When a married couple files a joint return, both spouses are considered to be responsible for the entire tax liability. There are circumstances when one spouse may not be an active participant in the family’s finances or be aware of all the information in the tax filings. This spouse may find themselves equally liable for problems with the filings and any taxes owed.
When couples divorce, there are frequently financial disagreements. Sometimes these financial difficulties involve disagreements about tax filings or the discovery of improper tax filings by one or both parties. IRC 6015 may provide relief for an innocent spouse in the event of underpayment of tax liability by the other spouse.
Qualification for innocent spouse relief
A spouse can apply for relief from underpaid tax liability on a joint return if all the following are true:
- Filed a joint return
- Understated tax owed based on erroneous deductions by the other spouse
- Innocent spouses can show that they did not know or had no reason to know that the understated tax existed.
- It can be determined that it would be unfair to hold the innocent spouse liable for the tax owed.
Financial abuse by the spouse who caused tax liability may provide relief for victim
The IRS acknowledges that financial abuse can be a significant factor in a relationship. If the spouse requesting relief has evidence of abuse, they may be granted relief even if they knew or should have known about a tax scheme or underpayment of taxes. Revenue Procedure 2013-34 outlines the circumstances when abuse can be claimed by a spouse in the application for relief from liability.
An applicant spouse needs to show that they were forced to sign a return under duress, did not have knowledge or control over the couple’s finances or feared retaliation from the offending spouse if they questioned anything on the return.
Actual knowledge or reason to know about understated tax
Jointly filing spouses will usually be considered liable for taxes owed. The IRS will consider reasons why one spouse was not aware of a problem. They will take a few things under consideration when making a determination:
- The nature of the erroneous item and the amount
- The financial situation of either or both spouses
- The educational background or business experience
- The extent of participation in the activity surrounding the erroneous item
- Whether the spouse signed the return with or without asking questions
- Consistency with previous years’ tax filings
When can a spouse file for innocent spouse relief?
If a former spouse believes they are eligible for relief from tax liability as an innocent spouse, they should file as soon as they are aware of the collection activity. You must file for relief with Form 8857 no later than two years after first began collection activities.