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A husband and wife are generally liable jointly and individually
for the entire tax on a joint return. The question then becomes
whether the innocent spouse, who merely signed a joint return, should
be held liable for errors on the return caused by the actions of
the other spouse. The question becomes even more critical if the
couple has divorced and the government is attempting to collect
form the income of the innocent spouse.
For tax liabilities arising prior to July 22, 1998, an "innocent
spouse" could be relieved of the tax liability only if certain
specific innocent spouse requirements were met. Effective for any
tax liability arising on or after July 22, 1998, and for any tax
liability that remains unpaid, the IRS applies a less strict set
of requirements to obtain innocent spouse relief. These standards
make it easier to qualify for innocent spouse relief and to prevent
abuse of the innocent spouse. To obtain innocent spouse relief,
one must now elect the form of relief being sough within two years
of the IRS beginning the collection of the tax deficiency or assessment.
The types of innocent spouse relief available to the electing spouse
are: Innocent Spouse Relief, Separation of Liability and Equitable
relief
Any innocent spouse determination by the IRS is reviewable in tax
court. Notice of the election for innocent spouse relief must be
given to the non-electing spouse who may participate in any hearings
on the relief requested.
Election 1 Innocent
Spouse Relief
To qualify for the innocent spouse relief election, the taxpayer
must meet all the following requirements:
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Filed joint return which has an understatement of tax due to
erroneous items
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Establish
that the at the time of signing the tax return the taxpayer
did not know, or have any reason to know, there was an understatement
of tax
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Taking into
account all the factors and circumstances it would be unfair
to hold the innocent spouse liable.
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In determining whether to grant innocent
spouse relief, a key element of the IRS will be whether the electing
spouse received any substantial benefits or later was divorced,
separated from or was deserted by the other spouse.
Election 2 Separation
of Liability
The innocent spouse may elect to obtain relief by separation of
liability. To qualify, an individual must have:
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Filed a joint return, and either |
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Be
no longer married to, or be legally separated from, the spouse
with whom the joint return was filed or |
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Must
not have been a member of the same household with the spouse
for a 12-month period ending on the date of the filing of the
request for innocent spouse relief.
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Election 3 Equitable
Relief
If the taxpayer fails to qualify for either of the first two types
of innocent spouse relief, one may still obtain innocent spouse
relief from the tax liability, interest and penalties by electing
equitable relief. To obtain this type of innocent spouse relief,
the taxpayer must show that, under all facts and circumstances it
would be unfair to be held liable for the understatement of underpayment
of the taxes. Under the equitable relief provision, the innocent
spouse can get relief from tax liabilities caused by underpayment
of tax.
Contact me for a consultation.
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