Introduction To Innocent Spouse Relief

By Tim Vitollo, Clinician, Fall 2005

For married taxpayers, filing joint tax returns often seems like an attractive option because of certain tax benefits. For instance, married taxpayers must file a joint return to receive the Earned Income Credit. However, what many taxpayers do not realize is that filing joint tax returns makes each taxpayer jointly and severally liable to the IRS, meaning that either spouse can be held liable for the entire tax burden, even if the couple has separated or divorced. In some circumstances, Innocent Spouse Relief is available to prevent an “innocent” spouse from being held liable for a tax liability created by the other spouse.

JOINT AND SEVERAL LIABILITY

Joint and several liability in the tax setting means that the IRS can hold either one of the spouses liable for the couple's entire tax burden. For example, imagine that a married couple, Joseph and Laura, file a joint tax return that shows that they owe $2,000 in taxes, but they are unable to pay the tax debt. Even if Joseph and Laura later get a divorce, the IRS could try to make Joseph or Laura pay the entire $2,000.

DIFFERENT TYPES OF RELIEF

There are three different types of relief available under what is referred to as Innocent Spouse Relief: (1) Innocent Spouse Relief; (2) Relief by Separation of Liability; and (3) Equitable Relief.

INNOCENT SPOUSE RELIEF (Available under 26 USC Section 6015(b))

Innocent Spouse Relief is available to a spouse if three conditions are met:

The IRS considers many things to determine whether it is fair or unfair to hold a spouse liable for a joint tax liability, including: (1) whether the spouse received a benefit from the understatement; (2) whether the non-requesting spouse deserted the spouse requesting relief; and (3) whether the requesting spouse and the non-requesting spouse are separated or divorced.

RELIEF BY SEPARATION OF LIABILITY (Available under 26 USC Section 6015(c))

Relief by Separation of Liability is granted if the requesting spouse meets one of the two following requirements: (1) the requesting spouse is no longer married to, or is legally separated from, the spouse with whom the joint tax return was filed; or (2) The requesting spouse was not a member of the same household as the other spouse at any time during the 12 months before the Innocent Spouse Relief request is filed.

Relief by Separation of Liability separates liability so that the requesting spouse is only held liable for the amount for which the spouse should fairly be held responsible. Relief by Separation of Liability will not be granted if the requesting spouse had actual knowledge of the understatement of tax, unless the requesting spouse agreed to sign the return out of fear that the other spouse would retaliate through physical abuse.

EQUITABLE RELIEF (Available under 26 USC Section 6015(f))

If you do not qualify for either of the two previously mentioned types of Innocent Spouse Relief, you may still be eligible for Equitable Relief. The IRS will grant a requesting spouse Equitable Relief if it would be unfair to hold the requesting spouse liable for the tax liability resulting from the joint tax return. The factors considered for determining whether it would be unfair to hold a requesting spouse liable are the same as those considered for determining eligibility for the first type of Innocent Spouse Relief; the only difference is that while the first type of Innocent Spouse Relief is only available to relieve a taxpayer from a liability resulting from an understatement of tax, Equitable Relief is available whether the liability resulted from an understatement of tax or was simply an underpayment of tax.

HOW TO REQUEST RELIEF

You may request Innocent Spouse Relief by sending in a completed IRS Form 8857 and an accompanying statement explaining why you should be granted relief. It is helpful to send in a completed IRS Form 12510 Questionnaire, but it is not required that Form 12510 be submitted with the original request for relief. Sending in Form 12510 with your original request will speed up the process by which the IRS decides whether to grant relief.

HELPFUL DOCUMENTS TO INCLUDE WITH YOUR REQUEST

Supporting documents should be filed with your request. These may include: (1) Form 12510 “Questionnaire for Requesting Spouse;” (2) Copy of a divorce decree or separation agreement; and (3) Affidavits or police reports documenting any spousal abuse that took place. Providing these documents as part of the application will speed up the process by reducing the notice and wait times associated with IRS requests for more information.

STATUTE OF LIMITATIONS

Most importantly, under current law, a request for any type of Innocent Spouse Relief must be made within two years after the IRS begins collection activity. This collection activity might occur in the form of a Notice of Intent to Levy. If you do not file your Innocent Spouse Relief claim within two years of the day the IRS began collection activity, you are automatically disqualified from receiving relief. If you are considering an Innocent Spouse claim, it is important to seek legal counsel to determine the current statute of limitations for filing a claim.

HELPFUL REFERENCE INFORMATION:

IRS Publication 971 -- "Innocent Spouse Relief"
IRS Form 8857 -- “Request for Innocent Spouse Relief”
IRS Form 12507 -- "Innocent Spouse Statement"
IRS Form 12510 -- “Questionnaire for Requesting Spouse”

Please note: The above descriptions of Innocent Spouse Relief are generalizations, and there are many other circumstances that could affect your eligibility for relief. If you think you may be eligible for Innocent Spouse Relief and are eligible for our services, feel free to contact the MSU College of Law Tax Clinic for help with preparing your relief request.