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What to Do If you Have IRS Tax Problems Because of your Spouse

Tips for handling a tricky tax problem relating to your husband or wife

By Becky Schmitz, EA, CTRS

Filing a joint tax return with your spouse has many benefits, but can also cause problems. What if your spouse understates taxes? How about if deductions are made that shouldn’t be? Many people find this type of situation particularly frustrating especially if divorced, separated, or deserted by their spouse. Despite misconceptions that both spouses are responsible for taxes due, there is a way out for innocent spouses.

Known as innocent spouse tax relief, innocent spouses can be relieved of paying tax, interest and penalties caused by a spouse or former spouse’s omitted or wrongly reported items on a tax return. If you believe you are qualified for innocent spouse tax relief, file IRS Form 8857 (http://www.irs.gov/individuals/article/0,,id=102176,00.html).

Most people find themselves in need of innocent spouse tax relief when items on tax returns go wrongly reported. These items may include underreported income or an incorrect deduction, property basis, or credit claimed.

Though you and your spouse being divorced or separated may work in your favor when trying to get innocent spouse relief, the IRS may find it fair to hold you responsible if you received a significant benefit from the tax understatement either directly or indirectly.

You may qualify for innocent spouse tax relief if you:

• File a joint return with an understatement of tax due because of your spouse.
• Did not know and had no reason to suspect tax was understated when you signed the return.
• Would be treated unfairly by being held liable for the understated tax.
• Are not attempting to transfer property between yourself and your spouse as part of a fraudulent scheme.
• Request innocent spouse relief within 2 years after the date IRS began collection activity against you for the unpaid taxes.

The IRS will notify the other spouse if one spouse files a claim for innocent spouse relief. If one spouse is granted tax relief from preliminary determination, the other spouse may appeal the decision.

Other types of tax relief for spouses include relief by separation of liability and equitable relief. Relief by separation of liability is where understated tax, interest, and penalties are divided. If you don’t qualify for the other types of tax relief, you may be able to get equitable relief. Equitable relief is where having to pay the tax would be unfair because you weren’t part of a fraudulent scheme, involved in tax evasion, and didn’t know what your spouse was doing.

Contact a tax professional to discuss the type of tax relief you may qualify for as an innocent spouse.

About Becky Schmitz

Becky Schmitz is a certified tax problem resolution specialist and enrolled agent. Named 2006 Top Practitioner by the American Society of Tax Problem Solvers, she is the owner of Centsable Accounting, a tax problem resolution firm. Centsable Accounting offers many tax problem resolution services including help with innocent spouse tax relief and setting up installment agreements.