How Innocent Spouse Relief Works in Fayetteville, NC: The One Thing You Need to Know

When you sign a joint tax return, both you and your spouse become jointly responsible for any tax debt. However, if discrepancies arise, such as unreported income or false deductions, and you were unaware of these issues, you might be eligible for relief.

Here’s a detailed look at how this process works:

Understanding the Relief Types

Innocent spouse relief offers three distinct types to address different scenarios of joint tax liabilities. Each type has specific requirements and caters to different situations.

Here’s a closer look at each type:

1. Classic Relief (Traditional Innocent Spouse Relief)

Classic Relief is designed for those who find errors on their joint tax returns that they were unaware of and did not cause. These errors might include unreported income, such as a spouse’s hidden earnings from a side job, or incorrect deductions, such as exaggerated charitable donations.

• Eligibility Criteria: You must prove that when you signed the joint return, you had no knowledge of the errors. The IRS also considers whether it would be reasonable for you to have known about the discrepancies.

• Benefits: If granted, you are relieved of the tax debt, interest, and penalties related to the errors.

2. Relief by Separation of Liability

Relief by Separation of Liability allows you to separate the tax liabilities on your joint return that were incorrect due to your spouse’s actions. This type is particularly useful for individuals who are divorced or legally separated.

• Eligibility Criteria: You must be divorced, legally separated, or have been living apart from your spouse for at least 12 months. Proof that the errors were solely attributable to your former spouse is necessary.

• Benefits: This relief divides the tax owed, allowing you to only be responsible for the portion that you legitimately owe, rather than the entire amount due on the joint return.

3. Equitable Relief

When you do not qualify for either of the first two types of relief, you may consider Equitable Relief. This option applies to both understated and underpaid taxes on a joint return.

• Eligibility Criteria: You may qualify if you can demonstrate that, given all the facts and circumstances, it would be unfair to hold you liable for the tax understatement or underpayment. Factors considered include whether you received significant benefits from the unpaid tax, your financial situation and whether you’ve been subject to abuse by your spouse that prevented you from questioning the items on the return.

• Benefits: Equitable relief can cover a wider range of issues and typically involves a case-by-case assessment by the IRS, offering a flexible approach to resolving tax liability issues.

Qualifying for Innocent Spouse Relief

To qualify for any type of innocent spouse relief, applicants must meet specific criteria set by the IRS. These criteria are designed to ensure that relief is granted only to those truly unaware of or uninvolved in the filing errors.

Here’s a more detailed look at the qualifications for relief:

Eligibility Requirements

1. Joint Return: You must have filed a joint tax return with the discrepancies resulting from your spouse’s or ex-spouse’s errors.

2. Error Types: The discrepancies can involve unreported income (income not reported on the joint tax return), incorrect deductions, credits incorrectly claimed, or incorrect reporting of income. The error must have resulted in a substantial understatement of the tax liability (the amount owed is more than was shown on the return).

3. Ignorance of the Error: At the time you signed the joint return, you must not have known, and had no reason to know, that there was an error. The IRS considers whether a reasonable person in similar circumstances would have been aware of the error.

4. Unfair to Hold Liable: It must be unfair to hold you liable for the understatement of tax. This involves consideration of all facts and circumstances. Factors the IRS may consider include:

• Whether you received a significant benefit (beyond normal support) from the understatement.

• Whether you have been deserted by your spouse.

• Whether you and your spouse have been divorced or separated.

• Whether you received a benefit on the tax return from the understatement.

Additional Considerations

• Type of Relief: Depending on the type of relief you’re seeking (Classic, Separation, or Equitable), additional specific criteria may apply. For example, for Relief by Separation of Liability, you must be divorced, legally separated, or have been living apart from your spouse for at least 12 months at the time you apply for relief.

• Abuse Factor: In cases of equitable relief, if you were a victim of spousal abuse and it affected your ability to question the items on the return due to fear of retaliation, this factor might play a crucial role in your qualification.

• Economic Hardship: The IRS also considers whether denying the relief would cause you economic hardship, meaning that paying the tax would prevent you from meeting basic living expenses.

Documentation and Evidence

To support your claim for innocent spouse relief, you should gather and provide as much documentation as possible, including:

• Financial documents showing your income and expenses at the time the tax return was filed.

• Divorce decrees or separation agreements, if applicable.

• Correspondence indicating your lack of awareness of the financial matters handled by your spouse.

• Any relevant documentation related to spousal abuse, if applicable.

Application Process

To apply for relief, you need to file Form 8857, Request for Innocent Spouse Relief. You should file as soon as you become aware of a tax liability that might qualify for relief. The IRS will then review your application, considering all factors involved, and determine if you qualify.

What Happens Next?

After submitting your application, the IRS will contact you and may request additional information. They will also inform your spouse or former spouse that you have applied for this relief, giving them a chance to provide information on their behalf.

If the IRS approves your application, you will be relieved of the tax debt related to your spouse’s errors. If denied, you have the right to appeal the decision.