Innocent / Injured Spouse

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There are two forms of relief for spouses:

Innocent
This is where the spouse unwittingly filed a return with the other spouse without knowing the full impact of a tax issue and/or liability.

Injured
This is where a spouse files a return jointly with another spouse who has a past tax debt or issue that the spouse had no part of, and the spouse's equitable share of any tax refund may be impaired.

 


 

The Innocent Spouse
The spouse who has no knowledge, nor should have known, that the other spouse had financial transactions with tax consequences, is allowed relief from the liability. This is typically where the innocent spouse is kept totally in the dark about the other spouses' financial transactions. Even with living a luxurious life style should give rise to the "reasonable and prudent person" to question things when they review and sign off on a tax return. Some may say that the innocent spouse may not have had enough education or experience to know to question such things. That is where the Internal Revenue Service will take a look at the innocent spouses' background, experience, and education to determine if the innocent spouse should have had reason to suspect wrongdoing. If the innocent spouse holds title to properties in such a manner as to protect assets, that raises suspicions.

By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return.  Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse).  However, you are jointly and individually responsible for any tax, interest, and penalties that does not qualify for relief.  The Internal Revenue Service can collect these amounts from either you or your spouse (or former spouse).

You must meet all of the following conditions to qualify for innocent spouse relief.

  1. You filed a joint tax return.

  2. There is an understated tax on the return that is due to erroneous items of your spouse (or former spouse).

  3. You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed).

  4. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax.

Innocent spouse relief will not be granted if the Internal Revenue Service proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme.  A fraudulent scheme includes a scheme to defraud the Internal Revenue Service or another third party, such as a creditor, former spouse, or business partner.

Divorce agreements that assign responsibility for taxes to one spouse do not affect the responsibility of taxes between spouses at the Federal level.  If the spouse who is supposed to be relieved of the taxes winds up paying anything, then that person's recourse is to ask the ex-spouse for reimbursement or sue the ex-spouse civilly for reimbursement.

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The Injured Spouse
Each tax season married couples in which one owes taxes for prior tax periods, will mistakenly file “Married Filing Separate” (MFS) in an attempt to avoid the innocent spouses’ share of the refund from being taken.  Sometimes that is a good strategy.  However, filing MFS always results in a higher overall tax and some tax credits are lost, which may amount to a significant amount of money.  To avoid the innocent person from losing their respective share of the tax refund, file a “Married Filing Joint” (MFJ) return and claim “Injured Spouse” as outlined below.

Seven Facts About Injured Spouse Relief

If you file a MFJ return and all or part of your refund is applied to your spouses’ past Federal  tax debt, State tax, child or spousal support, or Federal non-tax debt such as a student loan, you may be entitled to injured spouse relief.

1.    To be considered an injured spouse, you must have made and reported tax payments, such as Federal income tax withheld from wages or estimated tax payments, or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint tax return, and not be legally obligated to pay the past due amount.

 

2.    If you live in a community property state, special rules apply.  For more information about the factors used to determine whether you are subject to community property laws, see Internal Revenue Service Publication 555, Community Property.

 

3.    If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation.

 

4.    You may file form 8379 along with your original tax return or your may file it by itself after you receive an Internal Revenue Service notice about the offset.

 

5.    You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. Internal Revenue Service will process your allocation request before an offset occurs.

 

6.    If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form.

 

7.    Do not use Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857, Request for Innocent Spouse Relief. This relief from a joint liability applies only in certain limited circumstances. However, in 2011 the Internal Revenue Service eliminated the two-year time limit that applies to certain relief requests. Internal Revenue Service Publication 971, Innocent Spouse Relief, explains who may qualify, and how to request this relief.


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