You generally must file a request for innocent spouse relief within two years from the date that the IRS first attempts to collect the tax from you. If you do not have all of the documentation you need, you still need to file the form 8857 within the two-year period.
When Collection Activities Are Commenced
The IRS is considered to have made an attempt to collect tax from you when one of the following four actions is taken:
The IRS must notify the other spouse—referred to as the nonrequesting spouse—if one spouse files a request for innocent spouse relief. If your spouse is successful in their attempt to receive innocent spouse relief, you will be on the hook for the tax debt, interest, and penalties that they get relief from. Because of this, the IRS gives the nonrequesting spouse the right to present evidence and dispute the request for innocent spouse relief.
Your Rights as a Nonrequesting Spouse
The nonrequesting spouse must be notified when the requesting spouse files a request for innocent spouse relief. The nonrequesting spouse must also be notified of the Service’s preliminary and final determinations regarding the request for innocent spouse relief.
The IRS may seize your real estate, car, or other property to satisfy delinquent tax debt. The IRS will sell your interest in the property and apply the proceeds, after the costs of the sale, to your tax debt.
Before selling your property, the IRS will calculate a minimum bid price. You will be given the chance to challenge the fair market value determination of your property.
Then, the IRS will notify you and the public of the pending sale, and wait at least 10 days before proceeding with the sale of your house or other property. If there is money left over after the costs of the seizure and sale and your tax debt has been satisfied, you should receive a refund.
Traditional innocent spouse relief is one of three types of defenses available to taxpayers when the IRS is attempting to collect tax that is attributable to a return filed jointly with your spouse or former spouse. The IRS can collect from either spouse for tax assessed on a joint return, but innocent spouse defenses allow you to avoid liability for these items, if certain requirements are met.
The Conditions for Innocent Spouse Relief
All four of the following conditions must be met in order for you to qualify for traditional innocent spouse relief:
An innocent spouse defense is used to get relief from the typical joint and several liability that exists for joint tax returns. If you filed a joint return, and your spouse erroneously understated the amount of tax owed, you can attempt to claim innocent spouse relief. If you are successful, the IRS will not attempt to collect the understated tax from you.
An injured spouse is a spouse whose portion of a joint tax refund has been offset due to the other spouse’s financial obligations. An injured spouse can use form 8379 to attempt to reclaim their portion of a refund, but only if they are not responsible for the spouse’s financial obligation that caused the offset, and if the injured spouse either paid federal tax during the year or is due a refundable tax credit.
Why Tax Refunds Are Offset
Separation of liability is an innocent spouse defense that allocates a tax deficiency between two spouses in proportion to each spouse’s contribution to the deficiency. While the IRS can generally collect the entire tax debt for a joint return from either spouse, separation of liability—along with the other innocent spouse relief options—prevents the IRS from collecting tax from one spouse when the erroneous item on the return is attributable to the other spouse.
The Conditions for Separation of Liability Relief
In order to qualify for separation of liability, you must have filed a joint return and meet one of the following conditions:
There are actually four different courts that can be used for tax litigation. The United States Tax Court is the most commonly used option, but other courts may have advantages in certain situations.
The four courts with jurisdiction to hear tax controversy cases are:
United States taxpayers have an obligation report their interest in any foreign financial accounts with regard to the balances in those accounts. If the aggregate balance of all such accounts exceeds $10,000 at any point during the year then you are also required to file a Foreign Bank Account Report (FBAR).
Despite this legal requirement, many taxpayers do not file required FBARs. Some may be unaware of the requirement, particularly if they are not a U.S. citizen, but are required to file a tax return because they are “green card” holders or have been substantially present in the United States. Other violations may be less excusable, or—as the IRS designates them— “willful”.
If you have undisclosed foreign financial accounts, you should consult with a tax attorney with FBAR experience, determine your exposure to risk, and select a course of action to minimize that risk.
There is no specific designation as an “FBAR attorney”, but many taxpayers with undisclosed foreign financial accounts need to talk to someone with FBAR experience about their potential liability and what actions they can take to mitigate risks. A good FBAR attorney is really just a tax attorney who has experience with Foreign Bank Account Reports (FBARs), and is familiar with tax litigation, criminal tax defense, and the various voluntary disclosure options that can be used to come into FBAR compliance.
FBAR Experience
You have an FBAR problem if you are a U.S. person who failed to file an FBAR and/or report income from foreign financial accounts on your tax return. You are required to file an FBAR if you meet the following two requirements:
Tax evasion can be shown when the following three elements are present:
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