
- Physical/mental health
- Financial dominance by non-requesting spouse
Equitable relief tends to be a bit wishy-washy. The IRS does not have to assign any particular weight to each factor so the outcome can be a bit of a crap shoot. 7 out of 9 factors could favor you but the IRS could still find that relief is not warranted. It can also go the other way as well. It really depends.
Unlike the other two types of relief, you can request relief for up to 10 years after the tax is assessed.
As you may have guessed, each type of relief comes with different requirements. Which one should you pick? It really depends on your situation and often it turns on your financial situation. If you think you may qualify then please give us a call. Our contact details are listed below.
If you find yourself wanting more detail then you can always go to: https://www.irs.gov/businesses/small-businesses-self-employed/three-types-of-relief The IRS does a good job discussing the basics and it is worth a read if you are considering innocent spouse relief.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.