TL;DR: Innocent spouse relief can excuse a current or former spouse from the responsibility of paying additional taxes due to separation, divorce, or improper reporting by the other partner. To qualify for innocent spouse relief, you must have filed taxes as “married filing jointly,” been unaware of your partner’s improper reporting, be approved by the IRS, and requested relief within two years of the IRS’s attempted collection of taxes.
Ever found yourself in a situation where your current or former spouse improperly reported items on their tax return, and you had to pay the price? That’s where innocent spouse relief comes in.
While taxes can be a big headache on their own, owing the IRS money can be even more frustrating — especially if it’s a surprise! IRS innocent spouse relief can help eliminate some or all of your financial responsibility in situations like these.
Keep reading to learn more about what innocent spouse relief is, who qualifies, and how it works.
What is Innocent Spouse Relief?
Innocent spouse relief excuses individuals from paying interest, taxes, and additional penalties on deductions, items, credits, or income that was wrongly reported or missing from the tax forms of their current or former spouse.
Spouses who choose to file jointly once married are both jointly and severally liable. This means both parties can be held accountable for all the tax fees on a tax return. For example, if your current or former spouse failed to report their income, you can still be held responsible for paying the IRS their fees. This is even the case if they are refusing to pay or cannot be contacted.
If a divorce or legal separation has occurred, the IRS can still pursue both parties to cover tax fees incurred while they were married. If an innocent spouse files, qualifies, and receives innocent spouse relief from the IRS, they are no longer responsible for paying their current or former spouse’s fees.
You must meet these requirements to qualify for innocent spouse relief:
- Your filing status was “married filing jointly.”
- The taxes you owed or paid were lower than they should have been because your spouse incorrectly reported items, deductions, credits, or income.
- When you signed and submitted your tax return, you had no actual knowledge or reason to know that the report was incorrect.
- It is unfair to hold you responsible for these additional tax fees. The IRS will decide if this is true when you apply by filing Form 8857, Request for Innocent Spouse Relief.
- You and your current or former spouse are not part of a fraudulent scheme.
- You requested relief no later than two years after the IRS’s attempted collection.
What is Actual Knowledge and Reason to Know?
Actual knowledge is determined when the requesting spouse did know about improper deductions, credits, items, or income reports on a tax return. While “reason to know” is how the IRS can prove or disprove actual knowledge.
You will not be considered an innocent spouse in the eyes of the IRS if you are assumed to have actual knowledge of the offense. In fact, you may actually be considered a conspirator.
You had actual knowledge of your current or former spouse’s improper reporting if:
- You knew of income your spouse had received but not reported.
- You knew what made a deduction or credit incorrect.
- You knew of expenses from improperly reported deductions that were not incurred.
The IRS can prove actual knowledge by using the reason to know test which can provide details about whether or not it is reasonable to believe you had information concerning the incorrect reports. To determine if there truly is an innocent spouse, the IRS will look at:
- The type of error that was reported.
- The amount of error that was reported.
- The financial situations of both current or former spouses.
- Each party’s educational and employment background.
- How each party participated in the error.
- If questions about the error or return were asked before or at the time of filing.
- If the error is recurring, there is a pattern in past tax returns, or a pattern is interrupted. For example, the IRS may believe the requesting spouse had reason to know about the incorrect report if a regularly reported type of income on past reports is missing from the report under scrutiny.
If the IRS determines that you had actual knowledge or a reason to know about the deductions, items, credits, or income that was improperly reported, you may not receive innocent spouse relief.
Types of Innocent Spouse Relief
There are three types of innocent spouse relief and each can help you receive tax relief from the joint and several liability of a “married filing jointly” tax return:
Innocent spouse relief
If your current or former spouse improperly reports credits, deductions, or items, or failed to report income of any kind, innocent spouse relief may excuse you from some or all tax penalties. In these cases, you are jointly and severally liable and could be held responsible for paying tax fees incurred from incorrectly reported freelancing, investing, or other untaxed incomes.
Proving that an innocent spouse was unaware of improper reporting can be difficult, especially if you benefited from the report because your tax fees for that year were lower than they should have been.
Relief by separation or liability
If an understatement of tax occurred on your joint tax return, relief by separation or liability may be considered. If you claim to have been unaware of the incorrect report, this type of tax relief separates the tax fees and penalties and assigns each individual an amount to pay. For example, if you owe the IRS $5,000, you may only be liable for a portion of this amount rather than the full amount..
You are only required to pay your allocated amount, but it is expected that you are divorced or separated from your spouse in order to qualify for relief by separation or liability.
If you are unqualified for or are denied innocent spouse relief or relief by separation or liability, you may be eligible for equitable relief. This type of relief will automatically be considered for your situation upon denial of other relief forms. Equitable relief also takes a variety of factors into consideration when determining qualifications, including awareness, domestic abuse, tax compliance, and more.
Equitable relief covers tax relief for:
- An underpayment of tax where you and the other liable party paid less than what your tax return shows was due. For example, if you owed $5,000 and only paid $1,000, your underpayment is $4,000.
- An understatement of tax where your tax return’s amount owed is less than what it should have been.
How Does Innocent Spouse Relief Work?
Receiving innocent spouse relief from a joint liability can be accomplished in four steps. However, the process can take anywhere from six months to more than a year to complete.
- Evaluate your situation and determine if you qualify for innocent spouse relief. If you do not qualify, you may be able to request relief by separation or liability or equitable relief.
- Apply for innocent spouse relief. You will apply using the innocent spouse relief form which asks for documentation and additional information about your tax situation. This tax form can cover multiple years, and you should apply as soon as you are aware you are being held accountable for an incorrect tax liability.
- Wait for the IRS to investigate your need for relief. They will examine your application and reach out to the non-requesting current or former spouse. The IRS is required to contact the other member of the joint liability about your request, even in situations of abuse or violence. Additionally, the non-requesting spouse has the right to appeal any approval for relief.
- Request an appeal if your application comes back as “innocent spouse relief denied.” The IRS will need to see a Statement of Disagreement and additional documentation and information. If IRS Appeals cannot agree, you may be required to take your request to the United States Tax Court for further investigation.
Innocent spouse relief may not change the past, but it can provide the innocent spouse with monetary relief. And while it can take quite some time for the IRS to approve or deny your innocent spouse relief claim, receiving tax relief can help alleviate stress caused by additional tax fees from improper reporting.
If you are or have considered requesting Innocent spouse relief, your tax status has shifted significantly. If you need help changing your filing status or have questions about deductions, credits, items, or income reporting for your present or future tax returns, you can come to TurboTax and fully hand your taxes over to TurboTax Live expert available in both English and Spanish and get your taxes done from start to finish. All from the comfort of your home.
- IRS – Innocent Spouse Relief
- IRS – Topic No. 205
- IRS – Innocent Spouse Questions & Answers
- IRS – Equitable Relief
- Jackson Hewitt