NEWS
The Internal Revenue Service has released updated guidance in Publication 971 explaining how innocent spouse relief applies to taxpayers who filed a joint income tax return that later resulted in an understatement of tax. The guidance addresses situations involving unreported income or incorrect deductions attributed to one spouse.
Under the Internal Revenue Code, spouses who file a joint return are jointly responsible for all taxes due, even if only one spouse caused the error. This rule, known as joint and several liability, allows the Internal Revenue Service to collect the full tax liability from either spouse or both.
Publication 971 explains that innocent spouse relief may apply when a taxpayer did not know, and had no reason to know, that the joint tax return contained incorrectly reported income or improper tax deductions at the time it was filed. The relief is intended to protect taxpayers who were unaware of errors made solely by a spouse or former spouse.
The IRS also evaluates whether the taxpayer benefited from the understated tax, such as receiving a larger tax refund or a reduced tax bill. The agency considers whether the taxpayer had access to financial records, including W-2 forms or Form 1099, during the relevant tax year.
The IRS reviews relief requests under three categories authorized by Internal Revenue Code Section 6015.
Innocent spouse relief applies when the taxpayer had no knowledge of the error. Separation of liability relief may apply to taxpayers who are separated or divorced, subject to a divorce decree or separation agreement, or no longer living with the spouse who caused the error. Equitable relief may apply when neither of the other options is available, but holding the taxpayer liable would be unfair.
These options may apply to federal income tax returns and, in some instances, filings involving community property states.
Separation of liability divides the tax underpayment between spouses based on responsibility for the unreported income or incorrect deductions. This relief is often requested after a divorce or other court-ordered separation.
Equitable relief may apply when a taxpayer does not qualify for innocent spouse or separation of liability relief but can show that holding them responsible for the full tax debt would be unreasonable. The IRS considers financial hardship, compliance history, and whether the taxpayer received a credit or refund.
Publication 971 states that domestic violence or spousal abuse may limit a taxpayer’s ability to review or question a joint income tax return before signing. The IRS considers whether the taxpayer faced intimidation, lacked access to financial records, or was discouraged from raising concerns about income or deductions.
These circumstances may strengthen a claim for equitable relief, particularly when the taxpayer could not reasonably detect unreported income or erroneous deductions.
Taxpayers seeking relief must file Form 8857, Request for Innocent Spouse Relief, by mail or fax to the appropriate Internal Revenue Service Center listed in the form instructions. Requests are commonly triggered by an IRS notice related to additional taxes due, refund offsets, or collection activity.
The IRS may request supporting documentation, including financial statements or records demonstrating the taxpayer’s lack of knowledge. If relief is granted, responsibility for the understatement of tax shifts to the spouse who caused the error.
Taxpayers who receive an IRS notice related to an understatement of tax should review Publication 971 promptly and determine whether filing Form 8857 is appropriate. Acting early helps preserve records and meet procedural deadlines.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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