Innocent Spouse Relief: Everything You Need to Know

Are you divorced?

During your marriage, you and your former spouse probably filed a joint tax return. This makes both parties liable for each other’s taxes, interest, and penalties. If the IRS audits your joint filing and discovers unpaid taxes, you AND your ex-spouse are technically responsible for paying off those taxes, plus interest, as well as any handling additional penalties. This is called joint and several liability.

But what if you aren’t responsible for the entire tax liability? Rather than getting punished with wage garnishment, federal levies on your property and assets, and offsets on future tax refunds, you may qualify for relief of liability for all or a portion of the tax, interest, and penalties on your joint income tax return.

Many divorced spouses get penalized for their ex’s tax delinquencies on a joint return(s) filed during their marriage. This tends to create confusion as to who’s responsible for these debts, which is why we explain the three types of relief available below.

What Is Innocent Spouse Tax Relief?

Innocent spouse relief is a type of relief you may request if you believe you are not responsible for your current or former spouse’s tax debts and penalties reported on your joint tax return. In regard to divorce, both spouses are responsible for the taxes due, even if a final divorce judgment states otherwise.

If you filed a joint tax return, both you and your spouse are responsible for the unpaid taxes and any interest or penalties due on the return. However, you may qualify for relief from some, or all, of the tax, interest, and penalties relating to a tax bill issued to you and your spouse (or former spouse).

Types of Innocent Spouse Relief

Relief from the joint and several liability of a joint return can occur in 1 of 3 ways: Innocent spouse relief, separation of liability relief, and equitable relief. You can discuss with your lawyer which method of relief best suits your situation.

What Qualifies for Innocent Spouse Relief?

Innocent spouse relief provides you relief from additional taxes you owe as a result of your current or former spouse’s failure to report income, improperly reported income, or improper claims on deductions or credits. This method of relief only applies when your taxes for a particular year were understated and thus lead to tax debt. By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse did something wrong on your tax return.

To qualify for innocent spouse relief, you must meet all of the following criteria:

  • You filed a joint return that has an understatement of tax that's solely attributable to your spouse's erroneous item. An erroneous item includes income received by your spouse but omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they're incorrectly reported on the joint return
  • You establish that at the time you signed the joint return you didn't know, and had no reason to know, that there was an understatement of tax and
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax

What Is Separation of Liability Relief?

Separation of liability relief allows for you and your spouse or ex-spouse to pay the amount of tax allocated to you. The process essentially allocates any additional taxes, interest, and penalties on a joint return between you and your spouse, making both parties responsible for handling their allocations. Refunds are not available under this type of relief.

As such, you must have filed a joint return and meet only ONE of the following criteria at the time you request separation of liability relief:

  • You're divorced or legally separated from the spouse with whom you filed the joint return
  • You're widowed, or
  • You haven't been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you request relief
  • You did not know what caused the understatement of taxes at the time you signed the joint return unless you can show that you signed the return under duress

How Do You Qualify for Equitable Relief?

If you don’t qualify for innocent spouse relief or separation of liability relief, equitable relief may be available to you. To qualify for equitable relief, you must prove that under the facts and circumstances, it would be unfair for you to be liable for the deficiency or underpayment of tax. Other general requirements you must meet include, but are not limited to:

  • You are not eligible for innocent spouse relief or separation of liability relief
  • You filed a joint return for the tax year(s) at issue
  • You timely filed your claim for relief
  • You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner
  • Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax
  • You did not knowingly participate in the filing of a fraudulent joint return

Keep in mind that this is not a comprehensive list of the eligibility criteria for equitable relief. As discussed before, we urge you to speak with a lawyer about the types of relief available to you under your unique circumstances. Our Putnam County lawyers are available to answer any questions you may have regarding your innocent spouse relief options during and after your divorce.

Make an appointment to speak with us by going online or by calling (845) 605-4330!

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