Innocent v. Injured Spouse Relief: A Guide for Navigating Complex Tax Issues After Marital Changes

Going through a marital separation or divorce is challenging enough without the added complexity of unanticipated tax issues.  

Unfortunately, these problems can arise, particularly when dealing with joint tax filings from previous years.

If you find yourself facing unexpected tax liabilities due to actions taken by your spouse or ex-spouse, you might be eligible for what's known as innocent spouse relief or injured spouse relief.  While both sound similar, they accomplish very different things.

What Does Filing Jointly Mean?

Newly married couples often choose to file their tax returns jointly.  A joint return combines the spouses’ separate incomes, exemptions and deductions to determine the couple’s “joint” tax liability. Filing jointly can provide substantial tax savings, assuming each spouse is complete and honest about his or her respective reporting obligations.

Filing jointly also presents possible risks. First and foremost, filing jointly exposes each spouse to joint and several liability for any resulting tax obligation. This means that if there are any errors, or intentional misreporting, the spouses are jointly responsible, regardless of who was at fault.

Innocent Spouse Relief

As the name suggests, when one spouse to a joint return was unaware of any mistakes or intentional omissions, innocent spouse relief comes into play.  

Put simply, if your spouse failed to report income or claimed improper deductions without your knowledge, you may be protected from the resulting tax liabilities through innocent spouse relief. This form of relief may also apply when the amending of a joint return without knowledge by one spouse leads to an increased tax liability for both.

A spouse seeking this kind of relief cannot solely rely on a lack of knowledge of the contents of the original return. Put another way, innocent spouse relief cannot be based solely on the fact that the return was prepared by a third party.

The applicable regulations make clear that this is the reason why the IRS requires that all returns be signed by the both filing parties. If the bad actor spouse signs a return for both spouses, the IRS will look at the couple’s filing history. If the couple has a history of filing returns that are signed by one spouse on behalf of both spouses, the IRS will still find that the couple shares joint liability for any resulting tax balance. The non-delegable nature of tax returns makes it impossible for a spouse to claim that he/she didn’t know whether the return was accurate or complete.   

To qualify for relief, the aggrieved spouse must prove not only a lack of knowledge that the return was inaccurate but also that it would be unfair to hold the innocent spouse responsible for the mistakes or omissions. This relief is typically sought after separation or divorce when one party learns of the financial misdeeds of the other. If granted, the innocent spouse is relieved from paying additional taxes, interest and penalties.

For a more detailed description of innocent spouse relief, see our blog that discusses the qualification criteria in more detail.

Filing for Innocent Spouse Relief

  • Use IRS Form 8857 to request relief.
  • You must file within two years from when the IRS first attempted to collect the tax debt.
  • Be prepared for the IRS to contact your spouse or ex-spouse, as they will be involved in the process.

Injured Spouse Relief

In contrast to “innocent spouse relief,” injured spouse relief applies when your tax refund is used to cover a debt solely owed by your spouse, such as past-due federal taxes, child support or other federal debts such as student loans.  If you filed your taxes jointly and were expecting a refund, only to discover that the refund was applied as an offset against your spouse’s debts, you might qualify for injured spouse relief.

This relief allows you to get back your share of a refund rather than see it applied to an ex-spouse or soon to be ex-spouse’s tax obligations. It’s important to note that this relief does not involve deceit by the spouse. Rather, it addresses the allocation of tax burdens unfairly applied to the non-responsible spouse.

For a more detailed description of injured spouse relief, see our previous blog that discusses the qualification criteria in more detail. 

Filing for Injured Spouse Relief

  • Complete IRS Form 8379 and submit it with your tax return or separately if you become aware of the issue after filing.
  • The IRS will use a formula to determine what portion of the refund was due to your financial contributions and should be returned to you.

Key Differences and Considerations

  • Innocent Spouse Relief deals with issues of knowledge and fairness concerning tax understatement due to the actions of a spouse.
  • Injured Spouse Relief focuses on fairly allocating tax refunds that would otherwise be used to offset a spouse’s tax debts.

Conclusion

Navigating these two relief options can be nuanced and may require professional advice, especially in complex or contentious situations. If you suspect that either form of relief may apply to you, consult with a tax professional immediately.  Understanding and asserting your rights can significantly impact your financial health post-divorce or separation.

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