Tax Relief: Innocent Spouse vs Injured Spouse

Married couples have the option to either file their federal tax returns separately or jointly. Some couples choose the Married Filing Separately option despite limiting their use of potentially valuable tax breaks such as the Earned Income credit, deduction of net capital losses, tax-free exclusion of Social Security benefits, and more.

Considering the many disadvantages of filing separately, it’s understandable why more couples choose the Married Filing Jointly option. However, filing jointly does come with one critical downside – “joint and several liability.” When filing jointly, both spouses are jointly and severally liable for all the tax due, including penalties and interest.

But what happens if your spouse omitted income deliberately or claimed improper deductions without your knowledge? Or what if you discover that your tax refund will be applied to your spouse’s past-due debts? Fortunately, the IRS recognized there might be circumstances where an “innocent” or “injured” spouse may suffer because of the other spouse’s error or action. Here’s how the IRS provides tax liability relief for those who qualify.

Innocent Spouse Relief

Innocent spouse relief most often applies to divorced or legally separated couples. Suppose your spouse or former spouse reported items improperly or omitted items deliberately on your tax return. In that case, you can request innocent spouse relief, particularly if you can establish that you were unaware of the erroneous items. However, to file an innocent spouse claim, you must meet all of the following conditions:

  • You can prove that you had no actual knowledge or a reason to know about an erroneous item belonging to your spouse or former spouse at the time of the understatement of tax.
  • The joint return that you and your spouse filed has an understatement.
  • The IRS has determined that it would be unfair to hold you responsible for the understatement.
  • You or your spouse are committing fraud by transferring property to one another.

You can file for innocent spouse relief once the IRS has alerted you that you and your spouse are going to be jointly assessed for a tax debt due to erroneous reporting or claiming or overstatement of deductions.

Injured Spouse Relief

If innocent spouse relief typically applies to divorced or legally separated couples, injured spouse claims are generally claimed by someone still married to their spouse.

To qualify as an injured spouse, you must not be legally obligated to pay your spouse’s past debt. You could file an injured spouse claim if your current or ex-spouse used your tax refund to cover their financial obligations from before you were married, including non-IRS tax debts such as child support, spousal support, student loans, and unemployment compensation.

If your refund was offset or seized and you file an injured spouse claim, the IRS will respond within 14 weeks. The process will involve allocating which income, deductions, credits, and assets are attributed to each spouse and which part of the refund you are entitled to.

If you’re confused about the difference between innocent spouse and injured spouse relief, contact Golden Tax Relief today​! We can help take the stress out of the tax resolution process.

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