Relief for innocent spouses. An innocent spouse can elect to seek relief from liability for a tax understatement attributable to the other spouse's erroneous tax items, such as unreported income or disallowed deductions. To qualify, you must show that you didn't know about the understatement and that there was nothing that should have made you suspicious. In addition, the circumstances must make it inequitable to hold you liable for the tax. This relief is available even if you are still married and living with your spouse.
Election to limit liability. In some cases, a spouse can elect to limit liability for any deficiency on the joint return to that spouse's allocable portion of the deficiency. The election can be made only if the spouses are no longer married (divorced or widowed), are legally separated, or lived apart for the 12 months before the election was made.
If you make the election, the tax items that gave rise to the deficiency will be allocated between you and your spouse as if you had filed separate returns. For example, you will generally be liable for the tax on any unreported wage income only to the extent that you earned the wages.
The election won't provide relief from your spouse's tax items to the extent that IRS proves that you actually knew about those items when you signed the return, unless you can show that you signed the return under duress. Also, the limitation on your liability is increased by the value of any assets that your spouse transferred to you for the purpose of avoiding paying the tax.
If you do not qualify either for so-called innocent spouse relief or to limit your liability for taxes to the amount attributable solely to your own income, deductions, and credits, you may qualify for what is known as “equitable relief.” This is relief that the IRS can grant when relief is not available under the other two provisions, and it includes relief from liability for taxes that were reported on your joint return but haven't been paid.
There are quite a few requirements to qualify for this relief. If the basic conditions are met, relief ordinarily will be granted if the tax liability reported on the joint return was unpaid when the return was filed; you are no longer married to or are legally separated from the spouse with whom you filed the joint return (or have not been a member of the same household as him or her at any time during the 12 months before requesting relief); when you signed the return, you didn't know or have reason to know that the tax wouldn't be paid and it was reasonable for you to believe that the tax would be paid by your spouse; and you will suffer economic hardship if relief isn't granted. In general, economic hardship exists for this purpose if IRS's failure to grant relief or partial relief would cause you to be unable to pay reasonable basic living expenses, taking into account a wide variety of your personal circumstances.
Even if you don't meet every one of these conditions, relief may be available as long as you meet the basic threshold requirements. In this case, the IRS will weigh all of the factors both in favor and against granting you relief in deciding whether it would be inequitable to hold you liable for the unpaid tax or deficiency.
Electing relief. In order to obtain relief under any of the above provisions, you must make a timely election on IRS Form 8857, Request for Innocent Spouse Relief (And Separation of Liability and Equitable Relief) and attach a statement to the return describing why you qualify for relief. You can make the election up to two years after IRS begins trying to collect the tax from you.
Whether, and to what extent, you can take advantage of the above relief provisions depends on your own particular facts and circumstances. If you would like to confer on whether these provisions apply in your individual situation or have me request relief for you, do not hesitate to call.
