Innocent Spouse Relief: What to Do If Your Spouse Has Tax Debt

I was recently contacted by Ms. Claudia Revermann with Lucent Tax Relief with a request to be a guest blogger on our website in order to assist current and future clients with questions that they may have about tax debt. Ms. Revermann has been practicing law for 16 years. She also has 20 years of tax practice experience, holding a Certified Public Accountant license and having previously worked as a tax accountant in a large regional accounting firm.  She opened her own law firm in June 2015, where her primary focus is to educate and serve her clients with confidence and humbleness. In order to maintain those values of providing skilled and understandable advice to tax clients, Ms. Revermann partnered with Andrew Hawkins to form Lucent Tax Relief. The following is a guest blog written by Lucent Tax Relief.

Is your spouse in tax trouble with the IRS? Here are a few things you should know.

Married taxpayers who file a separate tax return are not liable for the accuracy of their spouse’s returns or for the payment of their spouse’s tax.  However, many married taxpayers choose to file a joint tax return because of certain preferences this filing status provides.  In this case, both taxpayers are jointly and severally liable for any tax, interest, and penalties on the joint return.  This liability extends after divorce even when the divorce decree provides for a differing allocation of liability. In certain cases, a spouse may receive relief from joint and several liability after making a request of the taxing authorities.

The following is a table summarizing the levels of relief/liability considering various factors:

Such relief may be available in three possible forms:

1. Innocent Spouse Relief.  A joint filer, whether currently married or not, may elect to limit their liability for unpaid taxes attributable to an understatement arising from erroneous items on a joint return. Erroneous items include failure to report income, improper reporting of income, or overstatement of deductions or credits. It retains the requirement that the individual did not know, and had no reason to know, of an understatement attributable to erroneous items.
2. Separation of Liability Relief.  With respect to deficiencies of a taxpayer who is no longer married to, is legally separated from, or has been living apart for at least 12 months from the person with whom the taxpayer originally filed the joint return, such taxpayers may elect to limit their liability to the portion of the deficiency that is attributable to items specifically allocable to the taxpayer.  Items are generally allocated between spouses in the same manner as they would have been allocated had the spouses filed separate returns. The burden of proof as to the allocation of the deficiency is on the taxpayer claiming relief.
3. Equitable Relief.  If the previous two forms of relief are either denied or inapplicable, the taxpayer may still request relief based on the facts and circumstances showing it would be inequitable to hold the individual liable for all or part of any unpaid tax or deficiency arising from a joint return. This differs specifically from innocent spouse relief and separation of liability relief in that it applies to both an understatement of tax and an underpayment of tax.  The other types of relief may not be used to create a refund, or to direct a refund to a particular spouse.

Making the Claim

An innocent spouse may seek relief by filing Form 8857, Request for Innocent Spouse Relief (and Separation of Liability, and Equitable Relief), or other similar statement signed under penalties of perjury, within two years of an assessment of additional tax.  However, a claim may be made prior to assessment, such as during an audit examination.  For this reason, it is advisable for a former joint filer to participate as early as possible in the audit process in the event it is necessary to contest the propriety of an additional assessment of tax.  

Alternatively, a taxpayer may make the separation of liability election any time after he or she is divorced, widowed, legally separated, or has been living apart from the spouse for at least 12 months, but the effect of that election occurs only after there is a deficiency.  A deficiency only arises when the IRS has assessed the tax.

Determining Factors

The following is a partial list of the positive and negative factors that will be taken into account by the IRS in determining whether to grant full or partial relief to a requesting taxpayer.  No single factor is determinative in any particular case.  Rather, all factors will be considered and weighed appropriately.

1. Marital status. Is the requesting spouse separated (whether legally separated or living apart) or divorced from the nonrequesting spouse?
2. Was the requesting spouse abused by the nonrequesting spouse, and did such abuse amount to duress?
3. Requesting or nonrequesting spouse’s legal obligation. Was the legal obligation for payment of the outstanding tax liability allocated to either spouse pursuant to a divorce decree or agreement?  If it was allocated to nonrequesting spouse, did the requesting spouse reasonably believe nonrequesting spouse would pay the liability?
4. Knowledge or reason to know. Did the requesting spouse know or have reason to know of the item giving rise to a deficiency or that the reported liability would be unpaid at the time the return was signed?
5. Significant benefit. Has the requesting spouse significantly benefited (beyond normal support) from the unpaid liability or items giving rise to the deficiency?
6. Economic hardship. Will the requesting spouse experience economic hardship if relief from the liability is not granted?
7. Noncompliance with federal laws, including income tax laws. Has the requesting spouse made a good-faith effort to comply with federal income tax laws in the subsequent tax year(s) to which the request for relief relates?  Have spouses appropriately applied for the relief? 

Be Diligent and Patient

Spousal relief is known to be one of the more complex types of relief to obtain from the IRS.  The process is slow, cumbersome and difficult to navigate.  Currently, applications for Innocent Spouse Relief are taking 12 to 24 months to process.  In addition, keep in mind that most often administrative requests are denied and only when they are presented to a judge are they more typically granted.  Many cases are denied because of mistakes made during the filing and because of lack of adequate representation.  Each such case must be carefully analyzed based upon the particular facts and circumstances.

You don’t have to navigate your tax debt situation alone. Contact Lucent Tax Relief for help!

Author Bio:

Claudia Revermann, Lucent Tax Relief Co-Founder, Attorney at Law, CPA

Claudia Revermann has been practicing law for 16 years. She also has 20 years of tax practice experience, holding a Certified Public Accountant license and having previously worked as a tax accountant in a large regional accounting firm.  She opened her own law firm in June 2015, where her primary focus is to educate and serve her clients with confidence and humbleness. In order to maintain those values of providing skilled and understandable advice to tax clients, Claudia partnered with Andrew Hawkins to form Lucent Tax Relief.