Category: Innocent Spouse Relief

Categories
Innocent Spouse Relief

Equitable Relief: Requirements for Qualification

A pair of spouses with problems talking to a counselor for couples

IRS Equitable relief is the most common type of relief under the innocent spouse. To be accepted, your situation will be assessed and there will be several interpretations.

It is the IRS that will decide if you should not be held liable for the tax debt. This form of innocent spouse relief is the only type that allows you to have relief from the underpayment of tax.

This can also be applicable to an understatement of tax, which means that the taxpayer didn’t pay the full amount shown on the return.

The IRS recognizes this option for people who were denied from innocent spouse relief or separation of liability relief. You can only re-apply if you were denied in the past because you were still married.

Conditions to Qualify for Equitable Relief

For you to qualify for equitable relief, you must meet all of the following requirements:

You were declined from other types of innocent spouse relief.

You do not qualify for Innocent Spouse relief or separation of liability. However, six years ago, the IRS considered the 2-year rule to re-apply.

The IRS finds it unfair for you to shoulder the responsibility

After reviewing the history and facts surrounding the understatement or underpayment of taxes, the IRS finds it unfair to hold you liable.

They will consider the following factors:­­

  • Your marital status
  • If you are aware of the reasons for the understatement. With underpayment, the requesting spouse believed that his or her spouse or ex-spouse would pay the taxes
  • If you will find it difficult to pay the basic living expenses without a relief
  • If the divorce decree or agreement obliges you to pay the tax
  • Your mental and physical condition on the day you signed the return or the time you requested relief
  • To whom the tax debt is attributed to
  • If you made an effort to settle your tax obligations within the taxable year or years to which the request refers to
  • If experienced abuse from your present or ex-spouse. You may also call the National Domestic Violence Hotline at 1-800-799-7233

You and Your Spouse or Ex-spouse Did Not Transfer Assets to Trick the IRS

This means the involved people did not transfer assets to each other to deceive IRS or other people/companies.

You Didn’t Have the Intention to Deceive

You must prove that you didn’t intend to deceive the IRS when you filed an incorrect tax return or failed to file a tax return.

The tax debt is attributed to your spouse

There are a few exceptions to this rule:

  • You weren’t aware your spouse or ex-spouse misused the money that should have been used for the payment of tax.
  • The item is yours only due to common property laws
  • You can prove that you were a victim of abuse before signing the tax return. You must also prove that you didn’t dispute the items in your tax return because of the fear that your spouse might kill you or anything harmful to you or your loved ones
  • Item(s) is under your name but you can really prove that the item(s) is not yours.
  • Your spouse or ex-spouse’s fraudulent activities are the causes of the errors on the tax return and eventually led to the tax understatement.

Your Request Should Be Done Within the Respective Statutory Time Periods

  • If there’s a balance due, you need to file within the period the IRS needs to collect – If you have a balance due, the IRS allots 10 years from the date of assessment to collect. This means you need to file Form 8857 within the legal time period for the RS collection activity.

Three-year Time Limit for a Credit or Refund – If you are requesting a refund or credit for taxes paid, you must file the request within 3 years after the date the tax return was filed or 2 years following the payment of tax. Consider the date that is later. However, people under the federally declared disaster area or those that have mental problems and are not able to manage their finances are exempted.

  • If You Have a Balance Due and a Credit or Refund – The time periods mentioned above are applicable for any credit or refund for any payments done. Moreover, the collection time period, which is usually 10 years, applies for unpaid tax debts.

Refund Limits with IRS Equitable Relief

There are a few exceptions or situations where you can get a refund:

  • If the IRS allows you to have a relief due to an understatement of tax, the IRS may also allow a refund for the payments made through a payment plan. You must have settled the payments after you applied for innocent spouse relief. Moreover, you should never have deficiencies on your payment agreement. The payments must be made for the tax or penalty for which you are seeking relief.
  • If you’re granted relief for the underpayment of tax, you can receive a refund on your successful payments. These payments must be settled by you, not with your spouse. Remember the time restrictions on these payments and their eligibility for a refund.

Equitable relief is a great form of relief. Even if a taxpayer is eligible, there is little guarantee that the IRS will grant your relief request. A tax professional is the best person to help you with innocent spouse relief.

 

Categories
Innocent Spouse Relief

Separation of Liability Relief: Eligibility Requirements

what is separation of liability relief

When applying for the Separation of Liability Relief, this means the IRS won’t hold one spouse jointly responsible for the tax liability of a former or current partner. This includes interests and penalties.

