The tax attorneys at Nardone Limited, in Columbus, Ohio, have extensive experience representing taxpayers who are involved in various stages of Internal Revenue Service (“IRS”) collection processes. We specialize in working with IRS revenue officers, and guiding clients through tax collection alternatives, including offers-in-compromise, installment agreements, discharges in bankruptcy and innocent spouse relief. Generally, taxpayers who file a joint tax return are jointly and severally liable for liabilities arising from mistakes and omissions on that tax return. Imposition of joint and several liability means that each taxpayer is legally responsible for the entire liability. This means that the IRS can proceed against either taxpayer—or both—to resolve the tax liability. IRC §6013(d)(3). But, there is an exception to the general rule if a spouse is innocent. IRC §6015. Petitioning taxpayers may be able to persuade the IRS that joint and several liability should not apply, in consideration of the facts and circumstances surrounding preparation of the return. The IRS’s review of innocent spouse relief is fact-intensive, with no one factor being determinative.
Request for Innocent Spouse Relief
Taxpayers can request innocent spouse relief in three forms: (i) relief from liability for additional tax owed where the spouse or former spouse failed to correctly report income or claim deductions; (ii) relief in the form of separation of the liability attributable to the taxpayer and liability attributable to the taxpayer’s estranged or former spouse; and (iii) relief where the taxpayer does not otherwise qualify for innocent spouse relief, however holding the taxpayer liable for the tax deficiency would be inequitable. A taxpayer requesting innocent spouse relief must generally do so within two years of the tax liability assessment.
Requesting innocent spouse relief in any of the forms described above requires filing IRS Form 8857, Request for Innocent Spouse Relief. To qualify for liability relief, a petitioning taxpayer must demonstrate: (i) that they filed a joint tax return with an understatement of tax due to reporting of their then-spouse’s erroneous items; (ii) that at the time of signing the return the taxpayer did not know or have reason to know about the understatement of tax; and (iii) that it would be unfair, after considering the facts and circumstances, to hold the innocent spouse liable. IRC §6015. To qualify for separation of liability relief, a petitioning taxpayer must demonstrate that: (i) the taxpayer is no longer married to or is legally separated from the spouse with whom the taxpayer filed the joint return; and (ii) the taxpayer was not a member of the same household as the other spouse on the joint tax return for the 12-month period preceding the request for relief.
Knowledge or Reason to Know of the Misstatement
It is often difficult for the petitioning spouse to prove that they did not know or have reason to know of the deficiency. After all, the petitioner did sign the return. Further, even if the petitioning spouse had actual knowledge of only a portion of the erroneous items, the IRS will not grant relief. The IRS will argue that the petitioner should have known about the deficiency if the petitioner benefited from the understatement of tax or the return represented an unqualified departure from the couple’s prior returns. The presumption when an individual affixes their signature to a document is endorsement of its contents. But, a petitioner may satisfy the lack of knowledge element even in certain conditions where a petitioner was given the opportunity to review the return. For example, if the petitioner’s spouse was hiding an income source, then it would be reasonable for the petitioner, having reviewed the return, to be ignorant of the understatement of income. In other situations, the disparity in education between the petitioner and the other person named on the return may be so great as to impede the petitioner’s meaningful review. Our previous blog article illustrates an example of the IRS denying a spouse relief for failure to prove she did not know, or have reason to know of the understatement of tax.
Satisfaction of the above elements require the petitioning taxpayer to be familiar with tax law. To fill out Form 8857 the taxpayer must be equip with detailed and relevant information in order successfully plead their case to the IRS. Form 8857 includes questions about the petitioner’s marriage, educational background, health problems, involvement with the couple’s finances and current financial status. Petitioners may have to conduct extensive investigation into past financials and proffer documentation about sensitive private topics. Thus, preparing to request innocent spouse relief can be difficult, especially while facing persistent IRS revenue officers during the collections process.
Contact Nardone Limited
The tax attorneys at Nardone Limited have experience preparing requests for innocent spouse relief and guiding clients through other tax collection alternatives. The IRS recognizes certain situations where it would be inappropriate to impose joint and severable liability, however, it is up to the petitioner to prove the elements for entitlement to innocent spouse relief. A taxpayer’s review or non-review of her joint tax return will not prelude innocent spouse relief. The tax attorneys at Nardone Limited have vast expertise in representing taxpayers in all stages of IRS tax collections processes. If you have questions regarding your tax liability, or communications you have received from an IRS revenue officer, please contact Nardone Limited.