The Requirements for Traditional Innocent Spouse Relief

The Requirements for Traditional Innocent Spouse Relief

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:

  1. You filed a joint return.
  2. There is understated tax on the return due to an erroneous item attributable to your spouse of former spouse.
  3. You did not have actual knowledge or a reason to know of the understated tax when you signed the return.
  4. It would be unfair to hold you accountable for the understated tax based on all the facts and circumstances.

The first two items are fairly straightforward. An understatement of tax exists when the IRS determines that you owe more tax than the amount stated on your return. An erroneous item can be either unreported income or an improper credit, deduction, or basis in property.

Knowledge or Reason to Know

Actual knowledge exists if you knew about the erroneous item on the return. If you knew about a portion of the erroneous item, you cannot receive innocent spouse relief for that portion.

A “reason to know” exists if a reasonable person under the circumstances would have known about the understated tax. To make this determination, the IRS will look at all the facts and circumstances, including your educational background, your financial situation, the nature and amount of the erroneous item, the extent you participated in the activity that resulted in the erroneous item, whether you failed to ask reasonable questions about the erroneous items, and whether the item was a departure from the pattern of your previous tax returns.

Indications of Unfairness

Once again, the IRS will consider all the facts and circumstances when deciding whether it would be unfair to hold you liable for the understated tax. Some factors that will be considered are:

  • whether you received a significant benefit from the understated tax
  • whether your spouse deserted you
  • whether you and your spouse have been divorced or separated
  • whether you received a benefit on the return from the understated tax

If you meet all of these requirements, the IRS will not hold you accountable for the understated tax on the joint return. You have two years to present an innocent spouse defense, beginning when the IRS attempts to collect the tax from you, by either filing a lawsuit against you, offsetting your tax refund, or sending you a collection due process hearing notice.

Even you do not meet all of the requirements, you may be able to use either separation of liability relief or equitable relief as a defense, or to use other strategies to reduce or eliminate your tax debt. Talk to a tax attorney to learn more about innocent spouse defenses.

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