Understanding Innocent Spouse Relief
The term "innocent spouse relief" refers to the IRS's authority to reduce or eliminate taxes for married couples. The IRS is authorized to grant this relief because it would be unfair to hold one spouse liable for the tax liabilities of the other spouse.
Three Types Of Innocent Spouse Relief Options
When you request innocent spouse relief, you have the possibility to avoid paying tax, interest, and penalties if your spouse or former spouse improperly reported or omitted items on your tax return. The IRS will calculate your tax liability after you file Form 8857, Request For Innocent Spouse Relief. You're not required to calculate this tax liability.
Traditional Innocent Spouse Relief provides you tax relief if your spouse or former spouse failed to report income, reported the income incorrectly, or claimed incorrect deductions or credits.
In order to qualify for traditional innocent spouse relief, you must meet all of the following criteria:
You filed a joint return that has an understatement of tax that is solely your spouse's erroneous items. Deductions, credits, and property basis are great examples of erroneous items if your spouse incorrectly reported them on the joint return.
You establish that when you signed the joint return, you were unaware of, and had no reason to suspect, that there was a tax understatement.
Given all of the facts and circumstances, it would be unfair to hold you liable for tax understatement.
Separation Of Liability Relief is when the IRS separates the tax liability on a joint return for the understated tax with interests and penalties between you and your spouse or ex-spouse.
The requirements to qualify for separation of liability relief are:
You are legally separated and are no longer married to the spouse that filed on the joint return with you for which you are requesting relief.
You were not a member of the same household as the spouse with whom you filed the joint return at any point during the 12-month period ending on the date you filed Form 8857, Request for Innocent Spouse Relief.
If you qualify for separation of liability relief, you're no longer jointly responsible for the taxes on your joint return. Instead, the IRS allocates (separates) the tax bill based on your individual tax liability. Under this type of relief, especially if you've already paid the tax, you will not be able to get a refund.
Equitable Relief is the type of innocent spouse relief that you may qualify for if you don't end up qualifying for traditional innocent spouse relief or separation of liability relief.
You may qualify for equitable relief if you meet all of the following conditions:
You were not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law.
You and your spouse or ex-spouse didn't transfer assets to one another as part of a fraudulent scheme such as a business partner, another ex-spouse, or creditor.
Your spouse didn't transfer property to you for the main purpose of avoiding a large tax payment.
You didn't file or fail to file your return with the intent to commit fraud.
What If The IRS Denies My Request For Innocent Spouse Relief?
You have the right to file an administrative appeal if the IRS denies your request for innocent spouse relief. The IRS Independent Office of Appeals will be handling this appeal. You have to request that Appeals consider your case by filing a written protest. The IRS will then forward your written protest as well as the case file to the Appeals office.
Innocent Spouse Relief: EXCEPTION
If you're able to prove that you signed your joint return under duress, it's no longer considered a joint return and you're not liable for any tax shown on it or tax deficiency for that return. Although, the IRS may require you to file a separate return for that year.
Innocent Spouse Relief Overview
If you need help applying for innocent spouse relief, the most important action to take immediately is to work with a licensed tax professional who understands and has experience with filing innocent spouse relief. The IRS Fresh Start Program consists of 4 main programs that are accessible to taxpayers who owe much more than they can reasonably afford to pay. The four major programs are as follows: Currently Not Collectible (CNC) Offer In Compromise (OIC), Installment Agreement (IA), and Penalty Abatement (PA).
These relief programs allow qualified taxpayers the option to reduce or even eliminate their tax debts. These tax experts will help you qualify for the program and help you figure out which options will give you the most suitable outcome. Especially if the agreed amount from the installment agreement that you've previously set up with the IRS is a bit harder to pay off these days. It is very important for taxpayers to remain tax compliant because it will save you interest and penalties on the current year and prevent you from a continuous circle of always owing tax.
Resolve Your Tax Bills
If you've found yourself in a nasty mess with the IRS, take a deep breath. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there's a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
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