If you are like most Americans, the thought of having the IRS focus its attention on you is terrifying, so you probably do your best to avoid making mistakes on your tax return that would cause your finances to come under scrutiny. However, if your spouse isn’t as cautious in their dealings with the IRS, you may find yourself on the hook for their errors.
At Seattle Legal Services, PLLC, we help innocent spouses correct their tax issues and request relief from the IRS. We mainly serve the Seattle, Bellevue, Tacoma, Kirkland, and Lynnwood areas. However, our team also assists clients across the nation with their tax issues.
What Is Innocent Spouse Relief?
Many married taxpayers file a joint return, but that doesn’t mean both partners actively compile the return. Instead, one spouse often takes the reins to complete the joint return, and the other spouse simply signs their name before submitting it to the IRS. While you should always be involved in the filing of your joint tax return, even if you only review it before signing, the truth is that many spouses trust their partners to file their joint tax returns and don’t have actual knowledge of the contents of their joint return.
This trust can result in the innocent spouse being held responsible for tax interest and penalties incurred by their partner’s actions. When you sign a tax return before you file it, you are stating that you accept joint liability for the information on the return being accurate.
If your spouse made an intentional or unintentional error on their taxes, the IRS procedure for innocent spouse relief could keep you from facing penalties because of your partner’s actions. For example, if your spouse didn’t file a joint tax return, misreported information, omitted income and information, or claimed credits or deductions erroneously, you may be able to receive relief from the IRS. The innocent spouse is referred to interchangeably as the requesting spouse since they request relief from the IRS.
Do I Need a Lawyer to File For Innocent Spouse Relief From the IRS?
While you do not have to have legal representation to file for spouse relief, hiring a Seattle tax attorney will increase the chances of your situation having a successful outcome. Pursuing innocent spouse relief is complicated and will require you to fill out numerous forms, compile extensive financial documents from previous tax years, and may even require you to attend tax court.
For most individuals, this process is so complex and overwhelming that they may be tempted not even to request relief from the IRS. However, when you work with a tax attorney, they will ensure your paperwork is filled out correctly and help you gather evidence proving you were unaware of your spouse’s errors and shouldn’t be held responsible for their actions.
Who Qualifies For Innocent Spouse Relief?
Although many individuals would like relief from their liability, certain qualifications must exist for you to qualify for relief. Before you can request innocent spouse relief, you must meet every one of the following qualifications:
You Filed a Joint Tax Return With a Spouse or Former Spouse
To be eligible for relief, you must be part of a married couple who filed a joint tax return. Typically, filing a joint return offers certain benefits, both financial and logistical, over filing an individual return, so many spouses choose to file their tax return together. Unfortunately, if you do not participate in completing your shared taxes with your partner, you could find yourself facing tax interest and penalties for an incorrect item they placed on the return.
You Have an Erroneous Item on the Return Led to an Understatement
If your partner underpaid your joint taxes, you will not qualify for innocent spouse relief and must look into equitable relief as a solution to your issue. However, if your partner placed an erroneous item on the return that caused an understatement to occur, you may be able to receive relief, providing other factors of your circumstances meet the criteria for tax relief. Some examples of incorrect items could be unreported or misreported income (in states with income tax) or an inappropriate credit or deduction.
You Can Prove You Were Unaware of the Understated Taxes
You must prove that you had no knowledge of the understated taxes, and no reasonable individual would expect you to know that the error existed to claim innocent spouse relief. When determining if you were genuinely unaware of the tax error, the IRS will look at all the facts and circumstances surrounding your situation, such as whether this is the only tax year there’s been an issue with your return or whether there’s a recurring pattern of omitting information.
If the IRS believes you had actual knowledge about the incorrect information on your taxes or that you benefitted excessively from your partner’s action, they will not grant innocent spouse relief.
An Exception: Domestic abuse
One of the few situations where the IRS may determine the requesting spouse is eligible to request relief despite knowing of errors is when domestic abuse is present in the relationship. For this to be a consideration, the requesting spouse must have been a victim of domestic violence from their partner before signing the return.
If domestic violence made the requesting spouse too afraid for their safety or the safety of their children to protest the error on the return, they might still be eligible for relief. Victims of domestic abuse must proceed with caution when seeking innocent spouse relief and contact the appropriate agencies and the IRS to get the support they need to request relief safely.
Any Reasonable Person Would Find Punishing You For Your Partner’s Mistake Is Unfair
Fairness is the final factor required to qualify whether you should be given innocent spouse relief. Namely, when all the facts and circumstances of the situation are considered and analyzed, would giving you penalties for the understated taxes be unfair to you?
