Filing your taxes jointly with a spouse has its benefits. Aside from larger deductions and special tax breaks, joint filing involves less hassle than filing separately. But filing jointly also puts you at risk if your current or former spouse makes mistakes or purposely reports incorrect tax information.
Innocent spouse tax relief can help get you out of hot water with the IRS over spousal tax issues. However, it's easy to confuse innocent spouse relief with injured spouse relief—another means of resolving spousal tax issues you weren't initially aware of. Reading about the differences between the two can help you avoid costly and time-consuming mistakes.
Innocent Spouse Relief
The IRS offers innocent spouse relief if you're a joint tax filer who's facing tax debt because your spouse lied or made a mistake on your joint tax return, resulting in fewer taxes owed. Married couples filing separately in states with community property laws may also benefit from innocent spouse relief.
By requesting innocent spouse relief, the IRS will determine your tax liability and relieve you of any taxes, interest, and penalties incurred through your spouse's actions. However, this depends on a few important conditions:
- Your spouse was solely responsible for the errors reported in your joint tax return.
- You had no actual knowledge of any errors in the joint tax return prior to signing.
- You had no reason to benefit from said errors, nor did you receive any benefits.
- You haven't engaged in any behavior that would raise red flags, including transferring assets for tax avoidance purposes.
To apply for innocent spouse relief, you'll need to fill out and submit Form 8857 to the IRS. Not only should you fax or mail this form separately from your normal tax return, but you also have two years from the time the incorrect joint tax return was filed to submit your claim. The IRS will process your claim based on the facts and circumstances surrounding the matter.
Keep in mind that the process can take up to six months and it requires the IRS to contact your current or former spouse. Applying for innocent spouse relief won't relieve you of all your tax obligations – only those unfairly incurred due to your spouse's actions.
Injured Spouse Relief
When the IRS offsets tax refunds to fulfill unpaid federal taxes, state income taxes, defaulted student loans and other debt obligations, it doesn't discriminate between spouses. If you're expecting a tax refund from a jointly filed tax return, only to discover it's being used to cover your current or former spouse's past debts, then you'll need injured spouse relief.
Whereas innocent spouse relief can free you from joint tax liabilities you've had no knowledge of, injured spouse relief ensures that you'll still receive your share of the tax refund. Injured spouse relief also comes with its share of requirements:
- You've paid federal income tax or claimed the Earned Income Credit or Additional Child Tax Credit.
- Your spouse's past-due debts are legally enforceable and currently being enforced.
- You have no legal obligation to pay your spouse's debt.
You'll also need to fill out a different form, Form 8357, for your injured spouse relief claim and submit it along with your joint tax return. You can also file it separately if you received a Notice of Offset informing you of its intent to offset part or all of your tax refund. The IRS will then determine if you qualify for relief and determine the amount owed to you based on the form's information. This process takes several weeks. In states that follow community property laws, the IRS will use state law to determine how much of the refund should be returned to you.
To learn more about the process, contact services such as Inside Out Tax Resolution Services.