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Understanding Tax Terms: Innocent Spouse Relief

What happens when an ex-spouse files a joint tax return with errors in it that you did not know about? You learn that the tax obligation on a jointly filed tax return can be collected in its entirety from either filer. The IRS refers to this as joint and severable liability. Fortunately, there is some protection for the unsuspecting spouse through Innocent Spouse Relief provisions in the tax code.

Example: Jane and John Doe are married. John files the couple's tax returns. Jane signs the returns without knowledge of significant errors in the tax returns relating to John's business. John has lied on the tax return, under-reporting income and does not pay all the tax. John and Jane separate and ultimately divorce. Two years later, Jane receives a tax bill from the IRS for past taxes owed while married to John.

Innocent Spouse Relief defined

Generally, innocent spouse relief refers to a petition by a taxpayer to be relieved of a tax obligation due to a spouse or ex-spouse’s actions. These actions are typically under-reporting income, claiming unsupported deductions or credits, or simply not paying the taxes owed.

In tax code speak, however, there are three main tax obligation relief provisions that are under the “Request for Innocent Spouse Relief” umbrella.

  1. Innocent spouse relief. When granted, the innocent spouse is relieved of the joint and severable tax liability of additional taxes due to unreported income or mis-reported credits and deductions.
  2. Separation of liability relief. In this case, the IRS divides (allocates) the additional tax owed between the two spouses who are divorced or legally separated. The person who receives the tax relief of understated tax from their spouse’s wrong-doing still probably owes some tax, but not for the unknown obligation.
  3. Equitable relief. If the innocent spouse does not receive innocent spouse relief or separation of liability relief, he/she may still be entitled to equitable relief. This often applies to correctly filed tax returns that have unpaid taxes.

Judgment is involved

As you can imagine, there is significant judgment involved in granting this relief by the IRS. To receive innocent spouse relief of tax, interest, and penalties the following conditions apply;

  • The couple files a joint tax return.
  • The tax return has tax owed due to erroneous items from a spouse (or former spouse).
  • When signing the tax return you did not know or have reason to know that the tax understatement existed.
  • It would be unfair to hold you liable for the obligation.

The request for Innocent Spouse Relief is a detailed seven page tax form. Please ask for assistance if you think you need help in this area.