Innocent Spouse Relief, Separation of Liability and Equitable Relief

Innocent Spouse Relief, Separation of Liability and Equitable Relief are IRS relief programs that allow estranged, separated or divorced individuals to reduce or eliminate their tax debt. Each of the programs has different factors that must be met to qualify.

Innocent Spouse Relief

If a married couple files joint tax returns and there was an understatement of taxes that led to tax debt, the IRS considers both the spouses to be equally responsible for the tax debt. It does not matter if only one spouse earned the income; if both spouses signed the return, the IRS will consider both equally responsible for the tax liability.

In a case in which there is an understatement of tax due to failure to report income, false reporting of income and/or claiming false deductions or credits, a spouse can claim innocence of the understatement of taxes, and seek full relief from the tax debt. If the applicant qualifies for Innocent Spouse Relief, the entire tax debt will be the responsibility of the other spouse.

The spouse applying for the Innocent Spouse Relief will need to fulfill the qualifying criteria set by the IRS. These are:

  • The responsibility of the joint tax return in which there was an understatement of taxes, intentional or unintentional, lies solely on the other spouse.
  • When you signed the tax return, you did not know and had no reason to know about the understatement of taxes.
  • It would be unfair to hold you responsible for the tax debt because you did not know about the understatement of taxes and had no reason to know about the understatement of taxes that led to the tax debt.

Separation of Liability

This relief is only available to those who have a tax debt due to an understatement of taxes. Under this relief program, you can separate the understatement of taxes on the joint tax return filed between you and your spouse. When calculating the amount of the understatement of taxes, you must add the penalties and interest charged by the IRS.

There are certain conditions that you need to meet to qualify for Separation of Liability. These are:

� You filed a joint return that led to the understatement of taxes.

� You are either legally separated from or no longer married (including widowed) to the spouse with whom you filed the joint return.

� You were not sharing the same household with the spouse with whom you filed the joint return at any time during the 12-month period that ends on the date you file for Separation of Liability.

It is important to note that all these requirements must be met at the time of filing for Separation of Liability using Form 8857. Refunds are not given by the IRS under this relief program.

Individuals cannot qualify for this relief program in cases where a spouse is not residing in the same household, but the separation is temporary and the spouse is expected to return. A temporary absence can be due to an illness, military service, imprisonment, education or vacation.

There must not be any transfer of assets between you and your spouse to avoid taxes or as part of a fraudulent scheme.

Equitable Relief

If you do not qualify for either Innocent Spouse Relief or Separation of Liability, you may be eligible for Equitable Relief. Innocent Spouse Relief and Separation of Liability can be applied for only when there is an understatement of taxes. On the other hand, equitable relief can be applied for when taxes were filed correctly, but the taxes remain unpaid. Equitable relief can also be sought when there was an understatement of taxes.

To qualify for Equitable Relief, you need to provide facts and circumstances to prove that you cannot be held responsible for the tax debt.

An important factor to consider when seeking relief through any of the three relief programs is that if you lived in a community property state and filed as "married filing separately" and not "married filing jointly", you are still eligible to qualify for them. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are some of the community property states.

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