Tax Controversy & Resolution: Innocent, Injured Spouse Relief
Innocent & Injured Spouse Relief
Most married taxpayers file a joint tax return because of certain available benefits provided under this filing status. However, when filing jointly, both taxpayer spouses are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise from the joint return even if they later divorce.
Joint and several liability means that each taxpayer is legally responsible for the entire liability. Thus, both spouses on a married filing jointly return are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits. This also generally applies even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. In some cases, however, a spouse can get relief from being jointly and severally liable.
Joint and Several Liability Relief Options
If the actions of your spouse created the tax liability and you were unaware, or did not participate in those actions, you may have three options to request relief from the joint and several liability (married taxpayers who filed joint returns): (1) Innocent Spouse Relief; (2) Relief by Separation of Liability, (3) Equitable Relief.
Offer-in-Compromise - Specific Tax Year & Liability Addressed Closed
Note, if a you filed a Form 656, Offer-in-Compromise, under doubt as to tax liability and the IRS accepted the Offer-in-Compromise. you CANNOT apply for Innocent Spouse Relief for any year in which an Offer-in-Compromise was accepted. Acceptance of an Offer in Compromise conclusively closes the tax year(s) compromised from any re-determination of the tax liability pursuant to IRS protocol.
Closing Agreement - Specific Items Addressed Closed
However, if you signed a Closing Agreement with the IRS, you MAY still be able to apply for Innocent Spouse Relief depending on the type of closing agreement you signed.
(1) If you signed Form 866, Agreement as to Final Determination of the Tax Liability, the tax year is closed with finality and you cannot apply for innocent spouse relief.
(2) If you signed Form 906, Closing Agreement on Final Determination Covering Specific Matters, only those matters covered in the closing agreement are conclusively closed. Innocent Spouse Relief may be requested for matters not covered in the closing agreement.
(3) If the Closing Agreement involved Tax Equity Fiscal Responsibility ACS (TEFRA) issues refer to Treas. Reg. 1.6015-1(c) for exceptions to this rule.
Community Property State Relief
If you lived in a community property state and didn't file as married filing jointly, you might also qualify for relief from the operation of state community property law. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
While not community property states, Alaska and Oklahoma do allow couples to elect a community property system. See Alaska Statutes §§ 34.77.020 - 34.77.995. The U.S. Supreme Court ruled that the Oklahoma statute would not be recognized for federal income tax reporting purposes. Commissioner v. Harmon, 323 U.S. 44(1944). The Harmon decision should also apply to the Alaska system for income reporting purposes.
See Publication 971, Innocent Spouse Relief for additional restrictions on refunds available under innocent spouse relief, equitable relief, and relief based on community property laws.
Injured Spouse Relief
If you file a joint tax return with your spouse and all or part of the contributed overpayment was, or is expected to be, applied (offset) to your spouse's legally enforceable past-due federal tax, state income tax, state unemployment compensation debts, child or spousal support, or a federal non-tax debt, such as a student loan, you may be entitled to receive a refund for your share of the overpayment pursuant to "Injured Spouse Relief". You're an injured spouse if all or part of your share of a refund from a joint return was or will be applied against the separate past-due federal tax, state tax, child or spousal support, or federal non-tax debt (such as a student loan) owed by your spouse. For more information, see Form 8379, Injured Spouse Allocation or refer to Topic No. 203.
Note you generally cannot claim Injured Spouse Relief if you are already claiming Innocent Spouse Relief regarding the same specific tax period and tax liability associated with the IRS.
Additional IRS Links & Background:
Each type of relief has different requirements. Three Types of Relief at a Glance compares the rules for these three types of relief. You may also want to refer to Innocent Spouse Questions & Answers for more information about these types of relief.
You are not required to figure the tax, interest, and penalties that qualify for relief. The IRS will figure these amounts after you file Form 8857, Request for Innocent Spouse Relief.
Married persons who file separate returns in community property states may also qualify for relief. See Community Property Laws for more information.