IRS Tax Form 8857 CPA discusses the new 2013 Streamlined Innocent Spouse Relief

Form 8857 CPAs see rapid changes in the IRS innocent spouse relief process. This website predicted the end of the two-year Statute of Limitations back in 2010. How? I pay attention to the relevant tax court cases to see which way the wind blows. Now there’s a non exclusive list of threshold requirements. These should be available soon on the Form 8879 instructions and Publication 971. Note that granting innocent spouse relief is still a judgment call by the IRS. So it’s important to understand the criteria and present a tight case on Form 8857.

Streamlined Innocent Spouse Relief in a Nutshell On a married filing jointly tax return both spouses each have full responsibility for the taxes due, not just half as most folks think. If your spouse doesn’t pay, the IRS still makes you responsible for the full amount. This is true even if a divorce decree specifies your spouse is to pay all back taxes. Under certain circumstances, innocent spouse relief absolves you from tax liability if your spouse abused you. Abuse is subjective here. But it includes being kept unaware of tax issues and being afraid of spousal retaliation if you questioned them.

The three types of tax relief available through Form 8879, Request for Innocent Spouse Relief

From the IRS website:

• Innocent Spouse Relief provides you (tax liability) relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
  • You filed a joint return that has an understatement of tax (deficiency) that is solely attributable to your spouse’s erroneous item.
  • An “erroneous item” includes income received by your spouse but which was omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they are incorrectly reported on the joint return.
  • You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax.
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.
• Separation of Liability Relief provides for the allocation of additional tax owed between you and your former spouse or your current spouse from whom you are separated because an item was not reported properly on a joint return. The tax allocated to you is the amount for which you are responsible.
  • You are divorced or legally separated from the spouse with whom you filed the joint return.
  • You are widowed.
  • You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857 (PDF), Request for Innocent Spouse Relief.
• Equitable Relief may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. You may also qualify for equitable relief if the correct amount of tax was reported on your joint return but the tax remains unpaid.
  • To qualify for equitable relief you must establish that, under all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax.

Common Confusion of Innocent Spouse Relief and Injured Spouse Relief If your tax refund, on a married filing jointly tax return, got snatched by the IRS to satisfy your spouse’s back child support (etc.) you can file IRS tax Form 8379 to apply for injured spouse relief in hopes you can recoup your fair share of the refund. Part of a tax refund is better than no tax refund.

Can I file Form 8857, Request for Innocent Spouse Relief, myself? Maybe you don’t need a Form 8857 CPA. It depends on how much potential tax liability exists and how complicated the circumstances are. The 2013 new streamlined innocent spouse process sounds like it will be easier to file. The IRS website provides good info through the Form 8857 instructions and Publication 971. They have a dedicated phone line too for innocent spouse relief support. The process is more like a court case than other areas of tax. I imagine some Attorneys specialize in Form 8857 and innocent spouse relief. Try looking at the streamlined innocent spouse relief documentation on the IRS website, including Form 8857 instructions and Publication 971. If you feel like it’s over your head a bit, consider calling us to help you with it. (910) 399-2705.