You found out that your spouse was cheating on taxes, and now the Internal Revenue Service (IRS) is holding you liable for a tax understatement. If you file for taxes jointly with your spouse, the law makes both of you responsible for the tax liability, even if you had nothing to do with the understatement. However, you can avoid paying some taxes, interests and penalties if you qualify for innocent spouse relief.
Innocent spouse relief
To obtain innocent spouse relief, you need to prove that you didn’t know and had no reason to know about the understatement of tax. You also need to meet the following conditions:
- You filed a joint return which has an understatement of tax due to erroneous items (unreported income or incorrect deduction, credit or basis) of your spouse.
- You and your spouse have not transferred property to another to defraud the IRS, a creditor or a business partner.
You must keep in mind that innocent spouse relief only applies to individual income or self-employment taxes. Unfortunately, you would need to pay for any other taxes or interests, such as business taxes and Individual Shared Responsibility payments.
Proving ignorance of the tax understatement
It will not be enough for the IRS if you prove that you did not know about the tax understatement. You also need to prove that you had no reason to know about it. For this, the IRS will study your case and decide whether you could have known based on different facts and circumstances.
If the IRS sees that you had no reason to know, they will grant you the relief if they deem it unfair to hold you responsible for the understatement. The IRS will analyze if you benefited from the understatement to determine whether the situation is unfair to you.
Your right for relief
If you did not know about your spouse’s erroneous items in your tax return, you have the right to ask the IRS to relieve you from the liability. To ask for relief, you need to file Form 887 as soon as you become aware of the tax liability. You need to do this no later than two years after the date of the IRS’s notice. Otherwise, you may lose your chances to get the innocent spouse relief.