Innocent vs. Injured Spouse Relief

What is the Innocent Spouse Rule?

The Innocent Spouse Rule is a 1998 amendment to tax law regarding joint liability of spouses for erroneous or falsely reported tax information. Prior to this amendment, spouses were held responsible for their partner’s misfiling, even if they were unaware of the incorrect information. Since the introduction of the Innocent Spouse Rule, a spouse can claim that they are not jointly liable for any falsifying of tax information done by their spouse, as long as they didn’t know about the grievances. 

 

The Innocent Spouse Rule was created in the event that a person’s spouse is misreported or omitted information on their joint tax return. If the innocent spouse can prove their innocence, the IRS believes that they have the right to their innocence. The rule allows the innocent spouse to argue that they should not be punished for their spouse’s offense, as they were unaware that it occurred. Under the Innocent Spouse Rule, an innocent spouse cannot be held accountable for the debt, interest, or penalties that have been incurred from the incorrect tax return.

 

Note that, in the eyes of the IRS, a couple who has divorced since the erroneous filing are still considered spouses, as long as they were spouses at the time that the erroneous taxes were filed. 

Qualifying and Filing for Innocent Spouse Relief 

As a general rule, a spouse may claim Innocent Spouse Relief if they weren’t aware of the false information at the time of filing. In order to qualify for Innocent Spouse Relief, a person must meet all of the following requirements: 

• The person filed jointly with their spouse. 
• The joint tax return contained an “understatement of tax” due to incorrect information provided by their spouse. This may be either a partial omission of their spouse’s income or a claim of incorrect deductions, credits, or property basis. 
• The person was unaware of the incorrect information upon signing the tax return.
• The person must apply for Innocent Spouse Relief within 2 years of the time they are contacted by the IRS.  

 

Let’s look at an example. Say Jack and Jill filed their taxes jointly in 2019. Unbeknownst to Jill, Jack omitted much of his income information in their 2019 tax return in an effort to pay less taxes. Shortly thereafter, Jack and Jill divorced. In 2020, Jill is contacted by the IRS in regards to the erroneous joint tax return. She is notified that she is in debt with the IRS due to the omission of information on her and Jack’s 2019 taxes, and she will be facing impending tax penalties from the IRS. Jill is astonished; she didn’t know that such omissions were made. Does Jill qualify for Innocent Spouse tax relief? 

The answer is yes. She met all of the qualifications. She filed jointly with Jack, their combined tax return was completed by Jack and he omitted his own income information, and she was previously unaware. Jill may file for Innocent Spouse Relief. She has 2 years from the date that the IRS contacted her to do so.