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Changes to Innocent Spouse Relief

With today’s divorce rate of first marriages at 50%, the ‘happily ever after’ that most people seek can be elusive. If things go sour in a marriage then they could go sour in other areas also, including jointly filed tax returns. When a couple files jointly they can be many benefits, but they are also both fully responsible for any taxes owed, interest and penalties. This also applies to any couple that lives in a community property state even if they file separately. This can detrimental to anyone going through a divorce financially if the person filing the return underreports or over deducts.

There is relief for the innocent spouse. The IRS has three ways to help innocent spouses with joint return that have gone awry, and they include:

  • Innocent Spouse Relief: which provides you relief from additional taxes that you may owe that your spouse failed to report, improperly reported, or if they claimed credits or too many  deductions.
  • Separation of Liability Relief: allocates additional taxes owed between you and your former or current but separated spouse on items not reported correctly. It allows you to pay what you owe.
  • Equitable Relief: may be applied for when you do to qualify for either innocent spouse relief or separation of liability for something not reported properly on a joint return, or for the right amount, but the payment remains unpaid.

In the past, the IRS has allowed a two year window to file for relief, but this has recently changed. Now as long as the statute of limitations has not expired then you can still file for relief, the two year window no longer applies. With this change, if you have applied for relief and were denied solely on the two year window, then you may reapply using the Form 8857 as long as the statute of limitations has not expired.

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