Tax and Divorce: The Injured and Innocent Spouse Rules…What’s the Difference?
An injured spouse claim is different from an innocent spouse relief request. An injured spouse uses Form 8379 to request an allocation of the tax overpayment attributed to each spouse. An innocent spouse uses Form 8857 to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on or omitted from the joint return.
You are an injured spouse if you file a joint return and all or part of your share of the tax refund is expected to be applied against your ex-spouse’s past-due debts. An injured spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount.
According to IRS Regulations to be considered an injured spouse, you must meet two requirements:
1) You must have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and
2) You must not be legally obligated to pay the past due debts because your divorce decree allocates the debt to your spouse.
If you believe you are an injured spouse, you would file IRS Form 8379 to have your portion of the overpayment refunded to you. You should receive your refund within 14 weeks from the date your tax return is filed.
If you filed your joint return and your joint refund was already applied to a past-due amount, file Form 8379 by itself. You can still get a refund of your share, but it can take up to 8 weeks to receive your refund.
Innocent Spouse Relief
By requesting innocent spouse relief from the IRS, you can be relieved of responsibility for paying tax, interest, and penalties based on the fact that your spouse improperly reported income or deductions on a jointly filed tax return. The IRS will review your spouse’s (or former spouse’s) improperly reported items and consider all of the circumstances of the case in order to determine whether it is unfair to hold you responsible for the underreporting of taxable income or improper deductions taken.
You must meet all of the following conditions to qualify for innocent spouse relief.
- You file a joint return.
- The tax on the joint return is understated due to erroneous items on the tax return.
- You can show the IRS that at the time you signed the joint tax return you did not know that the understated tax existed.
- Taking into account all the factors it would be unfair for the IRS to hold you liable for the tax.
In the context of divorce, innocent spouse relief may be available if, for example, one spouse is self-employed and failed to disclose and pay tax on cash income or deducted personal expenses as a business deduction.
In a situation where Innocent Spouse Relief may be available, you can also apply for different types of relief. When an Innocent Spouse Relief claim is filed, frequently the taxpayer or his representative will argue that relief should also be granted base upon:
1) Separation of Liability Relief–you must have filed a joint return and must meet one of the following requirements at the time you request relief:
- You are divorced or legally separated from the spouse with whom you filed the joint return
- You are widowed or
- You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file your request.
If, at the time you signed the joint return, you had actual knowledge of the item that gave rise to the understatement of tax, you may not qualify for separation of liability relief.
2) Equitable Relief. To qualify for equitable relief you must establish that, under all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax.
The following are examples of factors that may be relevant to whether the IRS will grant equitable relief.
- Whether you are separated (whether legally or not) or divorced from your spouse.
- Whether you would suffer a significant economic hardship if relief is not granted. (In other words, you would not be able to pay your reasonable basic living expenses.)
- Whether you have a legal obligation under a divorce decree or agreement to pay the tax. This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability.
- Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax.
- Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years.
- Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid.
Whether or not you file your own tax returns, you may wish to have a representative assist with filing a claim for relief with IRS. Although it is certainly not required, having a representative who is knowledgeable in the legal criteria for relief and experienced in arguing your case can improve your chances of success.[/vc_column_text]