When spouses file joint returns, each spouse is jointly and severally liable for all past due taxes. If the IRS believes that there is a tax deficiency on a jointly-filed return, it can undertake collection efforts against either or both spouses. Even if spouses divorced in the current year but filed joint returns in previous years, the IRS can pursue both spouses for past due taxes, interest and penalties in years where the couple filed joint returns.
This can lead to unjust outcomes, particularly if one spouse did not know and had no reason to know of the other spouse's malfeasance. The IRS has carved out exceptions to the rule of joint and several liability. These exceptions are known generally as Innocent Spouse Relief.
The three different kinds of relief for spouses or ex-spouses are:
- Innocent Spouse Relief: This relief may be available in situations where one's spouse or ex-spouse did not accurately report income or took erroneous credits or deductions.
- Separation of Liability Relief: This relief relates to improperly reported items on a joint return, and may be available for divorced, widowed, or separated individuals. With this type of relief, the ex-spouse seeking relief would still be liable for all tax liabilities he or she has incurred but would not be required to pay the ex-spouse's tax liabilities.
- Equitable Relief: Equitable relief could be available based on various factors not included in the previous two types of relief.
What does a spouse or ex-spouse need to prove to gain this relief?
Knowledge, or lack thereof, is a key element in each type of relief. In short, if a spouse knew or had reason to know of the tax underpayment, he or she is less likely to be "innocent", and the IRS is much less likely to grant relief. Along the same lines, any spouse requesting any of the above types of relief must show that he or she did not receive or transfer property to the other spouse to evade tax payments.
Additional requirements for each type of relief are below.
- Innocent Spouse Relief: To prove Innocent Spouse Relief, one must show that the other spouse understated tax on a jointly-filed return. The spouse requesting relief must also show that he or she had no knowledge of the understated tax and had no reason to know of it. Furthermore, the spouse requesting relief must also show that it would not be equitable to hold him or her responsible.
- Separation of Liability Relief: The spouse requesting relief must show that he or she has been divorced, legally separated, widowed, or not living with the spouse for the last year. The IRS will not grant Separation of Liability Relief if there is evidence to show that the spouse requesting relief knew of the tax deficiency.
- Equitable Relief: Equitable relief may be available for individuals who do not qualify for Innocent Spouse Relief or Separation of Liability Relief. The IRS will consider such factors as economic hardship, whether the spouse is still married, had knowledge of underreported or unpaid taxes, whether the spouse gained a significant benefit by not paying the taxes, health, and more.
If the IRS is pursuing you for tax debts accumulated by your ex-spouse, you may be entitled to Innocent Spouse Relief or similar relief. Considering the complexities of these issues, a skilled tax lawyer will be essential in presenting the strongest possible case. Based in Manhattan, the attorneys of Goldburd McCone have delivered the highest levels of tax representation for decades.