Tax season can be one of the most stressful seasons for individuals and business owners. While some may perceive the IRS as always being out to get them, this perception is not based on facts. In some cases, the IRS creates systems aimed at helping the taxpayer recover from tax errors that could otherwise result in hefty fines.
One example of such a system is the innocent spouse relief. Innocent spouse relief is tax relief provided by the IRS to offer individuals relief from the responsibility of paying taxes, accrued interests, and penalties resulting from inaccurate reporting on their taxes by their ex-spouse or current spouse.
If the IRS is coming after you for underreporting errors made by your spouse or ex-spouse, working with an experienced tax controversy attorney can improve your chances of getting innocent spouse relief.
Understanding North Carolina’s Innocent Spouse Relief
If you live in North Carolina with your spouse or if your spouse lives outside North Carolina but has taxable income in North Carolina, you are allowed under the law to file a joint single tax return. By filing a joint tax return with your spouse, you expressly agree to pay all taxes, accrued penalties, and interests due on your joint tax return.
Oftentimes, individuals who file their tax returns jointly with their spouses find themselves being held responsible for the mistakes of their ex-spouses by the IRS. If you find yourself in such a situation, applying for innocent tax relief can absolve you of the consequences of the mistakes made by your spouse or ex-spouse.
Classification of Innocent Spouse Relief According to the IRS
Innocent spouse relief can be classified into three types:
- Basic innocent spouse relief
- Separation of liability relief
- Equitable relief
1. Basic Innocent Spouse Relief
This type of relief is designed to relieve you of the responsibility of paying taxes, interest, and penalties resulting from the mistakes of your spouse or ex-spouse. This form of relief applies if you can establish that you didn’t know or have reason to know that the filed returns were erroneous.
2. Separation of Liability Relief
Under this form of relief, the taxes, penalties, and interests owed to the IRS are divided equitably between you and your ex-spouse. This type of relief applies if you are no longer married to your spouse and are not living in the same household for 12 or more months, from the date of separation to the date you file for innocent spouse relief.
3. Equitable Relief
If you don’t qualify for either of the two options listed above, you may still apply for innocent spouse relief by electing equitable relief. This option applies if the underreported or unreported item is attributed to your spouse, or the reported tax is correct but wasn’t paid in full with the returns.
Innocent Spouse Relief Application Process
On the IRS website, you will find a questionnaire that can help you determine eligibility for the relief. Alternatively, a tax lawyer can guide you through the process.
After establishing that you qualify for innocent spouse relief, the next step is correctly filling out Form 8857 and submitting it to the IRS. After submitting the form, the IRS will take time to review your case and contact your spouse before making a determination.
How the Innocent Spouse Relief Works
After the IRS approves your innocent tax relief, the interests, penalties, and taxes directly related to items on your tax returns that are underreported or unreported items will be collected from your spouse or ex-spouse. However, not all taxes qualify for innocent tax relief. Items such as shared responsibility payments, household employment taxes, business taxes, and penalties on trust fund recovery for employment taxes do not qualify.
Our Raleigh Tax Controversy Team Can Help
If you are experiencing a tax issue where you may qualify for innocent spouse relief, Wilson Ratledge can help. Our team of experienced tax controversy attorneys can review your situation and help plan the best path forward to help resolve your tax issues. Contact us today to schedule a consultation!