There is a distinction between an Innocent spouse and an Injured Spouse. Here we’ll cover Innocent Spouse issues.
An innocent spouse is someone that the IRS is attempting to collect a tax debt from that is not responsible for the taxes on the return. This is typically due to a joint tax return being filed and one spouse not being responsible for the tax debt but the IRS is still trying to collect from them.
There are three steps which need to be applied:
The first is to determine if Innocent Spouse applies. This only applies when there is an understatement of tax on the filed return and the couple is still together. If that doesn’t apply you go to the next step.
In this step you see if Separation of Liability applies. This only applies when there is an understatement of tax on the filed return and the couple is no longer together. If this doesn’t apply you go to the next step.
Here you see if Equitable Relief applies. This applies when there is an underpayment or an understatement of the tax on the filed return.
If you are the one requesting relief you can’t have benefitted from or been involved in the underreporting or underpayment. If you were involved and aware you probably will not get relief.
The injured spouse provisions are used when a married couple wants to file a joint return to get the benefits of the married filing joint tax rates. In this case one spouse owes money that the IRS is trying to collect. It could be taxes that the other spouse is not liable for, student loans, unpaid child support or alimony or state taxes. A Form 8379 Injured Spouse Allocation is filed with the return. On this form the income, expenses and exemptions are allocated to the appropriate spouse. The IRS then makes a determination of how much of the refund belongs to the injured spouse. That amount is sent the injured spouse and the remainder is kept and applied to the debt of the other spouse.