IRS Innocent Spouse Separation of
liability Relief
Under the innocent spouse relief by separation of
liability you are able to allocate or separate any understatement of tax including interest and
penalties on a joint return filed with your spouse or former spouse. Under this type of relief the amount of
liability allocated to you will be the amount that you will be liable for.
This type of
relief is available only for unpaid liabilities resulting from understatements of tax. Refunds are not
allowed. Relief by separation of liability is requested by filing IRS Form 8857.
In order to
request relief by separation of liability, you must have filed a joint return with your spouse or former
spouse and one or the other of the following 2 requirements.
Either you are no longer married or you are
legally separated from your spouse. If you are widowed, you are considered no longer married, or you did not
live with your spouse in the same residence during the one year period ending on the date that you filed Form
8857.
You will not
be considered to have lived in the same residence with your spouse if you do not live together and are
estranged. You will not be considered separated from your spouse if you are not estranged even if you lived
in separate residences.
You will not
be considered separated, if one spouse is only temporarily absent from the household and is expected to
return in the future. Examples of being temporarily absent from the household would be being away because of
imprisonment, military service, illness or education.
If a taxpayer
meets the above requirements he or she may still be denied relief by separation of liability if the IRS can
prove any of the following:
1. The IRS can
prove that you and your spouse transferred assets in order to defraud the government or other third party
creditor such as business partners.
2. The IRS can
prove that when the return was signed, you had actual knowledge of an erroneous deduction or omission of
income that later resulted in a deficiency.
3. Your spouse
transferred property to you for the purpose of avoiding paying tax.
Actual
Knowledge
Relief by
separation of liability does not apply to the part of the deficiency that that is a result of an erroneous
item that you had actual knowledge of. You and your spouse will still be jointly and severably liable for
that part of the deficiency.
If you had
actual knowledge of only a part of an erroneous item, you will only be liable for the tax resulting from that
item.
You will be
considered to have had actual knowledge of an erroneous item if you knew of any unreported income whether or
not cash was received or a false deduction was taken. However, just because you knew the source of the false
item is not enough to show you had actual knowledge. On the other hand, the IRS does not have to show that
you knew the source of the false item in order to prove you had actual knowledge of the
item.
Also, you do
not have to know the correct tax treatment of a false item in order for the IRS to be able to prove that you
had actual knowledge of that item. For example, if your spouse received interest income that you knew about,
you will not receive separation of liability relief even if you did not know it was
taxable.
The IRS may
look at the following factors to determine if you had actual knowledge of an erroneous
item:
· If you made
a conscious effort to not learn about the item so that you could avoid liability.
· You and your
spouse had joint ownership in the property that the erroneous item originated from.
If you were the
victim of domestic abuse you may qualify for separation of liability relief even if you had actual knowledge if
you can show thatyou were abused
before signing the return and you were afraid of challenging the erroneous items for fear of retaliation of your
spouse.
If you can
show that you were forced to sign a joint return, then it will not be considered a joint return and you will
not be held liable for any tax from that return. You may still be required to file a separate return for that
year.
Transfers of Property To Avoid
Tax
If your spouse transferred property to you
for the purpose of avoiding payment of tax, then your tax liability will be increased by the fair market value
of the property transferred to you on the date of the transfer. This amount however, will not be greater than
the entire amount of tax liability.
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