The Innocent Spouse Rule

In 1988, the law made a vast improvement for protecting innocent spouses from the wrongdoings of their significant other through the Innocent Spouse Rule. There are two different types of innocent spouse relief, traditional relief and separate liability. Traditional relief is granted when you file a tax return jointly and you were not aware that your spouse was claiming unfounded deductions or was not reporting all of his income. Under this type of relief, you are not held responsible for penalties or interest owed when the IRS discovers this. In order to qualify for traditional relief, you must meet the following criteria:

  • At the time the return was filed you did not know, nor did you have any reason to know, that the tax would not get paid.
  • The unpaid tax is attributable to your spouse.
  • Were relief not granted, you would suffer unnecessary hardship.

If you do not meet the prior requirements for traditional relief, you may qualify for relief if it would be inequitable to hold you liable for the IRS' demands.

Here is a short list of some of the thing the IRS takes into consideration when reviewing this type of request:

  • Your marital status - being separated or divorced is in your best interest
  • If you would forego undue economic hardship
  • If you experienced domestic abuse at the hands of your spouse
  • Whether there is an agreement binding the obligation of tax payments to your spouse
  • If you had knowledge that the tax was not going to be paid (this will be held against you)
  • If you benefited by not paying taxes (this is also held against you)

Electing separate tax liability is the other type of innocent spouse relief that may be granted. This form of relief is available even if the IRS believes you should have known about discrepancies the IRS has found on your spouse's tax return. In this case, you may elect to limit your liability to what you would owe had you filed separately. In order to qualify for separate tax liability, the following criteria must be met:

  • You must be divorced, legally separated, or have not been living with your spouse for the past twelve months
  • You must have had no actual knowledge of the phony deductions or the unreported income. The IRS may be able to claim that you should have known, but cannot claim that you had actual knowledge.

Even if you do not meet the above listed requirements, the IRS has the authority to grant separate liability relief if it feels that it would be inequitable not to do so. Following are some final addition tips and rules of innocent spouse rules:

  • Whether electing to use the traditional relief or separate liability relief, you must file IRS Form 8857, Request for Innocent Spouse Relief.
  • You must elect to use the innocent spousal relief within two years from the day the IRS begins its collection efforts.
  • Transferring assets between spouses so that one owes all the taxes while the other holds all the assets so the IRS cannot seize them does not work.
  • Relief is available for all taxes regardless of how old they may be. You may even reapply for relief even if you were denied the relief under an old law.
  • The IRS must and will notify your ex and give him/her the opportunity to object to what you are doing.
  • While your application for relief is pending, collection attempts against you by the IRS must be suspended.
  • If your application for relief is denied, you may make an appeal to the US Tax Court. You must appeal within 90 days after you have received the notice of denial to make your appeal.
  • When married partners separate, IRS Form 8822, Change of Address, should be filled out to inform the IRS where they can contact each spouse so that all notices sent to one are also sent to the other.
  • You are entitled by the Taxpayers' Bill of Rights to know what the IRS is doing regarding collections for a tax bill owed jointly by you and an ex-spouse. You are also entitled to know how much of the bill has been paid.