Innocent Spouse Relief Requirements

The Internal Revenue Service added the innocent spouse relief option to its code in order to deal with situations where it would not be just to hold one spouse liable for the unknown actions of another when filing jointly. If one spouse has been dishonest on a tax return, the IRS did not feel it prudent to hold both accountable. There are several situations, such as separation, that would absolve the spouse of liability. The "Classic" innocent spouse relief does not even require separation. 

#1 Filed Jointly on an Erroneous Return

The first qualification to claim an innocent spouse relief is filing jointly on a return that was erroneous due to understatement of tax liability. In this case, one spouse intentionally omitted information on the return that would have lead to a higher tax liability in the current year. This can include gains on property, asset sales and cash transactions. It can also include misreporting or under-reporting of wages. If the item can be attributable to one spouse, than that spouse is the one who will be held accountable. However, the other factors for the innocent spouse relief must also be present.

#2 You had No Knowledge of the Error

You must be able to prove that you did not have any knowledge of the understatement of taxes. This is typically determined by questioning whether you had any reason to know. For example, if your spouse earned $20,000 on a personal cash transaction but spent this money on a vacation where you were not present, you would have no reason to know the money was acquired. However, if your spouse used the money to buy you a car, you would have reason to know the money was earned. The burden of proof lies on you to show you did not know the income was not reported.

#3 It Would be Unfair to Hold you Accountable

Even if you did not know of the error, you could still be held accountable for it if you benefit from it. If you received a benefit from the lower tax liability or misreported income, you may be held equally liable as your spouse for the payment. Common ways to prove you did not benefit include divorce, separation or marital dispute. If your spouse spent the money on another individual, abandoned you or otherwise cheated you out of any benefit from the tax reduction, it would be "unfair" to hold you accountable.

Alternative Spouse Relief Options

If you do not meet the three qualifications for an adjustment of this form, you may qualify under one of two other scenarios. One option is a separation of liability due to divorce or separation. In this case, you would have to determine which items your spouse was liable for prior to the separation, and a judge would consider these items each on their own merit. The second option is available only if you fail to receive relief in the first two. It is called "equitable relief," and this option allows you to gain some assistance for an underpaid tax instead of just an erroneous report.

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