The IRS will assign the understatement of tax based on the income and deductions from your earnings and assets.

For this type of relief, there is no refund. Once you’ve already settled the tax due, that, unfortunately, cannot be returned to you.

Eligibility Requirements for Separate Liability Relief (Under Section 6015)

To be accepted for Separation of Liability, these are the following requirements:

You Were Married and Filed Jointly on Your Filing Status

A joint tax return for the year must be filed, indicating that you are looking to divide the understatement of tax with your former spouse.

 Errors on the Return Leads to Understatement of Tax

Because there was an understatement of tax on the joint tax return, this resulted in unpaid taxes.

During the time you file Form 8857, one or two of the following conditions must be met:

You are Divorced, Legally Separated, or Widowed

When you apply this rule, widowed people are no longer married.

Not a Member of Household for the Last 12 Months

When you file for relief using Form 8857 during the last 12 months, you should not be in the same household with your spouse.

To be considered as part of the same household, the IRS will check if:

  • You still share the same residence with your spouse
  • There is a temporary absence from the household and there is an assumption of returning to the house. Let’s take for example that the household is still being maintained because the residents are expected to return. The reasons for a temporary absence could be due to military service, education, military service, vacation, business, and illness.

Reasons Why the Separation of Liability Requests Get Denied by the IRS

It does not automatically mean you qualify for relief even if you meet all the mentioned requirements. Should the following situations be discovered by the IRS, separation of liability relief may not be granted.

  • The property was transferred to your spouse or ex-spouse in order to avoid taxes.
  • There was fraudulent intent for transferring assets to your spouse or ex-spouse. It doesn’t necessarily need to be against the IRS. Defrauding a creditor, a business partner, or another party also qualify.
  • You had knowledge about possible errors in the tax return even after signing. No statement of liability relief will be given for that portion even if you had actual or partial knowledge of the errors.

The IRS Looks at Certain Factors to Support Actual Knowledge

Whether you knew about the error on the joint tax return when you signed it, the IRS will check:

  • If you refused or avoided learning about the item to shield yourself from the liability.
  • If you or your spouse (or former spouse) owned the property that resulted in the erroneous item
  • Consult with a tax professional so you are better informed and more equipped to handle your tax concerns.

Categories
Innocent Spouse Relief

Filing IRS Form 8857 & Letter: What You Need to Know

If you’re filing for an innocent spouse relief for the first time, you need to do it correctly. It will be very difficult for you to re-apply for the specific years you requested if the first application was denied.

You need to file quickly after figuring out the tax debt that should have been charged to your spouse. Before filing, you need to make sure that you have met the requirements of one of the types of spouse relief.

The filing process is almost the same for all types of spouse relief. However, the difference only lies on the answers and information you give about your situation.

You must check all the requirements for each type of relief and make sure you understand what those requirements are intended for before filling out the forms. Keep in mind that these forms will ask you a lot of questions so you can meet the requirements.

IRS Form 8857 (Request for Innocent Spouse Relief)

This is a seven-page form used to required to file for innocent spouse relief. In fact, you’ll find yourself bombarded with questions about your situation. This form will also help the IRS figure out how you meet the requirements.

Some of the information the IRS will be interested to know are your educational background and professional experience. Those pieces of information will help them assess if the reason is valid enough for you to go wrong with the tax filing.  

You will have to show additional documents to back up your claims. Just like any records, you need to provide accurate information and be very careful in filling out the form. Any incorrect information may trigger the IRS to reject your request.

In general, you need to accomplish Form 8857 not later than 2 years after the IRS conducts its collection activity — except the equitable relief.

Below are some of the collection activities of the IRS that call up the two-year period:

  • Your income tax return was used by the IRS to compensate for the joint tax return liability. The IRS sent you a letter that you can file Form 8857.
  • The IRS filed a claim in court wherein you were a party or a court proceeding that included your property. It may also involve filing a proof of claim in a bankruptcy proceeding.
  • The U.S. filed a legal case against you to collect money on the joint tax debt
  • You received the following letters: 11, 1058, or another section 6330 notice. These letters will inform you about the intent to levy by the IRS and remind you about your right to a collection due process (CDP) hearing.

Innocent Spouse Relief Letter

You will be required to create a letter if you were abused by your former or current spouse. Even if it’s not required, the letter will help you prove your claim.

