Innocent Spouse Relief – What is Required?
In my previous post, I discussed innocent spouse relief in broad outlines. In this post, I explain what are the foundational requirements.
Innocent spouse relief is not granted merely for convenience or a matter of equity between two married (or divorced) taxpayers. Instead there has to be something unfair about holding you responsible for the joint tax liability. You either were unaware of an erroneous item on the tax return (explained later) or there is an unpaid tax debt related to a joint return (related to your spouse or ex-spouse’s income) and it would be unfair to hold you personally liable (we call this an equitable relief request).
Before we go further, there are three types of relief granted under the umbrella of innocent spouse relief. I will explain more in later blog posts. Just understand that if your situation isn’t the result of an erroneous item or an unpaid tax liability then you won’t qualify at all.
What is an Erroneous Item?
An erroneous item is simply an understatement (meaning you reported less than required) on a tax return. This understatement can result from either unreported income or an improper credit or deduction claimed by your spouse or ex-spouse.
I don’t think I need to go into detail about unreported income. It really speaks for itself. Improper credits or deductions require a bit more. Here are some example of such erroneous items:
- The expense was never paid. For example, your spouse claimed $10,000 in advertising expenses for his business but he never actually paid for advertising.
- The expense is not deductible. For example, your spouse claimed $5,000 as an expense for professional fees but which were actually a state fine; fines are not deductible under the tax code.
- The expense has no factual basis for deduction. For example, your spouse claimed $4,000 for security costs related to a home office but which were actually veterinary and food costs for the family’s pet dogs.
If you cannot show that there is an erroneous item, all is not lost. You can still claim relief if you have an unpaid tax liability.
Relief for an Unpaid Tax Liability.
An unpaid tax liability is not generally grounds for innocent spouse relief. To qualify, you must show that any unpaid tax on the joint return resulted from your spouse (or ex-spouse’s) income and it would be unfair to hold you personally liable. The IRS uses a series of factors to determine your eligibility. I won’t go into all the details but here is a non-exhaustive list of the factors:
- Marital Status – are you still married or divorced from your spouse?
- Economic Hardship – will payment of the taxes cause you a substantial economic hardship?
- Knowledge or Reason to Know – did you have knowledge or reason to know of the underpayment of taxes?
- Abuse by your spouse (or former spouse) – were you a victim of domestic abuse?
- Legal Obligation – is your spouse or ex-spouse legally obligated under state law to pay the taxes (i.e. is there some agreement assigning the debt to one or another spouse?)
- Significant Benefit – did you receive a significant benefit due to the taxes being unpaid?
- Compliance With Income Tax Laws – since the time the joint return has been filed, have you made a good faith effort to file and pay your taxes on time?
- Mental or Physical Health – what is your current health and health at the time the return was prepared?
In the next post, we will discuss in detail innocent spouse relief (the actual program versus the umbrella description). For now, just understand that you will only qualify for relief if you have an erroneous item attributable to your spouse or ex-spouse or an unpaid tax liability related to your spouse’s or ex-spouse’s income.
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 IRS tax problems, 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.
James D. Wade, Esq.
Law Office of James D. Wade
57 Portland Road, Unit 3
Kennebunk, ME 04043