Innocent Spouse Tax Relief (Part 3)

Innocent Spouse Tax Relief, continued from last week

Relief by Separation of Liability: Under this type of relief, you allocate (separate) the understatement of tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). The understatement of tax allocated to you is generally the amount for which you are responsible. This type of relief is available only for unpaid liabilities resulting from understatements of tax. Refunds are not allowed. To request relief by separation of liability, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857 (Request for Innocent Spouse Relief). You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. (Under this rule, you are no longer married if you are widowed). You were not 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 Form 8857.

Members of the Same Household: You and your spouse are not members of the same household if you are living apart and are estranged. However, you and your spouse are considered members of the same household if any of the following conditions are met: you and your spouse reside in the same dwelling, you and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household, or either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education.

Burden of Proof: You must be able to prove that you meet all of the requirements for separation of liability (except actual knowledge) and that you did not transfer property to avoid tax. You must also establish the basis for allocating the erroneous items.

Limitations on Relief:  Even if you meet the requirements discussed previously, a request for relief by separation of liability will not be granted in the following situations: the IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner, the IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse) and/or your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax.

Continued next week

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