While the Innocent and Injured Spouse Claims are similar, there are distinctions.
In short, the Innocent Spouse Claim asserts that you are not responsible for the tax liabilities of your spouse. This claim requires that the taxpayer requesting relief meet the following requirements:
The liability must be directly attributable solely to your spouse;
You must not have known or have had reason to know that the liability or understatement existed, and; It would be inequitable (or unequal) to hold you liable.
The Injured Spouse Claim asserts that you are owed a refund on a joint return, and that your portion of the refund should not be used to offset your spouse’s tax liability.
You may be eligible for an Injured Spouse Claim if you:
Have had taxes withheld from your wages, or;
Paid taxes during the year, or;
Are entitled to receive a fully refundable credit (such as the Earned Income Credit).
Limitations of Innocent or Injured Spouse Claims
The Innocent and Injured Spouse Claims have several caveats, guidelines and time constraints that complicate the process and greatly narrow the group of taxpayers who may be able to take advantage of these types of relief.
Both the Injured and Innocent Spouse claims are further complicated based on the state you lived in at the time of filing. If you lived in a Community Property state, it is unlikely you will receive any relief. Community Property states consider married taxpayers to be jointly and severally liable for each other's debts and assets.
In the following sections, we will outline the IRS guidelines to determine eligibility for either claim.
IRS Guidelines to Determine Innocent Spouse Eligibility
As an Innocent Spouse, how can you establish that you had no knowledge or no reason to know that the liability existed? Making the case is tricky.
On a joint return, both spouses must sign the return. If you signed the return, the IRS assumes that you did have knowledge. In the eyes of the IRS, it is the signing taxpayer’s responsibility to review the information thoroughly and not sign anything they do not agree with.
n an Innocent Spouse Claim, it is also important to establish that you did not gain from the underpayment of taxes. If you did not gain, it would be inequitable (unfair) to hold you liable for the taxes.
Even if you have since divorced your spouse and they were held solely liable in the divorce decree, the IRS does not have to follow these orders and usually does not. This is because divorce court is a local civil proceeding and tax liability collection laws are of a Federal nature. The Federal Government does not have to adhere to the executions or laws of the state.
Determining Innocent Spouse Eligibility
To be considered for an Injured Spouse Claim, you must file the claim with the original return to request your portion of the refund be returned to you. Alternatively, you can file the request as soon as you are notified that the refund is being applied to your spouse’s outstanding IRS tax balance.
The initial claim must be filed within 2 years from the original date the disputed returns were filed.
If you are only claiming a fully refundable credit and did not pay any taxes, the amount attributable to you legally can be drastically reduced or determined to be a benefit of your spouse’s income. The IRS will reason that your refundable credit should be applied to the outstanding balance your spouse owes.
Even if you did pay taxes, your portion could be limited based on the numbers that the IRS uses. Under Injured Spouse Claims, the amount attributable to your share of the income is determined through the IRS’s calculation chart.
Innocent or Injured Spouse Claim Alternatives and Options
The Injured and Innocent Spouse claims may at first appear to be a solution to your IRS tax problem. In reality, both claims are time consuming and frequently denied by the IRS. While waiting for a decision on your claim, penalties and interest on any tax debts continue to accrue.
Especially in the case of Innocent Spouse Claims, the rules are very strict and the burden of proof falls to the taxpayer. Taxpayers often do not keep records regarding specific circumstances from years ago and cannot provide the support necessary to pursue a strong case.
The good news is that you have options and alternatives. Innocent and Injured Spouse Claims are a narrow and fairly inaccessible corner of the tax resolution reality. There are many other options for tax relief that can be executed without the involvement of your spouse or former spouse.
We can help. Give us a call to arrange a free, no-obligation meeting to discuss your IRS tax relief options.
We can help you with Innocent and Injured Spouse Claims
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