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San Mateo, CA: Tax matters can be complex, and for some individuals, unforeseen circumstances can lead to confusion and potential tax liabilities.
Two common situations that are often confused with each other that taxpayers may encounter are: innocent spouse and injured spouse relief.
While both of these provisions within the Internal Revenue Code seek to alleviate tax burdens on the uninvolved spouse, they address distinct scenarios and have specific eligibility criteria linked to their requirements.
Ultimately, the two concepts seek the same goal: to allow the non-liable spouse to escape the consequences of the "bad actor" spouse.
Innocent Spouse Relief: Innocent spouse relief is a provision designed to protect taxpayers from unfair tax liabilities arising from their spouse's actions or omissions on a jointly filed tax return. To qualify for this relief, the innocent spouse must meet very specific criteria of timing, as well as knowledge and current marital status.
Here's an example of an Innocent Spouse situation:
Sarah and John are married and file a joint tax return. Unbeknownst to Sarah, John significantly underreports their income to reduce their tax liability. The IRS later discovers the discrepancy and audits the their tax return. Additional tax, penaties, and interest is assessed based on the underreporting. If Sarah can prove that she had no knowledge of John's actions and did not benefit from the underreported income, she MAY be eligible for innocent spouse relief. In this case, she won't be held PERSONALLY liable for the tax debt and related charges. This is a simple example and the criteria for Innocent Spouse Relief can be quite complex and involved.
Injured Spouse Relief: Injured spouse relief is different that innocent spouse. It is applicable when a jointly filed tax return results in an offset of a tax refund. A refund offset is when the IRS takes the full refund (or portion of the refund) to satisfy some lawful debt obligation that is owed by a taxpayer. This typically happens when one spouse has outstanding federal or state debts, such as unpaid taxes (that may have been incurred before the marriage), delinquent student loan payments, or unpaid child support. The injured spouse seeks to recover their share of the joint refund through the application of the injured spouse relief procedure.
Here's an example of an Injured Spouse situation:
Mark and Lisa, a married couple, file their taxes jointly. Mark has defaulted on his college student loans before his marriage, and as a result, the IRS withholds their entire tax refund to offset Mark's delinquent student loan payments. Lisa, however, has no part in Mark's student loan obligation and is rightfully entitled to her portion of the refund. In this scenario, Lisa can file for injured spouse relief to reclaim the portion of the tax refund that is rightfully hers.
Bottom line: Innocent spouse relief and injured spouse relief are statutory provisions offered by the IRS to protect taxpayers facing unique circumstances with their spouse or ex-spouse. Innocent spouse relief is for those who find themselves burdened by their spouse's "creative numbers" put on a joint tax return, while injured spouse relief is applicable when a jointly filed refund is withheld to cover the debt of one spouse.
Taxpayers should understand that by knowing the requirements of these two types of relief, they can make informed decisions and seek appropriate assistance when they are "colleterial damage" caught in the IRS web. As always, it's advisable to consult a qualified tax professional to ensure compliance with IRS regulations and determine eligibility for relief options.
Kevin Rego
Law Office of Kevin Rego
San Mateo, CA
650.933.5222
