Understanding The Tax Implications and Meaning of Innocent Spouse Tax Relief

According to Forbes Advisor webpage, 43% of first marriages, 60% of second marriages, and 73% of third marriages end in divorce.  The tax implications of divorce can be as simple as a change of status of filing status from married to single to a Gordian Knot of tax debt and who is responsible for that debt.

In certain cases, one spouse may have understated the taxes due on a joint return without the knowledge of the other spouse.  There are both restrictions and eligibility requirements that must be met. The person claiming innocent spouse (claimant) will have to demonstrate that they reasonably couldn’t know of the understated amount or signed under duress.

The claimant cannot claim relief for taxes due on:

·         Claimant income

·         Household employment taxes

·         Individual Shared Responsibility payments

·         Claimant’s business taxes

·         Trust fund recovery penalties for employment taxes on claimant’s employees

To be eligible for innocent spouse, the claimant must have:

·         Filed a joint return with the spouse

·         The taxes were understated

·         Claimant didn’t know about the errors or signed the return under duress

·         Claimant lives in a community property state

This can be a very tough road.  This should not be attempted by someone not intricately familiar with the process and pitfalls as well as how to build the case.  The IRS is not anxious to relieve a taxpayer that may have assets to contribute to paying the debt. 

Both the IRS and the Tax Courts will consider many factors.  The most important consideration is proving the claimant didn’t have knowledge or understanding of the return.  The claimant’s education and other involvement will be considered. 

In the case of spouse abuse, the claimant has more latitude, but it still isn’t guaranteed.  Also, in the case of abuse, the safety of the claimant may cause the claimant to rethink making the claim. 

There are other types of relief under this category depending on the circumstances.  This is absolutely an area that requires professional help.  At BTM, we are prepared to build a case that will have the best possible chance of acceptance by the IRS.

Contact us at steve@bookstaxesatl.com or 678-717-9818.