How to Use the Innocent Spouse Rule for Tax Relief

When couples file a joint tax return, they agree to “joint and several liability.” This legal term means that each person is individually responsible for the entire tax debt, including any interest and penalties. The Internal Revenue Service (IRS) can collect the full amount from either spouse, regardless of who earned the income or made errors on the return. This remains true even if a divorce decree assigns the tax debt to one person, as the IRS is not bound by such agreements.

Because this arrangement can be unfair, the IRS provides relief provisions for individuals facing a tax liability caused by their current or former spouse.

Types of Relief Available

Innocent Spouse Relief

Innocent Spouse Relief absolves an individual from responsibility for tax understatements on a joint return. To qualify under Internal Revenue Code (IRC) Section 6015, the understatement must be due to “erroneous items” of the other spouse, such as unreported income or incorrect deductions. The requesting spouse must prove that at the time of signing the return, they did not know, and had no reason to know, about the tax understatement.

The IRS evaluates what a reasonable person in similar circumstances would have known. It must also be inequitable to hold the requesting spouse liable. A request must be filed no later than two years after the IRS first begins collection activities.

Separation of Liability Relief

Separation of Liability Relief does not erase the tax debt but divides it between the two individuals. The understated tax, interest, and penalties are allocated, making each person responsible only for their portion. This option is only available to individuals who are no longer married, are legally separated, or have not lived in the same household for the 12 months before the relief request.

A person can qualify even if they knew about the erroneous items, as long as they did not have actual knowledge of the extent of the understatement. This relief provides a path for individuals to be held accountable only for their specific share of the joint tax liability.

Equitable Relief

For those who do not qualify for the other two forms of relief, Equitable Relief may be an option if it would be unfair to hold a spouse liable for the tax. This relief can apply to an underpayment of tax (tax that was correctly reported but not paid) in addition to an understatement. The IRS considers several factors, including:

• Marital status
• Economic hardship if relief is not granted
• Whether the requesting spouse significantly benefited from the unpaid tax
• Whether the requesting spouse had knowledge of the issue
• Any history of spousal abuse or domestic violence
• If the person seeking relief is now in compliance with tax laws

The timeframe to request equitable relief is tied to the 10-year period the IRS has to collect the tax.

Information and Documentation to Prepare

Required Information

You must gather specific information for your application. You will need a copy of the joint tax return for the year in question and any IRS notices you received. Be prepared to provide the following:

• The tax year or years for which you are requesting relief
• Social Security numbers for both yourself and your spouse (or former spouse)
• Your current contact information and details about your marital status
• The specific incorrect items on the tax return that caused the liability

Supporting Documentation

To support your request, you should provide documentation relevant to your situation. For a claim of economic hardship, provide financial records like medical bills or unemployment records. In cases involving domestic abuse, include police reports or restraining orders. Other useful documents can include:

• Correspondence showing you were not involved in the finances that caused the error
• Sworn statements from third parties about your limited financial involvement
• Bank statements from the relevant tax years showing separate finances or that you did not benefit from the tax understatement

IRS Form 8857

The application for all three types of relief is IRS Form 8857, Request for Innocent Spouse Relief. You can download the current version from the IRS website. The form requires you to provide the personal and financial information you have gathered and explain why you believe you qualify for relief.

You do not need to determine which type of relief is the best fit; the IRS will consider your eligibility for all of them based on the information you provide.

The Application Process

Submitting the Form

Submit the completed Form 8857 and all supporting documents to the IRS using the mailing address or fax number in the form’s instructions. Do not include Form 8857 with your current year’s tax return, as it is a separate request. You should file the form as soon as you become aware of a tax liability for which you believe you are not responsible.

Even if you do not have all the supporting documentation ready, it is advisable to submit the form to meet the filing deadline and supplement it later. The IRS will suspend collection activities for the tax years in your request while your case is under review.

After Submission

After receiving your request, the IRS is required to contact your spouse or former spouse to allow them to participate in the process. The IRS will take steps to protect your personal information, such as your current address, especially in cases involving domestic violence. The review process can take six months or more.

You will receive a preliminary determination letter, followed by a final determination letter outlining the decision. If your request is denied, the letter will explain your right to appeal to the U.S. Tax Court.

Special Considerations for Community Property States

Impact of Community Property Laws

In Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, community property laws govern marital assets. Under these laws, income earned during the marriage is considered owned equally by both. This can affect tax liability even for couples who file separate returns, as each spouse may be liable for tax on half of the total community income.

A person might be held liable for tax on income their spouse earned and controlled. The IRS has specific relief provisions under IRC Section 66 for these situations.

Relief in Community Property Context

If you live in a community property state and did not file a joint return, you may be able to request relief from tax liability created by your spouse’s income. The rules require demonstrating that you did not know of the community income item and that it would be inequitable to include it in your gross income.

The goal is to prevent an individual from being unfairly taxed on income they did not personally receive or control. The analysis also considers whether the requesting spouse benefited from the unreported income.