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Innocent Spouse Relief

A husband and wife are liable jointly and individually for the entire tax, penalties and interest arising out of a joint return. Relief is available under certain circumstances, commonly referred to as “Innocent Spouse Relief.” Three types of relief are available to the electing spouse: General Innocent Spouse Relief, Separation of Liability, or Equitable Relief. A spouse must generally request one of these types of relief within two years of the Internal Revenue Service beginning collection of a tax deficiency or assessment. Equitable relief requests, however, may be requested within the limitations for filing any claim for refund or for collection of tax.

Any determination by the Internal Revenue Service regarding Innocent Spouse Relief is reviewable in Tax Court. Notice of election for relief is required to be given to the non-electing spouse who may participate in any hearings on the relief requested. The Tax Court has held that the non-electing spouse has the right to a stand-alone hearing regarding the appropriateness of granting relief to the electing spouse. However, the appellate courts have limited the jurisdiction of the Tax Court with regard to Innocent Spouse Relief. The Tax Court has no jurisdiction to make an Innocent Spouse Relief determination unless the Internal Revenue Service has issued a deficiency notice to the Taxpayer.

General Innocent Spouse Relief

To qualify for General Innocent Spouse Relief, the Taxpayer must meet all of the following requirements:

  1. Have filed a joint return which has an understatement of tax due to erroneous items of the other spouse;
  2. Establish that at the time of signing the tax return the Taxpayer did not know, or have reason to know, there was an understatement of tax; and
  3. Taking into account all the facts and circumstances, show that it would be unfair to hold the innocent spouse liable for the understatement of tax.

A key element for the Internal Revenue Service will be whether the electing spouse received any substantial benefits, or later was divorced, separated from or deserted by, the other spouse.

Separation of Liability

Alternatively, the innocent spouse may elect to obtain relief by Separation of Liabilities. To qualify, the Taxpayer must have filed a joint return, and either:

  1. Be no longer married to, or be legally separated from, the spouse with whom the joint return was filed, or
  2. Must not have been a member of the same household with the spouse for a twelve-month period ending on the date of the filing for Innocent Spouse Relief.

The burden of proof on income and deductions is on the Taxpayer who elects relief under Separation of Liability.

Equitable Relief

Finally, should the innocent spouse fail to qualify for either of the first two types of relief, he or she may still obtain relief from the tax liabilities, interest and penalties by electing Equitable Relief. The Taxpayer must show that, under all the facts and circumstances, it would be unfair to be held liable for the understatement or underpayment of taxes. Under Equitable Relief the innocent spouse can receive relief from tax liabilities caused by underpayment of taxes.