Innocent Spouse Relief – What Is It?
What is Innocent Spouse Relief?
Before getting into what innocent spouse relief is, let’s start with the problem innocent spouse relief is supposed to solve.
When a married files a joint return, both are agreeing to be jointly liable for the tax debt. This means both are in legal terms jointly and severally liable. The IRS can then pursue you both for each other’s tax debts and can decide however it wants on who to collect it from.
This is true even if one of you dies, you get divorced, or a later audit turns up that your spouse failed to report income. For that reason, innocent spouse exists to prevent an inequitable result. If it would be unfair to collect your spouse’s tax liability from you then innocent spouse relief is available.
In short, innocent spouse relief is an IRS program which prevents a spouse’s bad acts or negligence from becoming a hardship on the – you guessed it – innocent spouse. In later posts we will discuss innocent spouse relief in more detail so don’t worry if this does not make complete sense right now. All you need to know is that the IRS has (3) different programs for obtaining relief from a joint tax debt.
Maggie’s Story i.e. Why Do We Need Innocent Spouse Relief
Let me give you an example of a case we have handled to give you an idea why innocent spouse relief is so important.
Maggie, not her real name of course, came to us while her divorce was pending. Her divorce attorney asked her to call us to go over her tax situation. While her divorce was pending, the IRS was in the process of auditing two prior tax years. By the time she came to us, she had two bills in hand from the IRS totaling about $500,000. Wow. All of the taxes due were related to her husband’s numerous businesses.
During the marriage, Maggie took care of the kids and did not get involved in her husband’s finances. She had no idea that when she signed her tax returns that she was signing a ticking time bomb. I doubt very much she would have signed those returns if she knew then what she knows now.
Without innocent spouse relief, she will be just as liable as her husband – the not so innocent party. While she had some money she saved up and a piece of real estate, it was no where near enough to pay these tax bills in full. Without innocent spouse relief she would be on the hook for it all. Now she has a chance to get relief from her husband’s tax debt.
I would like to say Maggie’s case is completely resolved but I can say that at this point all signs point to a very good outcome for her. Hopefully, I can do a full case study at some future date.
How to Avoid Joint Liability
I want to end with just some suggestions on how to avoid or mitigate this joint liability trap that comes with filing a tax return with your spouse. Here are some things to keep in mind to either avoid or mitigate against joint liability with your spouse.
First, there is no requirement to file a joint return. You are always free to file separately. While getting a divorce you should certainly think long and hard before filing a final joint return together. Additionally, you may want to file separately during your marriage if you have any concern about your spouse’s taxes. For example, if your spouse can’t pay their estimated taxes or you suspect he or she may not be honest about their income or expenses.
Second, if you do find yourself on the hook for a joint tax liability, you can request innocent spouse relief usually within 2 years of when you become aware of the problem. While we will go into more detail about the types of relief available to you, keep in mind that there are time limits in some cases so you should consider innocent spouse relief as soon as possible after you become aware of an issue.
Finally, even if you do not qualify for innocent spouse relief, you may qualify for other tax resolution options. You could potentially qualify for settling your tax debt with the IRS (called an offer-in-compromise). That is just one option but that may offer a solution to solve your tax problem once and for all.
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.