Everyone has secrets. Most secrets are innocent enough, but there is nothing worse than discovering your loved one has a terrible secret — like your spouse engaging in illegal financial activity, the result of which has left you facing the penalty of paying back taxes.
Sadly, money issues make up for roughly 22% of divorces. This is why there are many options for avoiding paying for your spouse’s or former spouse’s mistakes or illegal activity.
Innocent Spouse Relief is the most common form of tax relief in these situations. Keep reading to find out who can file for Innocent Spouse Relief and how it can help you avoid paying substantial amounts of back taxes.
What is Innocent Spouse Relief?
Innocent Spouse Relief applies when your spouse incorrectly filed your joint tax return. Because the tax returns were filed jointly, the IRS can garnish the wages of both you and your spouse.
If your application for Innocent Spouse Relief is approved, the IRS will only collect past due taxes from your current or former spouse.
There are still some taxes that the Innocent Spouse Relief cannot prevent the IRS from collecting, such as:
- Individual Shared Responsibility payments
- Household employment taxes
- Business taxes
- any other taxes the IRS states are not included in the relief
The IRS will assess your tax liability situation and determine which taxes qualify for relief and which do not.
Who Can File Innocent Spouse Relief?
Whether you are currently married, separated, or divorced, you might qualify for Innocent Spouse Relief. However, there are certain criteria that need to be met.
You must have filed the tax return jointly the year the debt was incurred. In addition to not having first-hand knowledge of the items which caused the debt, you must also not benefit from those items, even if you were unaware that the benefits came from said items.
When reviewing the application, the IRS will take everything into consideration to determine if it is fair to collect taxes from you in addition to your spouse. This may include any provisions in your divorce decree that state who is responsible for back taxes.
It is important to note that the IRS is not obligated to honor the divorce decree. While you may take your spouse to court for violating the decree, the IRS can still collect taxes from you if you have not been approved for Innocent Spouse Relief.
How to File for Innocent Spouse Relief
In order to begin the process for Innocent Spouse Relief, you will need to fill out Form 8857: Request for Innocent Spouse Relief. The form will allow you to provide the evidence and details of your case.
It would behoove you to pay particular attention to part VI. This is where you can provide a narrative; it is a place for you to tell your side of the story. Providing a well-crafted and detailed narrative substantiates claims with evidence while providing context for the IRS to see the whole picture. This is where you can explain how paying the back taxes will place you in significant financial hardship, or the context of how you were unaware of the debt.
If you have been notified by the IRS of your wages being garnished to pay for tax debt, you may appeal in court and file for Innocent Spouse Relief through that route.
Other Forms of Spousal Relief
Proving you had no knowledge of the items that created the debt or that you didn’t benefit from those items is the most difficult part of applying for Innocent Spouse Relief. Not adequately providing evidence to create reasonable belief can lead to the IRS denying your Innocent Spouse Relief application.
However, there are options if you have been denied Innocent Spouse Relief.
Separation of Liability Relief
If the IRS denies your request for Innocent Spouse Relief, you may qualify for Separation of Liability Relief.
To qualify, you must prove that you are divorced, legally separated, or have not been living together for at least 12 months. You will not need to provide evidence that you have no knowledge of the items causing debt.
You will need to provide evidence that any property transferred to you from your spouse was not for the purposes of avoiding taxes. Exceptions to this are when properties are transferred due to divorce decrees or other legal arrangements like maintenance agreements.
If you do not qualify for Innocent Spouse Relief or Separation of Liability Relief, you may be eligible for Equitable Relief. In fact, the first criteria for qualifying for Equitable Relief is being denied by the other two.
This is where the IRS will really consider your own personal financial situation, your divorce decree, and if you have shown good faith to follow tax laws for the year you are requesting relief.
A significant factor the IRS considers is whether paying the tax owed will place significant financial hardship on you. If this is the case, the IRS may approve your application and relieve you of any obligation to pay taxes for that year.
Calling in the Professionals
The best advice when facing an extraordinary tax situation is to hire a professional tax consultant to assist with proper proceedings. Firms like Fiscal Solutions Group can assist you with your tax debt, debt forgiveness, and payment plans with our dedicated team of experts.
Divorces are messy to begin with, and there is no need to complicate them further with the stress of your spouse’s illegal activities. Currently married, divorced, or separated people are the most common filers for Innocent Spouse Relief. The IRS understands that paying tax debt can place you in significant financial hardship, and the fault for the tax debt may not even be yours.
To find out how you can benefit from Innocent Spouse Relief, fill out our contact form and let our team of experts assess your financial needs today!