More Time from the IRS for Innocent Spouses

Posted by Amanda on October 19, 2011

There are two ways you can file tax returns if you are married: married filing jointly, or married filing separately. Many married couples file joint tax returns each year and experience either a marriage bonus or a marriage penalty for doing so. The penalty occurs if putting two people’s income together increases their earnings and pushes them into a higher tax bracket than if they would have filed separately. The bonus occurs when two people make unequal incomes and part of the higher income earner’s money is now pulled into a lower tax bracket. Married filing separately does not generally lower your tax bill either if you are looking at a marriage penalty; however, there are other reasons why married filing separately could minimize future headaches.

When Your Spouse Cheats on Taxes

We’ve discussed the potential dark side of married filing jointly previously. To recap, if you are filing your deductions and income on the same tax form and one spouse fudges information, evades taxes, etc. then you are held liable for any taxes and penalties owed due to this mistake. This becomes particularly troublesome in the case of divorce, if you are widowed, or your spouse is otherwise no longer available and willing to help pay it off—it is even true if the other spouse was the sole income earner in the family. The IRS website also states that they can come after you for tax liabilities from joint returns even if your divorce decree explicitly states that the other spouse is responsible for tax obligations.

Spouse Relief

Under these circumstances there are three types of spouse relief that you can apply for:

  • Innocent spouse provision
  • Separation of liability
  • Equitable relief

The IRS has just made changes to equitable relief that could be in your favor.

Equitable relief was not an option in the past if the innocent spouse did not apply for it within two years from the date when the understatement of taxes was identified. Now, you can apply even if it’s been two years or more. Furthermore, if you were denied equitable relief in the past solely because it was past two years, you may reapply if the collection statute of limitations for the tax years involved has not expired. This will also be effective for cases that are currently under consideration.

To apply for any type of Innocent Spouse Relief, you will need to check out Form 8857.

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