It can be a nightmare — finding yourself responsible for a tax bill when it was your spouse who made the mistake. But you can get yourself off the hook under “innocent spouse” relief if you meet all the following conditions, according to the IRS:

  • You must have filed a joint return that has an understatement of tax.
  • The understatement of tax must be due to erroneous items of your spouse.
  • You must establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax.
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.
  • You must request relief within two years after the date on which the IRS first began collection activity against you, after July 22, 1998.

Tax problems like this typically crop up when couples have recently divorced or separated and no longer have their financial lives tied together. If you feel you meet all the above criteria, you will have to file Form 8857, Request for Innocent Spouse Relief. The IRS will let your spouse or former spouse know that you have filed this form, but will not disclose your current contact information if you’re living apart.

The process can be lengthy, taking up to six months, according to the IRS.

Other options

The IRS also offers exemptions for relief under “separation of liability.” In this situation, the couple divides the understatement of tax, interest and penalties that resulted from a joint return. The understatement of tax allocated to you is generally the amount of income and deductions attributable to your earnings and assets, according to the IRS. To qualify for separate liability, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857:

  • You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. (Under this rule, you are no longer married if you are widowed.)
  • You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857.

The third option, “equitable relief,” is more complicated. This system may apply if neither of the above are appropriate. The IRS takes into account many factors, including your current marital status and the reasonable belief of the requesting spouse, at the time he or she signed the return, that the tax was going to be paid; or in the case of an understatement, whether the requesting spouse had knowledge or reason to know of the understatement.

More information is on the IRS website. However, it can be difficult to figure out which options are right for you, and under which circumstances. Give us a call and we can guide you through the complex IRS rules.

Contact us at 703-218-3600 or click here. To review our personal financial planning articles, click hereTo learn more about MCB’s tax practice and our tax experts, click here. 

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