Determining this will require actual knowledge of the specifics of your circumstances. When you work with a Seattle tax lawyer, they will review your situation’s details to help you present the strongest case possible for convincing the IRS that the fair thing to do is not to hold you responsible for your partner’s tax bill.
What Taxes Are Not Eligible For Innocent Spouse Relief?
Not all taxes are eligible for innocent spouse relief. For example, employment taxes, business income taxes, individual shared responsibility payments, and trust fund recovery penalties for employment taxes do not qualify for innocent spouse relief. Individuals in Washington will not have to worry about penalties on income taxes, as the state does not tax personal income. However, that doesn’t mean that a request for innocent spouse relief isn’t something Washington residents may need, especially if they work outside the state or their partner failed to report their capital gains accurately.
What Types of Tax Relief Are Available For Innocent Spouses?
Three types of tax relief exist. However, you’ll want to keep in mind that just as not every spouse or former spouse is eligible for innocent spouse relief, not every requesting spouse will qualify for other relief options.
Innocent Spouse Relief
You might be able to request innocent spouse relief if your current or former spouse made a mistake when filing your joint return. Innocent spouse relief prevents the requesting spouse from being held responsible for the error of the filing spouse, allowing them to dodge tax interests and penalties assigned to their partner. Innocent spouse relief also limits how badly your partner’s mistakes can harm your financial situation, whether they were intentional or not.
To qualify, you must have had no actual knowledge of your spouse’s actions. Since this can be challenging to prove, you’ll want to work with an experienced tax relief attorney to establish that you didn’t benefit from your partner’s actions.
Relief by Separation of Liability
Separation of liability relief is when the IRS divides the understated tax amount, including additional tax fees and interest, owed between you and your partner to determine what portion of the liability you owe as opposed to your ex-spouse. Instead of being jointly liable, you will be severely liable for a part of the money owed to the IRS. The state you live in will impact how this option works since factors such as whether a state has income taxes (in cases where there was unreported income) or community property laws affect this type of relief.
The IRS will not grant the requesting spouse this relief option unless they and their partner are legally separated, divorced, or haven’t lived together for at least 12 months before the date the requested relief form was filed. In addition, an innocent spouse relief request will also not be granted if the IRS finds that the requesting spouse knew of their spouse’s error.
If you do not qualify for innocent spouse relief or relief by separation of liability, equitable relief may allow you to avoid penalties for erroneous items on your joint tax return. However, this type of relief is conditional, and many individuals do not qualify for it. To be eligible for equitable relief, you’ll have to prove that, understanding all the facts and circumstances involved in your situation, any reasonable person would find it unfair to hold you accountable for your partner’s mistakes.
Equitable relief is only an option when the IRS decides that holding you liable for your spouse’s tax debt from your joint tax return would be unfair. This option is typically the only relief available when your spouse underpays on a shared tax return.
What Is the Difference Between Understatement and Underpayment of Taxes?
Understating Tax Liability
When an individual has omitted or unreported income (in applicable states) or claims more credits than they are entitled to, they have understated taxes. If your spouse completed this action on your joint return, you could request spouse relief.
Underpayment of Tax Liability
When the total on a tax return is accurate, but the taxpayer doesn’t pay the total amount, they have underpaid their tax liabilities. An example of underpayment would be if you gave your spouse money to pay for your shared liability, but they used the funds for something else.
Another scenario would be if you had an agreement with your spouse that they would pay the tax debt for your joint tax return, and they did not. When your spouse underpays your taxes, the only type of spouse relief the IRS will usually grant is equitable relief.
Before You Request Innocent Spouse Relief From the IRS
At Seattle Legal Services, PLLC, we help our clients protect their hard-earned money from the IRS and protect their rights throughout their interactions with the Internal Revenue Service. If one spouse is facing a challenging financial situation due to their partner’s errors on a joint tax return, we are ready to tackle the issue head-on and help them find the most beneficial resolution for their problem. We know how stressful dealing with the IRS can be, so we will help you navigate the process of filing for innocent spouse relief and work to keep you from being responsible for a tax bill your spouse caused by failing to pay your tax liability in whole or filing your joint taxes correctly.
Talk to a Seattle Tax Attorney
As soon as you become aware of an issue with your joint tax return, you’ll want to contact a tax resolution firm for help requesting innocent spouse relief. Don’t wait until the IRS has already begun collection activities or until the additional tax penalties or interest on your missed payments becomes overwhelming to discuss your situation with an experienced lawyer.
Innocent spouse relief isn’t easy to qualify for. Still, with an experienced tax lawyer, your odds for a successful resolution will be far better than if you take on the IRS alone. Protect your financial future and defend yourself from being left with a tax bill you don’t deserve. Contact Seattle Legal Services, PLLC, at 206-895-7268 to discuss the best options for your situation today.