Innocent Spouse Relief
Many married taxpayers choose to file joint tax returns because of the numerous benefits this filing status allows. However, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise as a result of the joint return even if they later divorce. In the State of Washington, marital property, unless expressly segregated from the marital estate, is owned equally by both spouses. This includes income and thus, even if the spouses file separately, they are both liable for the income tax.
Further, both spouses are generally responsible for the tax due even if one spouse earned all the income or claimed improper deductions or credits. This is also true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. In certain cases, however, a spouse can seek relief from the liability.
The Seattle area tax attorneys of Ortiz & Gosalia, PLLC, assist clients with three types of relief for spouses who filed joint returns or who filed separately in a community property state:
- Innocent Spouse Relief provides a taxpayer total relief from additional tax if the spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
- Separation of Liability Relief provides for the allocation of additional tax owed between the taxpayer and the spouse or former spouse because an item was not reported properly on a joint return. The tax allocated to the taxpayer is the amount the taxpayer actually owes.
- Equitable Relief may apply when the taxpayer does not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to the spouse. Taxpayers may also qualify for equitable relief if the correct amount of tax was reported on return but the tax remains unpaid.
Taxpayers must request relief no later than two years after the date the IRS first attempted to collect the tax, regardless of the type of relief sought. The IRS has ruled that the two-year time limit does not apply to requests for equitable relief. Further, not all IRS attempts to collect the tax will trigger the two-year period. Collection activities that may start the two-year period are:
- The IRS issues a section 6330 notice informing the taxpayer that the IRS intends to levy,
- The IRS applies an income tax refund against a previous liability,
- The filing of a suit by the United States for the collection of the joint tax liability, or
- The filing of a claim by the IRS in a court proceeding in which the taxpayer is a party or the filing of a claim that involves the taxpayer’s property.
Qualifying for Innocent Spouse Tax Relief
Taxpayers must meet all of the following conditions to qualify for innocent spouse relief:
- The taxpayer filed a joint return (or separate in Washington), that has an understatement of tax, directly related to the spouse’s erroneous items. Any income omitted from the joint return is an erroneous item. Deductions, credits, and property bases are erroneous items if they are incorrectly reported on the joint return.
- The taxpayer establishes that at the time the joint return was signed or the separate return was filed the taxpayer did not know, and had no reason to know, that there was an understatement of tax, and,
- Taking into account all the facts and circumstances, it would be unfair to hold the taxpayer liable for the understatement of tax.
Qualifying for Separation of Liability Tax Relief
To qualify for separation of liability relief, taxpayers must meet one of the following requirements to be relieved:
- The taxpayer is divorced or legally separated from the spouse with whom the joint return was filed,
- The taxpayer is widowed, or
- The taxpayer has not been a member of the same household as the spouse with whom the joint return was filed at any time during the 12-month period ending on the date you request relief.
Qualifying for Equitable Tax Relief
Taxpayers may qualify for equitable relief even without qualifying for innocent spouse relief or separation of liability relief. Equitable relief is available for additional tax owed because of an understatement or an underpayment. Generally, to qualify for equitable relief the taxpayer must establish, under all the facts and circumstances, that it would be unfair to be held liable for the understatement or underpayment of tax.
We welcome you to contact Ortiz & Gosalia with regard to your tax matter. Call us at (425) 633-2004, send an email to firstname.lastname@example.org, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.