Innocent Spouse Relief from Joint and Several Federal Tax Liability: Updates, Hurdles, and Considerations

Married couples can file their taxes together or separately. It’s usually better to file together because you’ll pay less in taxes. But if you file together, both spouses are responsible for the full amount of taxes owed. This can be unfair if one spouse didn’t know about the income that caused the taxes. In those cases, the innocent spouse can ask the IRS to relieve them from the tax debt. For example, if a wife didn’t know about her husband’s secret business and they get audited, she can ask the IRS to not make her pay for the taxes from that business. This can be a big help for people who didn’t do anything wrong but are still being asked to pay a lot of money. In some situations, married couples may have problems with their taxes. For example, if one spouse doesn’t provide all the necessary tax documents, the IRS might come after both of them for more money. Also, if one spouse is being abused and didn’t know about all the financial stuff, they might be able to get help with innocent spouse relief. This means they won’t be held responsible for the mistakes on their tax return. This law has been around for a long time, but it has changed a lot recently to help protect people in tough situations. The Innocent Spouse Relief Act of 1998 made it easier for an innocent spouse to request relief from joint tax liability. Revenue Procedure 2013-34 expanded the impact of abuse on innocent spouse relief, and the Taxpayer First Act of 2019 changed how the court reviews IRS innocent spouse determinations. A taxpayer can request innocent spouse relief at any time after filing a joint return, and there are three relief provisions under IRC §6015. The general relief provision (6015(b)) has five requirements, including showing that the requesting spouse didn’t know about the tax understatement on the return and had no reason to know. If you filed a joint tax return with your spouse and are now divorced or legally separated, you may be able to get relief from any taxes owed. This relief is based on Section 6015(c) of the tax code. With this relief, the IRS will divide the tax liability between you and your ex-spouse as if you had filed separate tax returns. You can seek this relief within two years of the IRS trying to collect the taxes from you. You don’t have to prove that you didn’t know about the mistakes on the tax return – it’s up to the IRS to prove that you did know. And if you didn’t have your own income, this relief could wipe out your tax debt altogether. Section 6015(f) provides innocent spouse relief when no relief is available under 6015(b) or (c). It considers all the facts and circumstances to decide if it would be unfair to hold one spouse responsible for a tax debt. To qualify for this relief, the requesting spouse must meet certain conditions, including filing a joint tax return, showing that the tax debt is because of the other spouse, and showing that they didn’t know about the tax issue when they filed the return. If the requesting spouse is no longer married to the other spouse, would suffer financial hardship without relief, and didn’t know about the tax issue when they filed the return, they may be eligible for streamlined relief. If a spouse asks for help with taxes but doesn’t qualify for the easy way, they have to go through a more detailed process. The IRS will look at seven things, like how much money they have and what they knew about the taxes. If the spouse didn’t know about the taxes, they might still get help if they are struggling financially. This was the case for Ms. Gans, who had a lot of problems with her ex-husband and son. Even though she knew about the taxes, the court still helped her because of her tough situation. In a recent tax court case, the court considered several factors in a decision about innocent spouse relief. They decided that some factors weighed in favor of relief, some were neutral, and one factor weighed against relief. The court emphasized the importance of the “knowledge and reason to know” factor. In another case, the appellate court upheld a Tax Court decision that denied relief based on the requesting spouse’s knowledge of the tax obligations. The courts place a lot of importance on a requesting spouse’s duty to review and ask about the contents of a tax return. Overall, the knowledge factor is often given a lot of weight in these cases. Many people don’t know how to read their tax returns, and rely on their accountant to do it for them. The law says that if you sign your return, you should know what’s in it, even if you didn’t actually look at it. Innocent spouse relief is meant to help people who didn’t know about mistakes on their tax returns caused by their spouse. When a husband and wife file taxes together, the innocent spouse provision can help protect one spouse from being held responsible for mistakes or fraud by the other spouse. If there has been abuse in the relationship, it can be an important factor in determining whether the innocent spouse provision applies. The IRS has specific rules for considering abuse, and it can affect whether the innocent spouse relief is granted. If a spouse wants to apply for innocent spouse relief, the IRS has to notify the other spouse and give them a chance to comment. This can be a problem if there has been abuse in the relationship. The abused spouse also has the right to get a copy of the application through a special request. This can be a concern for someone who is trying to leave an abusive relationship. It’s important to consider the presence of abuse and the rules for notifying the other spouse before applying for innocent spouse relief. If someone is being abused and forced to sign a joint tax return, they may be able to get relief from having to pay the taxes owed. However, just because there is abuse in a relationship, it doesn’t automatically mean the return was signed under duress. If a divorce court orders one spouse to pay the tax liability for joint returns, it doesn’t bind the IRS. It’s important to seek innocent spouse relief during or after divorce proceedings, and the divorce order can help with the application for relief. If the IRS goes after the spouse who was supposed to be relieved of the tax liability, they can take legal action to uphold the order or get reimbursed by the responsible spouse. The Taxpayer First Act changed the way the Tax Court reviews cases where a taxpayer is seeking relief as an innocent spouse. Now, the Tax Court can only review the evidence that was considered by the IRS at the time of their decision, unless there is new evidence that wasn’t available before. This means it’s really important for taxpayers to make sure they submit a complete and well-prepared application for innocent spouse relief. If there’s new evidence that wasn’t available before, they can submit that to the IRS when they apply. In the past, the taxpayer could testify and present other evidence in court, but that’s now more limited. Innocent spouse relief cases in Tax Court have changed recently. Now, judges can only consider the evidence and documents that the IRS looked at when the taxpayer first applied for relief, unless there is new or previously unavailable evidence. A recent case allowed sworn testimony and cross examination as new evidence, which could change how these cases are decided. Innocent spouse relief has become more accessible over the years, but it can still be a complicated and expensive process. It’s important to consider all options for tax relief before choosing this one. In some cases, a person in a marriage can file their taxes as head of household if they meet certain requirements. There are specific rules and provisions in the tax law that allow for this. If a person believes they are not responsible for paying taxes on joint income, there are ways to make that argument to the IRS. These rules can be complicated, but there are options to seek relief if you are in this situation. In tax court cases, the knowledge factor is often seen as very important in determining innocent spouse relief. This means that what the spouse knew about the tax issue is key. There are also rules about when a petition can be filed and when new rules apply, so it’s important to follow those rules. Charlotte A. Erdmann is a lawyer who specializes in tax law. She is a member of The Florida Bar Tax Section and is involved in educating others about tax law. You can find more information about tax law on the IRS Form 8857.

Source: https://www.floridabar.org/the-florida-bar-journal/innocent-spouse-relief-from-joint-and-several-federal-tax-liability-updates-hurdles-and-considerations/