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Innocent Spouse Relief | Do I Qualify? | Insight Law Firm May 13, 2012

Posted by Insight Law Firm in Income Tax, IRS, Tax.
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Can I be heldresponsible for tax debts my spouse incurs? 

Yes.  When spouses file joint tax returns, each spouse is generally joint and severally liable for any tax due that year, including the full amount of taxes due, penalties, and interest.  This means that the IRS may pursue the whole amount due from both spouses or any one of the spouses individually, and your liability can survive divorce.  However, there are forms of relief available.

What if the tax debt is from my spouse or ex-spouse not properly reporting income, deductions, etc.?

Under some circumstances, the IRS may grant “innocent spouse relief” to a spouse or ex-spouse facing liabilities that arose by the other partner failing to report income or taking improper deductions or credits.  IRC § 6015(b).  A party seeking relief as an innocent spouse must demonstrate that:

(1) He/she filed a joint return that understated taxes due to erroneous items reported by your spouse or ex-spouse;

(2) He/she did not know and had no reason to know that there was an understatement of tax when the joint return was signed;

(3) It would be unfair to hold him/her responsible for the understatement of the tax given the totality of the facts and circumstances; and

(4) He/she did not transfer property with the spouse as part of a scheme to defraud the IRS and/or another third party.

What if we later separate or divorce?

Tax liabilities you incur while married will survive your separation or divorce.  However, if you and your partner later separate, you may petition the IRS to separate your liabilities under IRC § 6015(c).  This permits you to abandon your earlier “joint” filing status, distinguish your tax debts from your former partner’s debts, and request the IRS to separate your liabilities accordingly.  A taxpayer can qualify for this “separation of liability relief” only if he/she is divorced, legally separated, or widowed, or if he/she is no longer a member of the same household as the former spouse.

Are there other options if I don’t qualify for relief under IRC  § 6015(b) and IRC  § 6015(c)?

Both of the forms of relief described above have time limitations and other restrictions that not every taxpayer may qualify for.  Taxpayers who do not qualify for relief under 6015(b) or 6015(c) may still seek  “equitable relief” under IRC § 6015(f).  Under this section, the IRS evaluates the individual facts and circumstances of each case and determine whether it is inequitable to hold a spouse liable for an unpaid tax liability.  Factors the IRS will consider in determining whether to grant equitable relief include:

  • whether you have separated from your spouse,
  • whether any divorce decree or separation agreement makes you liable for the debt,
  • whether you benefitted from the understated or underpaid tax,
  • whether you would suffer a significant economic hardship if you were not granted relief,
  • whether you made good faith efforts to comply with tax laws, and
  • whether you knew or had reason to know the tax not be paid.

If you would like to discuss whether innocent spouse relief, separation of liability relief, or equitable relief may help you with a Washington tax attorney, call Insight Law for a free consultation at (206) 397-4780, or click the Tax Lawyer link below to visit our website.

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