IRS Publication 971: Innocent Spouse Relief Explained

IRS Publication 971, Innocent Spouse Relief, provides guidance for individuals who filed a joint tax return and believe they should not be held responsible for tax liabilities stemming from that return. When a married couple files a joint return, they both become subject to joint and several liability. This legal concept means each spouse is individually responsible for the entire tax debt, regardless of who earned the income or created the tax error. The IRS can collect the full amount from either spouse. This publication outlines specific exceptions to this rule, offering a path to be relieved of tax, interest, and penalties under certain circumstances.

Understanding the Types of Relief

Innocent Spouse Relief

To qualify for Innocent Spouse Relief, you must demonstrate that there is an understated tax on your joint return due to “erroneous items” attributable to your spouse or former spouse. Erroneous items include unreported income and incorrect deductions, credits, or property basis. You must also establish that at the time you signed the return, you did not know, and had no reason to know, that there was an understatement of tax. The IRS evaluates all facts and circumstances to determine if you had a reason to know, considering factors like the nature of the error, your financial situation, your educational background, and your involvement in the activity. Finally, it must be considered unfair to hold you liable for the tax, which the IRS assesses by looking at whether you received any significant benefit from the unpaid tax beyond normal support.

Separation of Liability Relief

This relief allows for the allocation of the tax understatement between you and your spouse, meaning you would only be responsible for the portion of the tax debt allocated to you. To be eligible, you must have filed a joint return and, at the time you request relief, you must be divorced, legally separated, or have lived apart from the other spouse for at least 12 months. A primary requirement is that you did not have actual knowledge of the item causing the tax understatement when you signed the return. This standard is different from the “reason to know” standard for Innocent Spouse Relief, as it requires proving you were unaware of the specific transaction. Relief is generally not available for tax that was reported on the return but not paid.

Equitable Relief

Equitable Relief is an option for individuals who do not qualify for the other forms of relief. It is based on fairness and is available if the IRS determines it would be inequitable to hold you liable for the tax. This applies to both understatements of tax and unpaid taxes reported correctly on a joint return. The IRS considers many factors, including your current marital status, whether you would suffer economic hardship, and whether you knew or had reason to know about the items causing the tax liability. The IRS also gives significant weight to whether you were a victim of spousal abuse or financial control, your physical and mental health, and whether you made a good faith effort to comply with tax laws in the years following the year in question.

Information and Documentation for Form 8857

To formally request relief, you must use Form 8857, Request for Innocent Spouse Relief. You will need to gather personal and financial information, including your contact details, Social Security number, and the same information for your spouse or former spouse. You must also identify the specific tax years and the amount of tax liability involved.

The form requires a detailed, written explanation of why you believe you qualify. This narrative should describe the facts surrounding the tax debt, explaining your lack of knowledge, your involvement, and your financial relationship with the other spouse. It should directly address the requirements for the type of relief you are seeking. You must also submit supporting documentation to provide evidence for your claim. Examples include divorce decrees, financial records demonstrating economic hardship, and court or police records substantiating claims of spousal abuse.

The Filing and Review Process

Submit the completed Form 8857 and supporting documents to the IRS processing center specified in the form’s instructions. You should not file this form with your annual tax return. After the IRS receives your request, the agency is legally required to notify the non-requesting spouse. This notice informs them of your request and gives them an opportunity to participate in the process.

The IRS will then review your claim, analyzing the information you provided, any information from the non-requesting spouse, and its own records. An examiner may contact you if more information is needed. The process can take several months, but you will eventually receive a preliminary determination letter from the IRS explaining its decision and your appeal rights.

Special Considerations

Community Property Laws

Community property laws, which are in effect in several states, can complicate an innocent spouse claim. In these states, income earned by one spouse during the marriage may be considered the property of both, a principle that can affect how the IRS attributes income and tax liability. For example, if your spouse had unreported income, community property laws might treat half of that income as yours, making it more difficult to qualify for relief. The IRS may disregard community property laws, however, if you can show you acted as if you were entitled to only your own earnings and did not know about your spouse’s unreported income. Publication 555, Community Property, provides more detailed guidance.

Time Limits for Requesting Relief

The time limits for requesting relief are based on the 10-year period the IRS has to collect tax. For a request to be relieved of a tax you owe, you must file Form 8857 before this 10-year collection period expires. If you are seeking a refund of taxes you already paid, stricter deadlines apply. You must file your request within three years after you filed the return or two years after you paid the tax, whichever is later. The previous two-year deadline that began with collection activities no longer applies for most relief requests.