Tax Relief For Divorced Spouses: Understanding Innocent Spouse Relief In North & South Carolina

In this article, you will discover:

• How innocent spouse relief can protect divorced taxpayers in North and South Carolina
• The necessary forms and documentation to file for innocent spouse relief in the Carolinas
• Whether you can appeal if your innocent spouse relief is denied

What Is Innocent Spouse Relief, And How Can It Protect Divorced Taxpayers?

Usually, when a taxpayer gets divorced, the debt survives that divorce, meaning each spouse is jointly liable for that debt. Even if they agree to split the debt, which is common in many divorce decrees, the IRS doesn’t recognize that divorce decree. Each spouse still owes the full amount.

Innocent spouse relief is a way for one spouse to be absolved from joint marital debt. Specifically, it is a provision offered by the IRS to protect taxpayers who believe they shouldn’t be held responsible for tax liabilities that were omitted or inaccurately reported on a joint return by their spouse.

Who Qualifies For Innocent Spouse Relief Under IRS Rules?

To qualify for innocent spouse relief, you must have filed a joint return with your spouse. There must also be an understatement of tax on the return, such as under-reported income or incorrectly reported deductions or credits that were attributable to your spouse.

You must also have had no knowledge or reason to know about the errors your spouse committed on the joint return. In other words, there must be some type of inequity or reason why the government should not hold you responsible for your ex-spouse’s or separated spouse’s obligations or errors.

Typically, you see requests for this relief when the IRS is auditing a joint return, and the audit results in an additional tax owed. In those cases, the requesting spouse is basically taking the position that they should not owe that additional tax amount because they didn’t know about it.

What IRS Forms And Supporting Documents Are Required To File For Innocent Spouse Relief?

The IRS requires the submission of Form 8857 for innocent spouse requests. This form and the request need to be filed within two years of any collection activity against that taxpayer. In other words, if the IRS sends out a notice to you saying you owe this debt, and you believe you have innocent spouse rights, you need to request relief within two years of that collection activity.

Proving a claim to innocent spouse relief is quite fact-specific. As a result, the requesting taxpayer will need to put together some supporting documentation to show why they shouldn’t be responsible for the tax debt, such as:

• The relevant tax returns
• Evidence of the spouse’s error
• Unreported income information
• Incorrect deductions
• Any separation agreements or divorce decrees showing that you and your ex-spouse are living apart
• Other supporting documentation to support your claim and demonstrate you weren’t aware of your spouse’s financial issues, and therefore it’s inequitable to hold you responsible for them

In situations where your spouse may be abusive to you, you’ll need police reports, restraining orders or anything showing there were problems between you and your ex.

If My Innocent Spouse Relief Claim Is Denied, Can I Appeal?

Innocent spouse relief claims have two levels of appeals, and there are specific time deadlines to meet when you’re making these appeals.

First, you can pursue an administrative appeal with the IRS Independent Office of Appeals Division by filing Form 12509. If the Appeals Division sustains the initial denial, you can then petition the Tax Court, but you must do that within 90 days of the final determination.

Appeals are available to both parties. Suppose the IRS makes a determination for innocent spouse relief for a wife. The husband has a right to appeal that decision to the Tax Court. Appeals work both ways; the non-requesting spouse also has an opportunity to appeal.

Why Is Working With A Tax Attorney Critical For Success With Innocent Spouse Relief?

Knowing the particulars of the tax law is essential because innocent spouse relief claims are specific and factually based. Tax attorneys who concentrate on resolving tax issues know how to present these claims properly.

The IRS is required to notify and obtain input from your ex-spouse, who may actually dispute your assertions. Occasionally, an ex-spouse agrees to the relief. Regardless, the IRS still may not award the innocent spouse relief, even if both spouses agree, because they’re looking to recover the debt from either spouse if they can.

A skilled tax attorney understands strategic planning and has specialized knowledge to present these claims properly. If necessary, your attorney can take your claim all the way up to the Tax Court Division.

Case Studies: When A Client Is Blindsided By Tax Obligations Created By Their Spouse

We took a case where there was actual spousal abuse, so we presented an innocent spouse claim. When you have threats of harm, and your spouse telling you to sign a tax return and saying you don’t need to question it, that causes problems.

I met yesterday with a client who said she was blindsided by the issues her husband was having as a sole proprietor. She did not know of them, and they had filed joint returns. She came in, she was upset with her husband, and her husband didn’t attend the meeting. That’s a situation where we’re going to investigate whether an innocent spouse relief claim would be the correct alternative for her.

In another recent case, the wife was taking retirement distributions to fund her prescription drug habit. The husband had no idea she was taking the distributions, depositing them into a separate bank account and not reporting those distributions on their return. They were audited, and we were successful in obtaining innocent spouse relief for him.

In Innocent Spouse Relief Claims, Do You Find More Often It’s The Wife Or Husband Being Blindsided?

Most of the time, the wife is blindsided because traditionally, the husband is usually the one who controls the taxes. So many times, the husband tells their spouse just to sign the return. The wife in these cases trusts her husband to do the right thing. They don’t know that something is not being reported.

Still Have Questions? Ready To Get Started?

For more information on innocent spouse relief in the Carolinas, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (803) 771-9800 for our South Carolina office or (980) 677-1099 for our North Carolina office today.