When you file a joint tax return, you are responsible, along with your spouse, for the information in the return. If it turns out that your spouse under-reported his or her income, or claimed deductions or credits without being entitled to them, you might be liable for the resulting taxes, penalties and interest — just as your spouse is.
There are some instances in which you might find tax relief, however. The IRS, with a new rules regarding innocent spouse tax relief, is making it a little easier to get free of your spouse’s tax debt. If you want “equitable relief” there is no longer a two-year limit for applying. And, if you have been turned down because of being outside this limit, you can reapply under the new rule. But, in order to take advantage of this rule, you have to be an “innocent spouse.”
What is an “Innocent Spouse?”
First, it helps to know whether or not you qualify as an innocent spouse. Because your joint tax return makes you jointly liable with your spouse for tax debt, it is important to understand what can qualify you as an “innocent spouse.” IRS Publication 971 offers insights into innocent spouse relief, and how you can apply for it. In order to be considered innocent, you need to meet the following criteria when filing a joint tax return:
- The understated tax on your return is due to erroneous items reported by your spouse. Erroneous items can include deductions for expenses that were never actually paid, unreported income, or a tax deduction for an expense that doesn’t qualify.
- You did not know — and had no reason to know — that the understated tax existed.
- It would be unfair to hold you liable for the tax.
When considering your case, the IRS will take into account various factors. These factors might include whether you participated in the erroneous activity, the amount of business experience you have and your educational background, whether you asked about the items on the return and received assurances, whether the items were out of the ordinary. Even if you don’t qualify for full relief, you might qualify for partial relief.
What is Equitable Relief?
This is the type of tax liability relief that is subject to the new IRS rule. If you are not eligible for innocent spouse relief, you can apply for equitable relief. This is relief from an underpaid tax amount, or an understated tax. This can come in handy if you have paid a portion of what you owe, but still have money left to pay on your taxes, and the underpayment is due to your spouse. In some cases, money to pay taxes might have been appropriated by the spouse for his or her own benefit, and you might not have realized what was happening. In some cases, you might even be eligible for a refund under equitable relief, depending on your circumstances, what you paid, and the situation with your spouse.
The IRS will review cases of equitable relief and innocent spouse relief carefully. You will need to be able to document your case, and show why you should not be held liable, even though you signed the joint return, for tax debt, interest, and tax penalties incurred by your spouse.