Imagine the surprise of learning your spouse has improperly reported items on your joint tax return and that the IRS is looking at you to pay back taxes, interest, and penalties. It hardly seems fair, especially if you had no idea.
Fortunately, the Internal Revenue Service (IRS) provides a way to address this predicament, which can arise from two kinds of errors, innocent or not:
- Unreported income; or
- Incorrect deduction, credit, or basis.
The Indiana tax attorney team at Camden Meridew, P.C. helps clients seek relief through the innocent spouse rule in Indiana, by the filing of IRS Form 8857, to help even the most surprised spouse reduce or escape liability for the other spouse’s tax liability.
The Innocent Spouse Rule in Indiana: Relationships, Rules, and Resources
When a couple files a joint tax return, the general rule under federal tax law is that both parties have joint and several liability, meaning that each person can potentially be on the hook for the entire amount owed regardless of which spouse made more money or was the one to improperly claim credits or deductions.
The Internal Revenue Code, however, details three situations in which joint and several liability might be avoided:
- A traditional innocent spouse, or “requesting” or “filing” spouse, situation (26 USC § 6015(b)) occurs when the tax understatement is solely attributable to the “nonrequesting” or “responsible” spouse’s error;
- An allocation or separation of liability relief situation (26 USC § 6015(c)) occurs when a couple is no longer together and each party to the joint return will have a separately allocated tax responsibility; and
- Equitable relief (26 USC § 6015(f)) might be granted if one of the other two situations does not apply—the options under this last resort look at all facts and circumstances, specifically addressing the non-exclusive list found in Section 4.03(1) of Rev. Proc. 2013-34.
Innocent Spouse versus Injured Spouse: Break from a Taxing Situation
An Indiana tax attorney can help you navigate the assorted IRS forms, but getting innocent spouse relief requires understanding the rule. If you seek relief using joint tax return defenses, the first step is to understand the difference between an innocent spouse and an injured one.
A taxpayer eligible for The innocent spouse defense may avoid liability for the underreporting or underpayment of tax plus any related interest and penalties. A taxpayer may qualify for innocent spouse relief when three requirements are met:
- An error on a joint return is attributable solely to the nonrequesting spouse;
- The innocent spouse had no idea or no reason to know of the understatement of tax on the joint return; and
- It would be unfair to hold the innocent spouse responsible for the error.
An injured spouse, on the other hand, has a more after-the-fact feeling—an injured spouse looks for allocation of a refund itself. An injured spouse seeks relief using instructions for filing IRS Form 8379,
An Experienced Indiana Tax Attorney Knows Indiana Joint Tax Return Defenses
Innocent spouse relief is also available to avoid liability for Indiana state tax. Innocent Spouse Allocation Worksheet IN-40SP is the form to use to file a claim. This worksheet includes a list of documents to be filed, one of which is a detailed letter explaining why the filing spouse believes he or she is eligible for innocent spouse relief.
There is a big difference between federal tax law and Indiana tax law, however. Indiana Code § 6-3-4-2 does not impose joint and several liability for joint tax returns. Therefore, the State of Indiana cannot pursue one spouse for the income tax obligations of the other. However, that does not mean that the Indiana Department of Revenue might not try to collect.
It is especially important to discuss your obligations—the ones you have and the ones you do not—with an Indiana tax attorney who understands the nuances of the innocent spouse rule in Indiana.
An Indiana Tax Attorney Who Knows the Innocent Spouse Rule
The IRS has a surplus of procedures, rulings, worksheets, and forms designed to walk a non-tax professional through filing for innocent spouse relief. Many filers attempt to file on their own; however, by the end of 2017, according to the Taxpayer Advocate Service, full relief was granted in only 39 out of 100 cases. To maximize your chance for success, utilize an Indiana tax attorney who is familiar with the process.
If you need help seeking relief under the innocent spouse rule in Indiana and federal tax returns, contact Indiana tax attorney Julie Camden today at Camden & Meridew, P.C. by calling 317-770-0000 or by using the firm’s online contact form to set up a free initial consultation. There are deadlines for joint tax return defenses, so don’t delay.