619-795-8000Southern California Innocent Spouse Tax Relief Attorneys
If You Were Left With A Spouse’s Tax Debt, We Offer Help With Innocent Spouse Relief
When you file a joint return with your spouse, you become jointly (together) and severally (as an individual) liable for any tax owed to the IRS that year. The IRS is authorized to come after you personally to collect the tax, even if the unpaid tax is entirely attributable to your spouse or former spouse. This can be especially disastrous if you have been abandoned and are now responsible for paying the entire tax bill.
Fortunately, there are special provisions in the Internal Revenue Code (Innocent Spouse provisions) that provide relief for spouses who filed a joint return yet don’t believe they should be held responsible for a tax bill.
What Is Innocent Spouse Relief, and How Does It Work?
Innocent Spouse Relief is a provision that may relieve you of responsibility for tax, interest, and penalties if your spouse or former spouse reported erroneous items on a joint tax return. Under IRS rules, erroneous items can include unreported income, incorrect deductions or credits, or improperly stated asset values. Ordinarily, when you file a joint return, both parties are jointly and severally liable, meaning the government can collect the entire tax debt from either or both of you. If you are granted relief, the government effectively erases your legal connection to that specific debt and pursues only your spouse for the portion of the tax caused by their errors or hidden income.
FAQ: Facts About Innocent Spouse Relief
What are the specific requirements to qualify for this relief?
To qualify for Innocent Spouse Relief, you will need to meet several strict criteria. First, you must have filed a joint return that contains an understatement of tax directly attributable to your spouse’s errors or untruths, such as unreported income or fake deductions. Most importantly, you must establish that when you signed the return, you did not know, and had no reason to know, that the tax was understated. Whether you had “reason to know” is a fact-specific determination based on the circumstances at the time, and it does not automatically disqualify you simply because you signed a joint return. You must also file Form 8857 within 2 years after the IRS first began collection activities against you for the understated tax. Finally, the IRS must determine that it would be unfair to hold you liable due to these facts, including if they believe you received a significant financial benefit when the taxes were not paid in full.
What is the difference between “Innocent Spouse” and “Injured Spouse” relief?
These two situations are frequently confused, but they are different. Innocent Spouse Relief applies to tax debt you believe you should not owe, while Injured Spouse Relief applies when your portion of a tax refund is taken. Innocent Spouse Relief is the process used when you are facing tax liability because of your spouse’s errors or untruthful reporting on a joint return. Injured Spouse Relief applies when you file a joint return, and your share of the refund is seized or offset to pay your spouse’s separate, past-due debts, such as child support, student loans, or taxes from years before the marriage. Injured Spouse Relief allows you to recover your portion of the refund and applies only to refund offsets, not to relieving tax liability on a joint return.
Can I get relief if I am divorced or separated?
Yes, if you are divorced, legally separated, widowed, or have not lived with your spouse for the full 12-month period prior to filing Form 8857, you may qualify for separation of liability relief, which allocates the understatement of tax based on your and your spouse’s incomes and expenses. Under this rule, the IRS divides the understated tax between you and your former spouse based on who earned the income and who claimed the deductions. To qualify, you must be legally divorced, widowed, or have lived apart for an entire twelve-month period before you filed your request. This ensures that you are only responsible for the portion of the tax that is actually yours.
What does the IRS mean by “no reason to know” in a tax error?
This is a high legal standard. The IRS considers both actual knowledge and whether you had reason to know of the error under a reasonable person standard, meaning whether a reasonable person in a similar situation would have identified the understatement. This analysis is fact-specific and looks at multiple factors together, including your level of education, your involvement in family finances or a business, and whether there were unusual expenditures that should have suggested unreported income.
Having an advanced degree or serving as the primary bookkeeper may be considered as part of this analysis, but these factors are weighed in context and are not automatic disqualifiers when determining whether you had reason to know of an error on the return.
Is there a deadline for filing an Innocent Spouse Relief request?
Usually, you must file the request no later than two years after the date the IRS first began collection activities, such as issuing a Notice of Intent to Levy a bank account or garnish wages. However, for Equitable Relief, the most flexible category of relief, the deadline can vary depending on the circumstances and may be tied to the IRS’s ten-year statute of limitations on collection, rather than a fixed two-year window. Because these deadlines differ based on the type of relief available, it is vital to act as soon as you become aware of the tax debt.
What is “Equitable Relief” and when is it used?
Equitable relief is available when you do not qualify for innocent spouse or separation of liability relief, and when, taking all facts and circumstances into account, it would be unfair to hold you responsible for the unpaid or understated tax. The IRS considers several factors, including whether you timely filed Form 8857 and whether the liability arose from your spouse’s actions without your knowledge.
What happens after I apply for Innocent Spouse Relief with the IRS?
Once you submit the paperwork, the IRS is legally required to contact your spouse or former spouse and notify them. They have the right to participate in the process and provide their side of the story, which can add stress when a contentious divorce is ongoing. The IRS generally needs at least six months to review the financial records and information provided by both parties. While the IRS reviews your Form 8857, collection activity for the year for which you are requesting relief is generally suspended. However, the IRS may continue other collection actions, interest and penalties continue to accrue, and relief is not guaranteed until the IRS makes a determination.
Do I need a lawyer to file an Innocent Spouse claim?
Applying for Innocent Spouse Relief is difficult and can be contentious. The IRS must notify your spouse, who could actively fight against your claim to try to avoid being stuck with the tax bill themselves. A tax attorney is essential for building a legal and factual argument that proves you were excluded from financial decisions or were a victim of financial infidelity (when the spouse has lied about money, has hidden financial information, or has been involved in hidden financial activities, breaking the trust of the marriage. While you do not need a lawyer to file Form 8857, technical tax guidance can be valuable because of the complexity and strict procedural requirements of innocent spouse cases. An attorney also ensures that you apply for the correct type of relief and can handle the complexities of community property laws, which can automatically make you liable for a spouse’s income in certain states.
Do You Need To Be Divorced For Innocent Spouse Relief?
Rarely are Innocent Spouse cases restricted to only divorced couples. That was the case when our client came to us with a huge tax bill that had exploded into $100,000 of money owed to the IRS because her spouse, who became her ex-spouse after the tax return was signed. The IRS had started garnishments and levies against our client. We were swift in our strategy and were able to achieve Innocent Spouse Tax Relief and reduce the bill to nearly half of the huge debt the agency had been demanding.
Instead of merely setting up a reasonable payment plan for our client, we saw an opportunity to mitigate the tax bill and fought hard to get to the best final number given the circumstances. Now our client can move on with her life without her ex and with a reduced, more manageable financial situation.
We Advocate For Our Clients In Innocent Spouse Relief
While special relief is an option under the tax laws, it is important to have the assistance of a qualified Southern California tax lawyer to support you with an innocent spouse claim. The innocent spouse provisions require a thorough and in-depth analysis of the facts and circumstances surrounding your claim, and these facts must be applied to the law to formulate a legal argument as to why you should be given relief under the Internal Revenue Code.
Failure to apply the facts to the law as required by the tax laws can lead to a denial of your Innocent Spouse claim. Also, a qualified tax lawyer is trained to anticipate and respond to any counterarguments that your spouse (or former spouse) might make regarding your innocent spouse claims.
Dallo Law Group is trained and experienced to handle your innocent spouse claim. Contact us at (619) 795-8000 for a consultation today!