What Are the Rules for the Innocent Spouse Defense?

When married couples file a joint tax return, they are subject to joint and several liability. This means each spouse is individually responsible for the entire tax debt, including interest and penalties, from that return. The Internal Revenue Service (IRS) can collect the full amount from either spouse, regardless of who earned the income or made the error. This liability remains even if a divorce decree assigns the tax debt to one former spouse.

This can create a difficult situation for an individual whose spouse or former spouse made errors on the tax return without their knowledge. To address this, the IRS provides innocent spouse relief. These provisions are designed to relieve a qualifying spouse from the tax liability created by the other spouse.

Types of Relief and Qualification Requirements

The IRS offers three types of relief from joint and several liability, each with its own rules. When a taxpayer files for relief, the IRS automatically considers them for all three types based on the specific facts of the case, including marital status and knowledge of the financial errors.

Innocent Spouse Relief

This relief applies to an “understatement of tax,” which occurs when the tax on the return is less than it should have been due to errors like unreported income or incorrect deductions. To qualify, a joint return must have been filed for the year in question. The understatement must also be due to an “erroneous item” solely attributable to the other spouse.

The requesting spouse must establish that when they signed 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, considering the requesting spouse’s education, financial situation, and involvement in the activity causing the error. It must also be unfair to hold the requesting spouse liable for the tax deficiency.

Separation of Liability Relief

This relief allows for the allocation of a tax deficiency between spouses. It divides the additional tax, interest, and penalties between them based on each person’s responsibility for the errors. This option is only available for understated tax liabilities, not for taxes that were correctly reported but unpaid.

To be eligible, the requesting spouse must be divorced, legally separated, or have lived apart from the other spouse for at least 12 months when the request is made. Unlike innocent spouse relief, the standard is “actual knowledge.” The requesting spouse must not have had actual knowledge of the item causing the deficiency when signing the return, which is less stringent than the “reason to know” test.

Equitable Relief

Equitable relief is a flexible option for taxpayers who do not qualify for the other two types of relief. It is the only form that can address an “underpayment of tax”—a liability that was correctly reported but not paid. It can also apply to understated tax, and its primary principle is fairness.

The IRS considers many factors to determine if holding the requesting spouse liable would be inequitable. These factors include:

• Whether the requesting spouse is experiencing economic hardship.
• Their marital status.
• Whether they knew or had reason to know about the understatement or that the tax would not be paid.
• Whether the requesting spouse was a victim of spousal abuse.
• If the other spouse maintained financial control, making it difficult to challenge the return.

Information and Documentation to Prepare

Obtaining relief requires a well-documented request using IRS Form 8857, Request for Innocent Spouse Relief. Before completing the form, you must gather all necessary information and supporting evidence to substantiate the claim. This documentation will form the basis of the IRS’s decision.

You will need personal information for both yourself and your spouse, including names and Social Security numbers, and the tax years in question. If divorced or legally separated, provide documents like a divorce decree or separation agreement. Include any relevant IRS correspondence, such as notices of deficiency or collection.

Gathering evidence to support your narrative is a large part of the preparation. To demonstrate a lack of knowledge, you can use separate bank account statements or a written explanation of your limited involvement in family finances. If claiming economic hardship, prepare documentation of your current income, expenses, and assets. For claims involving abuse or financial control, police reports, court orders, or third-party statements can be used as evidence.

Completing Form 8857 requires a clear explanation of why you believe you qualify for relief. The form asks about your financial situation, your knowledge of the tax error, and the circumstances of signing the return. A detailed written narrative attached to the form can explain your situation and make a compelling case for why holding you responsible would be unfair.

The Filing and Review Process

After completing Form 8857 and gathering documents, you must submit the request to the IRS. The form must not be filed with a regular tax return. It should be mailed or faxed to the specific IRS address found in the form’s instructions, preferably using a method that provides proof of delivery.

A request for relief must be filed within two years after the date the IRS first began collection activities, such as garnishing wages or offsetting a refund. Due to this deadline, it is best to file the form as soon as you become aware of the liability. You can submit the request even if you have not gathered all possible documentation.

After the IRS receives the request, it begins a review. The IRS is required by law to contact the non-requesting spouse to inform them that a request has been filed. The non-requesting spouse is given an opportunity to participate and provide information. The IRS has procedures to protect the requesting spouse’s confidential information, like their current address, in domestic abuse cases.

The review process can take six months or more, during which the IRS analyzes information from both spouses and may request more details. Once the review is complete, the IRS issues a preliminary determination letter to both parties. If there is no appeal of this finding, the IRS will issue a final determination letter stating if relief is granted, partially granted, or denied. If the request is denied, the taxpayer has the right to appeal the decision to the U.S. Tax Court, typically within 30 days of the determination letter.