As a tax attorney, I’m sometimes asked about IRS Innocent Spouse Relief and what it means for California taxpayers. IRS Innocent Spouse Relief is a provision that allows a taxpayer to be relieved from joint tax liabilities if their spouse or former spouse incorrectly reported items or understated taxes due on your joint tax return and you had no knowledge of the errors. To qualify for Innocent Spouse Relief, certain conditions must be met, such as proving that the innocent spouse had no knowledge or reason to know about the inaccuracies on the tax return. Let’s look at the specifics of IRS Innocent Spouse Relief and what it means for San Francisco taxpayers.
According to the IRS, Innocent Spouse Relief is only for taxes due on a spouse’s income from employment or self-employment. A taxpayer cannot claim relief for taxes due on their own income, household employment taxes, Individual Shared Responsibility payments, business taxes, and trust fund recovery penalties for employment taxes.
There are several ways that a person may be eligible for Innocent Spouse Relief. First, you filed a joint return with your spouse or former spouse. Second, your taxes were understated due to errors on your return and you did not know about the errors. Finally, you live in a community property state, such as California. Errors that cause understated taxes include: unreported income, incorrect deductions or credits, or incorrect values given for assets.
When you file a joint tax return with your spouse, regardless of how you file, you are both responsible for the tax and any interest or penalty due. This is true if you later divorce, or even if a divorce decree states that your spouse is responsible for the taxes. It’s also true if your spouse is the person who earned all the income.
How to Request Innocent Spouse Relief
Most taxpayers are unaware there is an issue with their taxes until they receive a notice from the IRS stating they owe fees and penalties, or if an audit occurs. If you receive a notice that you owe tax on a joint return, follow the instructions in your letter. The letter should tell you to file Form 8857, Request for Innocent Spouse Relief. There are several different types of relief for which you may be eligible, including innocent spouse relief, separation of liability and equitable relief. Separation of liability relief occurs if your joint tax return understated the amount of taxes due and you are divorced, separated or no longer living with your spouse. Equitable relief occurs if your spouse understated or underpaid taxes and it would be unfair to hold you responsible based on all the facts and circumstances.
Taxpayers cannot claim Innocent Spouse Relief for understated taxes if you had actual knowledge of the errors on your return; if a reasonable person in similar circumstances would have known about the errors; and if you knew that your spouse received unreported income. The exception to this is for victims of domestic abuse. The IRS will then consider all your information and apply the correct type of relief. You must request the relief within two years of receiving the IRS notice of an audit or taxes due.
Applying for Innocent Spouse Relief can be tricky. However, if you think you are eligible or received a notice from the IRS, it’s best to work with an experienced San Francisco tax attorney who can help you navigate the issue with the IRS.
Allison Soares is a partner and tax attorney at Vanst Law LLP. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits from San Francisco to San Diego.
