Steps to Filing for Innocent Spouse Relief with the IRS

Innocent spouse relief protects you if your spouse has outstanding tax liability that you were unaware of. This occurs when your spouse misreports taxes without your knowledge. Typically, innocent spouse relief applies when you have no knowledge of and no reason to have knowledge of the outstanding taxes; separations and divorces are common reasons for relief. However, even if you are still married, you can use the same process to file for the relief, freeing you from any liability to pay the outstanding amount.

#1 Locate Form 8857

Form 8857 is the form you will fill out to report the taxes you believe you should not have to pay. This form should be submitted as soon as you receive notice of the taxes you are being held liable for. For example, if the IRS sends you a notice proposing to collect additional taxes based on income you are unaware of, you should begin filing the form immediately. The form must be filed within 2 years of the first attempt to collect the money from you.The IRS will review this form and send it back to you with a judgment on your liability. To prove you should not be held liable, you must provide information supporting the fact you did not know about the obligation to pay.

#2 Establish "Reason to Know"

The IRS will establish the likelihood of your knowledge of the tax liability based on a condition called "reason to know." If you prove you had no reason to know about the money, it is more likely you will not have to pay. The main factors considered are:

  • Nature of the error and the amount of the error relative to other items on your return
  • The financial situation you are in
  • Your education and experience with tax filing
  • Whether or not you participated in the activity that lead to the erroneous filing
  • If you failed to ask questions that a reasonable person would ask
  • If the error was a clear break from the taxes you filed in the years past

Basically, if the error should have been obvious to you, it is not likely you will be able to claim you had no reason to know or to question the tax return. In this case, you will not likely be granted exemption from liability.

#3 Prove Unfairness

The IRS will also question whether or not it is fair to hold you liable. Just because you did not know about the tax does not mean it is not fair to charge you. If you benefit from the error, you may be on the hook for the money. Provide evidence showing the following considerations:

  • You did not receive any direct or indirect benefit from the income that was understated
  • Your spouse deserted you (if applicable)
  • You and your spouse are separated or divorced (if applicable)
  • You received no benefit from the lesser tax obligation

In order for these circumstances to apply, your spouse must have made the money independently of you, spent the money independently of you and took advantage of the tax benefits independently of you.