Understanding Innocent Spouse Relief

For married couples, filing a joint tax return may provide them with certain financial advantages they otherwise would not receive if they filed separately or single. However, filing a joint return may also increase one’s liability in the event that a mistake is made in a return because the IRS will hold both parties equally responsible for the tax and any applicable interest and penalties. Therefore, if the IRS determines that there were inaccuracies made on a jointly-filed tax return, both spouses can legally be held mutually and individually liable, regardless of whether the errors occurred accidentally or intentionally.

There have been many cases where the IRS held one spouse responsible for all of the tax liability, including penalties and interest, even when it was the other spouse who earned all or most of the income. This mutual accountability may feel like an unreasonable and undeserved burden for spouses with no knowledge or control over the family finances, or for those who played a minor role in preparing the joint tax return(s).

In such instances, the blameless spouse (or former spouse) may qualify for tax relief. The IRS provides three ways or grounds for an individual to seek relief that may excuse him/her from whole or partial individual tax liability:

Innocent Spouse Relief: The taxpayer will be relieved of all responsibility for paying the tax, interest, and penalties, if it can be proven that the mistakes made on the joint tax return are exclusively the spouse’s fault. The taxpayer must also prove that it would be unfair to hold him/her liable for the understatement of the tax, and that at the time of filing, the taxpayer did not know and had no reason to know that the spouse had:

  1. Failed to report income;
  2. Understated income;
  3. Underpaid taxes; and/or
  4. Claimed improper credits or deductions

Separation of Liability: Each spouse will be held responsible for his/her own portion of the tax and any applicable interest and penalties, provided that certain conditions are met.

Equitable Relief: The taxpayer may qualify for Equitable Relief if he/she does not meet the conditions for Innocent Spouse Relief or for Separation of Liability. In previous years, the IRS required that the taxpayer apply for Equitable Relief within two years of the filing of a tax return. However, in light of the fact that in many cases the taxpayer does not become aware of any mistake until long after the two-year deadline has passed, the taxpayer may now request Equitable Relief at any time before the statute of limitations expires. The IRS may consider any the following factors for granting Equitable Relief:

  1. Whether the taxpayer was aware that the spouse used the money to pay non-tax debts;
  2. The taxpayer’s education and/or business experience;
  3. The taxpayers’ economic situation;
  4. The extent of the taxpayer’s involvement with inaccuracies in the filed tax return; and/or
  5. What portion, if any, of the unreported tax remains unpaid

Get Our Help Today

If you believe you qualify for tax relief based on any of these conditions, please contact McKellar & Easter, Attorneys at Law, for a free case evaluation. We handle a variety of tax-related issues, including those related to innocent spouse relief.

To schedule a free initial telephone consultation with one of our experienced defense attorneys, contact our law offices in Knoxville, Tennessee; Nashville, Tennessee; or Atlanta, Georgia, by calling 865-566-0125 or filling out this contact form. We accept credit cards.