IRS Debt Relief by Separation of Liability When two people get married and promise to be together for better, for worse, for richer, for poorer, not many of them think that a day might come when they will find themselves responsible for the joint tax debt. If you made a mistake that resulted in a tax liability, you will have to take care of the situation, but what if the mistake was not yours or was not only yours? If both spouses have been assessed with a tax liability resulting from a jointly filed income tax return, it is sometimes possible for one of them to get Innocent Spouse Relief from the IRS. If that spouse is partially liable for the debt and would like to resolve the case separately, that is also an option. It is called a Relief by Separation of Liability. For example, you filed a joint tax return with your spouse and later got separated. You could not make a payment with that return, but to your best knowledge the total tax due portion on the return was $20,000. To make it simple, let’s say that you and your spouse were liable for $10,000 each, based on your wage and income information. At some point after the return was filed, the IRS conducted an Audit and determined that your spouse underreported his/her income, or listed incorrect deductions or credits on his/her part of the return. As a result, you have jointly been assessed with additional $12,000 liability, plus penalties and interest.
If you meet certain requirements, it is possible to get a Relief by Separation of Liability and be liable only for your $10,000 plus penalties and interest on that amount. Your spouse would have to pay back $22,000 plus penalties and interest. In order to be eligible for a Relief by Separation of Liability, you have to meet the IRS requirements. First of all, you should no longer be married to the spouse with whom you filed that delinquent return. You should not be a member of the same household with that person for at least 12 months prior to submitting your request for relief. The IRS will not grant a Relief by Separation of Liability if you cannot prove that you did not know and had no reason to know about erroneous information provided by your spouse on the return. The IRS uses a variety of techniques to determine whether there is a possibility that you might have been aware of the situation. Your education, your involvement in your spouses’ business, and the fact that any other person in a similar situation would notice the mistake, all play an important role in the IRS decision. In addition, if your spouse transferred any property to you in order to avoid paying taxes, your request for relief will be rejected. One final factor may also play a part. Under certain circumstances it is possible for a spouse to be aware of the incorrect information provided on the tax return and still get a Relief by Separation of Liability. This is where a spouse was a victim of reported domestic violence. Relief by Separation of Liability is a complex process; one where, at every step, you need to ensure that you’re providing the best information to the IRS to support your case. In most cases, it is best to speak to, or even negotiate through, a tax debt professional that is aware of the pitfalls that you will encounter during the relief procedure.
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