A common problem we see is where the IRS is pursuing one spouse for taxes attributable to his or her spouse, or ex-spouse. These are particularly difficult in divorce situations since not only are many divorces sufficiently traumatic in and of themselves but adding the IRS to the mix makes it explosive.
It is possible, under the right circumstances, for the innocent spouse to be relieved of IRS tax liabilities. First, relief is only available for income taxes; employment taxes are not included. Second, the IRS may only pursue one spouse’s taxes from the other spouse if they filed a joint income tax return because the liability is “joint and several,” meaning the IRS may pursue either spouse or both; if you filed returns on the basis of married filing separately, you are only responsible for your own taxes. Third, by and large, the IRS and the courts disregard the allocation of tax liability the parties may have agreed to in their divorce proceedings. Fourth, while this article is directed to federal taxes, you should always follow up with the state to make sure that whatever relief you get from the IRS, you also get from your state.
Who can elect? Either or both parties to a joint return may challenge the joint and several liability that the IRS is seeking to impose. To the extent you are successful, you will only be liable for the portion of the tax that is attributable to your income and deductions, and not your spouse or ex-spouse.
When during the process may relief be sought? The law is quite generous in allowing one seeking innocent spouse relief to request it at any time after the beginning of an IRS examination through and including at a much later date when the IRS is trying to collect the tax.
How do I make the election? A spouse requesting relief must complete IRS Form 8857 and send it to the IRS office on the Form’s instructions. Completing the form correctly and persuasively is absolutely critical to potentially getting relief. It is essential that you retain an attorney to assist you with this.
To what extent will my (ex)-spouse be informed? As a matter of due process, the IRS is obligated to notify your spouse, or ex-spouse, about your request for relief and obtain his or her position on the assertions you make. If you have been the subject of abuse, there are special procedures to protect you. If you were forced to sign the joint return and would not have done so but for the abuse, it is possible to argue that you did not intend to file a joint return, in which case you may not be liable for your spouse’s tax even in the first place.
What relief is available with respect to additional taxes the IRS believes is due? There are two bases for getting relief with respect to additional taxes resulting from an examination of the filed return. The easiest is with respect to divorced individuals. If you are now divorced or have been separated and not living together for the last 12 months, all you need to do is prove the amount of tax attributable to your income and deductions versus the amount attributable to your spouse. If you and your spouse are still together, getting relief is much harder and requires showing that you are both innocent of the mistakes on the return and that you did not significantly benefit from the tax savings.
What relief is available with respect to the balance owed on a filed tax return? This situation is also a difficult one and requires getting the IRS to be fair and apply equitable principles for relief. In essence, you must prove that you did not significantly benefit from the tax savings and that you had no reason to believe that your spouse would not pay the taxes shown on the return.
Because of the complexities of seeking innocent spouse relief, you should retain an attorney experienced in dealing with innocent spouse relief.