Sometimes, marriage can stymie the financial life of even the savviest person. You go along living your life, working, eating, sleeping — and suddenly you discover that your household paid far too little in taxes. What’s worse, you signed the joint return. Now what?
You can request innocent spouse relief to walk away from paying tax, interest and penalties. Your spouse or former spouse has to pay. But innocent spouse relief only applies to individual income or self-employment taxes. Household employment taxes, individual shared responsibility payments, business taxes and trust fund recovery penalties for employment taxes are not eligible for innocent spouse relief.
When Do You Qualify for Innocent Spouse Relief?
- You filed a joint return with an understatement of tax because of erroneous figures that your spouse put in.
- You didn’t know and had no reason to know that there was an understatement of tax.
- It would be unfair to hold you liable for the mistake, because you knew nothing about it.
- Neither you nor your spouse has transferred property to the other as part of a fraudulent scheme.
What Kind of Erroneous Figures Cause These Problems?
- Unreported Income
Any gross income item received by your spouse or former spouse that’s not reported. - Incorrect deduction, credit or property basis.
When you file for relief, you will be asked, did you have reason to know or have actual knowledge of the understatement, or would a reasonable person in similar circumstances have known about the understatement? This is often the hardest point to prove.
IRS Considerations
The IRS says it considers all the facts and circumstances in determining whether you had reason to know of an understatement and typically takes the following into account when assessing a case:
- The nature and amount of the erroneous item.
- Your financial situation and that of your spouse or former spouse.
- Your educational background and business experience.
- The extent of your participation in the activity that resulted in the erroneous item.
- Whether you failed to ask at or before the return was signed about items on the return or omitted from the return that a reasonable person would question.
- Whether the erroneous item represented a departure from a recurring pattern reflected in prior years’ returns, such as an omitted income from an investment regularly reported on prior years’ returns.
What the IRS Considers
The IRS says it considers all the facts and circumstances in determining whether you had reason to know of an understatement.
The following are typical items that the IRS considers when making their decisions:
- The nature and amount of the erroneous item.
- Your financial situation and that of your spouse or former spouse.
- Your educational background and business experience.
- The extent of your participation in the activity that resulted in the erroneous item.
- Whether you failed to ask at or before the return was signed, about items on the return or items omitted from the return, that a reasonable person would question.
- Whether the erroneous item represented a departure from a recurring pattern reflected in prior years’ returns, such as an omitted income from an investment that has been regularly reported on prior years’ returns.
Additional Factors that Can Affect the IRS’s Decision:
- Whether you received a significant benefit directly or indirectly from the understatement.
- Whether your spouse or ex-spouse deserted you.