Some parts of Form 8857 won’t need a lot of explanations. But this letter will help you explain thoroughly why should the IRS qualify you for the Innocent Spouse relief.

 

To get the IRS’s approval, you must attach documents as evidence to back up your claims. For instance, those that are victims of abuse may include police reports, clinical procedures, and doctor’s notes.

 

How to Mail the Documents for the Request for Innocent Spouse Relief?

After you have completed the documents and proofs, you may send the documents to the Internal Revenue Service.

  1. Below is the address t0 mail the paperwork through the  United States postal service

 

Internal Revenue Service

Innocent Spouse

PO BOX 120053

Covington, KY 41012

 

  1. Use this address, if you are mail the documents through a private carrier such as UPS or FedEx:

 

Internal Revenue Service

201 W. Rivercenter Blvd., Stop 840F

Covington, KY 41011

 

You may also fax the Form 8857 and other documents to the IRS at 1-855-233-8558. It’s best to include your Social Security Number and name on any documents or files you send to the IRS.

When is Form 8857 Not Required?

There are instances when Form 8857 is not suitable for filing. These are;

When you answer “No” to the first question on Form 8857

You’ve already come to a closing agreement with the IRS for the same tax liability you are requesting a relief for.

There are certain situations when you should not file for relief using form 8857. Here are some examples:

  • “No” is your answer to the first question on Form 8857
  • You entered into a closing agreement already with the IRS for the same tax liability you are requesting relief for
  • You have been qualified for Offer in Compromise with the IRS
  • You entered into an Offer in Compromise with the IRS
  • The court did not review whether to give you relief from the joint tax liability or not.  On the other hand, you did not ask for relief.
  • IRS.The final court decision refused to give you relief.

 

Categories
Innocent Spouse Relief

Innocent Spouse Relief FAQs

file for innocent spouse relief

Before you file for an IRS Innocent Spouse Relief, let’s consider some frequently asked questions

What is the IRS definition of actual knowledge?

To have “actual knowledge” means that you actually knew about the error committed by your spouse. This nullifies your qualification for innocent spouse relief and both of you are still held liable.

Is there a deadline or a time limit for the filing of Innocent Spouse Relief?

From the day the IRS first tried to collect tax from you,you have a period of two years for the filing of innocent spouse relief. There are exceptions as seen in the following. Should you be applying for equitable relief related to your tax debt, there is a 10-year period given from the date the tax liability was assessed. Under the equitable relief program, if you are applying for credit or a refund, you have until three years after the date of assessment or two years after payment was made will be granted.

What is the IRS definition of “reason to know”?

If the IRS believes that it was reasonable for you to know about the erring issue, then that constitutes a “reason to know.” Even if you only had an inkling about relatable facts or pertinent information, this causes the IRS to believe that you had that reason to know about the case. This disqualifies you from innocent spouse relief due to this situation.

To be considered as members of the same household, what does the IRS mean by that?

Qualification for other types of relief requires you must not be members of the same household. If you and your former spouse are living apart, then it means you don’t live in the same house. But, if you still have romantic links or there is a likelihood of reconciliation, this status will be considered as being members of the same household by the IRS.

What can be considered as erroneous items?

Unreported income, incorrect deductions including inaccurate credits, misrepresentation of cost basis for capital gains or losses can be deemed as erroneous items.

Will the IRS contact my former spouse?

If you file for innocent spouse relief, the IRS will contact your former spouse and give him or her the option to participate in the process. There are no exceptions to this rule, even if you were a victim of abuse.

For innocent spouse relief, what forms do I need to fill out?

Submit IRS Form 8857 for innocent spouse relief. In case of spousal abuse, please submit a letter to document such. Other letters with additional details may be submitted also. These correspondences clarify your present requirements seeking relief.

What is the meaning of “understatement of tax?”

You owe an assessed amount, but you place in your return a lesser amount, that quantifies as an understatement of tax. The filing for innocent spouse relief can be submitted based on this.

What can be considered as an underpayment of tax?

Failing to remit full payment for the total tax amount on the return is correct is considered an underpayment of tax.

When an Offer in Compromise has been approved, can I still apply for Innocent Spouse Relief?

Because there was an agreement reached through an offer in compromise, this nullifies your seeking innocent spouse relief.

What are the number of years covered by my innocent spouse relief filing?

Three years are covered by the filing for innocent spouse relief. More than that, submit a separate IRS Form 8857 to be granted additional years.