IRS Innocent Spouse Consideration - Form 8857 - John R. Dundon II, Enrolled Agent
8132
post-template-default,single,single-post,postid-8132,single-format-standard,bridge-core-3.0.1,qodef-qi--no-touch,qi-addons-for-elementor-1.5.5,qode-page-transition-enabled,ajax_fade,page_not_loaded,,qode_grid_1300,footer_responsive_adv,qode-content-sidebar-responsive,qode-theme-ver-29.2,qode-theme-bridge,qode_header_in_grid,wpb-js-composer js-comp-ver-6.10.0,vc_responsive,elementor-default,elementor-kit-269
 

IRS Innocent Spouse Consideration – Form 8857

IRS Innocent Spouse Consideration – Form 8857

By completing IRS Form 8857 (Request for Innocent Spouse Relief) the innocent spouse is attesting he or she should not be held responsible for the other spouse’s liability. If approved, it does not eliminate the liability; it effectively transfers all of it to the spouse who created the liability. A word of caution: By law the liable spouse will be made aware of the innocent spouse’s filing. If the relationship was abusive, the innocent spouse may need legal help in addition to relief from liability. An innocent spouse seeking relief from joint tax liability must meet ALL 4 conditions:

  1. The tax must be based on a joint return the year of relief;
  2. The return must have understatement of tax due to erroneous items of the taxpayer’s spouse;
  3. The spouse seeking relief did not know of the understated tax;
  4. It would be unfair to hold the spouse seeking relief liable for the understatement of tax.

When a joint tax return is filed, both taxpayers are jointly and individually liable for the tax and any interest or penalty due on the return even if they later divorce. This is true even if a divorce decree states a former spouse will be responsible for any amounts due on a previously-filed joint return. I have seen situations whereby one spouse is held responsible for payment of all tax due even if all the income was earned by the other spouse.  Point is innocent spouse claims need to be handled with care and thoroughly researched for many reasons and the following three stand out in my mind at the moment.

  1. An innocent spouse may still have a liability for some of the tax due if for example both spouses underreported their income.
  2. The innocent spouse must not have known about the error at the time of filing nor have had property transferred to him or her from the other spouse to avoid the tax deficiency.
  3. An innocent spouse will still be liable for the amount directly owed, but the taxpayer can separate him/herself from the spouse’s liability.
  4. Innocent spouse situations situations can also be created when there is a tax liability that was calculated correctly but went unpaid. The innocent spouse did not know the other spouse failed to pay the amount due. This often occurs in abusive relationships.

 

Community Property States and the Innocent Spouse – Filing for injured or innocent spouse relief should always be pursued with diligence to detail. In community property states, additional care needs to be observed.

Taxpayers in the following states must determine ownership of property, income, and debt under community property laws: • Arizona • California • Idaho • Louisiana • Nevada • New Mexico • Texas • Washington • Wisconsin. Living in a community property state can add extra complexity to tax compliance and reporting. Allocating property, income, and debt in the proper manner can make a big difference for a spouse who is not responsible for his or her former spouse’s tax liabilities. Apply principles based on your states community property laws.

Community property laws require the allocation of community income equally between both spouses. However, community property laws are not taken into account in determining whether an item belongs to the innocent spouse or the liable spouse in requesting relief from liability. Therefore, an innocent spouse may be able to separate herself from the entire liability if her request is approved. Certain qualifications must be met in order to obtain relief from tax liability for an item of community income:

  1. The innocent spouse must not have filed a joint return for the year in question.
  2. The community income creating the liability must not have been known to the innocent spouse and by definition it did not show up on their separate return. It is not enough to state the innocent spouse did not know of the income amount; he or she must specifically not be aware of the income in question at all. For example, if the individual knew his or her spouse was working somewhere but not aware of the company name or specific income, there was reason to know income existed, and the individual would therefore not be relieved of liability. However, if his or her spouse was concealing partnership income, the innocent spouse would not have known this income existed, which could be the basis for innocent spouse relief.
  3. Lastly, a standard of fairness is applied. Relief from liability may be granted if it would be unfair for the innocent spouse to pay because he or she did not receive a benefit from the unknown income, is divorced from the liable spouse, or was abandoned by the liable spouse.



Share