Tax Missteps? Protections Under Innocent Spouse Relief

The following article was provided by Whittlesey. It is reposted here with permission.

---

Navigating the complexities of tax law can be daunting, especially when an unexpected tax bill surfaces due to errors made by a spouse or ex-spouse. 

This situation arises from the concept of “joint and several” liability. 

When a married couple files a joint tax return, both spouses become fully liable for the total tax on the couple’s combined income. 

This means that the IRS can pursue either spouse for the entire tax amount—regardless of who earned the income or who was responsible for the mistake. 

This liability extends beyond the initial tax bill and can include any additional tax deficiencies, penalties, or interest the IRS assesses following an audit.

Relief Is Available: Innocent Spouse Relief

In certain situations, a spouse who was unaware of their partner’s tax missteps may qualify for what’s known as “innocent spouse relief.” 

This provision offers protection to those who can demonstrate that they were unaware of the tax understatement and that there was no reason they should have been suspicious of any wrongdoing. 

The individual must prove that holding them liable for the tax would be unfair.

To qualify, the individual must prove that holding them liable for the tax would be unfair under the circumstances.

Importantly, innocent spouse relief is not just for those who are divorced, separated, or living apart. 

Even if you are still married and living with your spouse, you may be eligible for this relief if you meet the criteria.

Recent Cases

The topic of innocent spouse relief frequently finds itself in court as taxpayers seek to prove their cases. 

Here are some notable rulings from this year:

Taxpayer win: In one case, a wife was granted innocent spouse relief after it was clear that she was unaware of her ex-husband’s financial activities, which led to an understatement of tax on their joint return. 

The U.S. Tax Court ruled in her favor, acknowledging that she had no reason to know about the tax issues, especially since her ex-husband kept separate bank accounts and concealed his finances. 

The court found it would be inequitable to hold her responsible for the tax deficiency (TC Memo 2024-26).

Taxpayer loss: In contrast, another case involved a widow who sought relief on the grounds of economic hardship, claiming that paying her late husband’s taxes would push her below the poverty line. 

However, she failed to provide sufficient evidence of her financial situation, and records showed she had recently enjoyed luxuries like expensive vacations and a luxury car purchase. 

The U.S. Tax Court denied her request, finding her claims unsupported by the evidence (162 TC No. 2).

Innocent vs. Injured Spouse Relief

While innocent spouse relief protects individuals from being unfairly held responsible for their spouse’s tax errors, another form of relief is “injured spouse relief.” 

The key difference lies in the type of relief sought. 

An injured spouse claim requests that the IRS allocate a portion of a joint tax refund to one spouse, particularly when the refund would otherwise be used to offset a debt owed by the other spouse, such as unpaid federal or state taxes, child or spousal support, or federal non-tax debts like student loans. 

If you are an injured spouse, you may be able to reclaim your share of the refund.

Considerations

Obtaining either innocent or injured spouse relief is not without challenges. 

The process involves detailed paperwork and strict deadlines, and the outcome largely depends on the specific facts of your situation. 

The outcome largely depends on the specific facts of your situation. 

If you believe you may qualify for relief, it’s essential to act promptly and seek professional assistance to navigate the complexities.

Finally, as you consider your options, remember the implications of “joint and several liability” when filing future tax returns. 

Although filing jointly may offer tax advantages, filing separately might provide peace of mind if you want to ensure that you are responsible only for your own tax liabilities.