What Qualifies for Innocent Spouse Relief?

Eligibility criteria for innocent spouse relief

There are strict requirements to qualify for innocent spouse relief, regardless of the type. You may be eligible for innocent spouse relief if the following are true:

• You filed a joint tax return with your spouse.
• Your taxes were understated, you have unreported income, or there were incorrect deductions, credits or values on your tax return.
• You were unaware of the errors.
• You have not signed an offer in compromise with the IRS.
• You have not signed an IRS closing agreement for the same taxes.
• A court has not already made a final decision denying relief.
• You were a party to a related court proceeding in which you failed to seek relief.
• You must live in a community property state, including the following states:
  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Note that this tax relief applies only to taxes for your spouse’s employment or self-employment income. It does not apply to the following taxes:

• Your personal income
• Household employment taxes
• Business taxes
• Individual shared responsibility payments
• Trust fund recovery penalties for employment taxes

An exception may apply if you knew about the errors but were a victim of spousal abuse or domestic violence at the time of filing. If you were pressured, afraid or threatened, the IRS may not hold you responsible for your spouse’s tax liability.

“The primary considerations of the IRS are whether you filed a joint return, whether you were unaware of the mistake or fraud on the return, and whether holding you liable would be unjust,” said Shane Lucado, CEO of InPerSuit, which helps connect people with attorneys.

Types of spousal relief available

There are multiple types of innocent spouse relief, and which you should apply for depends on your specific situation.

Separation of liability relief

Separation of liability relief applies when you have back taxes from a joint tax return, but you are now legally divorced, separated or widowed, or have not lived with your spouse for at least 12 months from the date of your request.

If your spouse understated your taxes on your joint tax return, you may only be held responsible for your portion of the debt. This does not necessarily mean an even split, as the IRS considers each spouse’s financial situation, including income and assets, before determining individual liability.

“Separation of liability relief allows the tax debt to be divided between spouses based on the portion each incurred,” Weisberg said. However, he warned, “The portion of the tax incurred must clearly be explained.”

You will not receive any refunds for taxes that have already been paid. Additionally, it does not apply to any property you own jointly with your spouse.

Equitable relief

If your spouse understated or underpaid your joint taxes, equitable relief may apply if you were unaware. This can include unreported income, ineligible taxes or deductions taken on your joint return.

“Equitable relief is considered a 'do-over' from the IRS when things were primarily your spouse's responsibility,” Lucado explained.

However, this only applies to taxes on your spouse’s income and assets. Equitable relief generally does not apply to your personal income and assets except for specific situations. This includes victims of spousal abuse and those living in a community property state.

You must be legally separated, divorced or widowed, and you must have maintained separate households for at least 12 months prior to your request for relief. Those who were married at the time of filing but filed separately may be eligible for relief if they are in a community property state.

Relief from liability for tax attributable to an item of community income

Another type of tax forgiveness is relief from liability for tax attributable to an item of community income. If your income was understated on your joint tax return but you did not know at the time of filing, you may be eligible for tax relief.

You must be currently separated or divorced. You may also be eligible if your spouse deserted you. However, you must live in a community property state to qualify for this particular relief type.

Several income types are included under relief from liability for tax attributable to an item of community income:

• Salaries, wages and other compensation your former partner received as an employee
• Income belonging to your former partner under the community property law that you were not aware of
• Income from your former partner’s separate property
• Your former partner’s distributive share of partnership income
• Income that your former partner received from a trade or business they operated as a sole proprietor

You must file for relief at least six months before your former partner’s period of limitations on assessment expires. If the IRS examines your tax return during that time, you are required to request relief within 30 days of receiving the IRS letter.

If approved, any outstanding fees and penalties will be divided between you and your spouse or former partner, with the IRS assigning you each a specific amount to pay.

Injured spouse relief

Injured spouse relief is another type of innocent spouse relief. With this, you can receive a refund for payments you made to the IRS to settle your spouse’s debts.

If you filed a joint tax return with your spouse but were unaware of your spouse’s outstanding debt, the IRS may award you a refund for any taxes you paid. These debts can include:.

• State income tax
• State unemployment compensation debts
• Past-due child support
• Debts to federal agencies

You may be eligible if you were married and filed separate returns in a community property state.

How to apply for innocent spouse relief

Most types of innocent spouse relief follow the same application process.

1. Follow the instructions in your IRS notice.
2. As soon as possible, complete and submit Form 8857, Request for Innocent Spouse Relief. You must file within two years of the date on your IRS notice.
   • Injured spouse relief has different requirements, so you need to file a different tax form, Form 8379. This must be done within three years of the tax return’s date or within two years of the payment date, whichever is later.
3. The IRS will review your request.
4. If your request for innocent spouse relief is approved, you will receive a Notice of Offset from either the IRS or the U.S. Treasury's Bureau of the Fiscal Service.

“Taxpayers will typically qualify for one form of relief but can qualify for two out of the three categories,” Lucado said.

He gave an example: “If you are divorced, widowed or legally separated from your spouse and you want to divide the tax liability, you may be eligible for separation of liability. If you don’t qualify for innocent spouse relief and either missed the two-year window to request relief or have unqualified tax debt, you may be eligible for equitable relief.”

In all, the process can take eight weeks or longer to reconcile. Be sure to file and pay your taxes in the meantime to avoid any further tax debt.

Factors affecting the IRS decision

When reviewing your innocent spouse relief application, the IRS considers several factors before making a decision on unpaid or underreported tax, including:

• Your marital status
• Both parties’ financial situation, including any economic hardship
• The amount of debt compared to other income
• Your educational background and business experience
• Your mental and physical health
• Your involvement in filing taxes and household financial matters
• Changes in your spending habits

Both spouses on the tax return have the opportunity to participate in the review process.

“If you’re requesting innocent spouse relief, you should be aware (that) the IRS will inform your ex-spouse that you filed a request for relief,” Lucado warned, “even if there is a restraining order or you’re in a no contact order.”

The IRS will consider any additional information supplied by you and your spouse or former partner before making a decision.

“Documentation is your best friend,” Lucado advised. “Collection of letters, emails, bank statements, loan forms with signatures; anything that can help prove who knew what and when, (and) who was responsible for the bills. Literally, proof you didn’t open the mail you both received together can help you win your case.”

Over 90% of these cases “come down to proof,” he said.

Appealing a denial of relief

If you disagree with the preliminary determination letter from the IRS, you have 30 days from the date on the letter to file an appeal. This form can be completed for either your personal relief or your spouse’s relief.

“Many claims are denied initially but later approved on appeal,” said Weisberg, of The W Tax Group.

To appeal, complete and submit Form 12509, Innocent Spouse Statement of Disagreement, detailing your information in chronological order with specific dates. The correct mailing address will be supplied on your determination letter; do not mail your form to the Independent Office of Appeals, as it may cause processing delays.

If your request is denied and you disagree with the decision, you have the option of petitioning the United States Tax Court. This must be done within 90 days of the date of your final determination letter.

You may also petition the court if you do not receive a final determination letter from the IRS within six months of filing your request.