by Ed Martin, CFE, Tax Fraud Expert
The Internal Revenue Service sets the bar high for individuals to meet the Innocent Spouse guidelines.
Important: Form 8857 Summary of Instructions:
The IRS says must complete your paper work, Form 8857, attachments, and exhibits “as soon as you become aware of a tax liability for which you believe only your spouse should be held responsible.” You must be brave in this process because the IRS will contact your spouse and inform him/her of the filing to allow him/her to participate and will advise him/her of their determination.
Awareness includes the following
1. IRS is examining our tax return & proposing to increase your tax liability.
2. IRS sent a notice. (Note: You must submit your Form 8857 within two years of the first attempt (notice) from the IRS or your request could be rejected. Do not delay, get your information together to complete the Form 8857.)
3. IRS Collection activities start the two year clock ticking after any of the following:
a. IRS offsets your income tax refund against the liability owed.
b. IRS could file a proof of claim in bankruptcy proceeding.
c. IRS could file suit to collect a joint liability.
d. IRS issues a Notice of Intent to Levy and notifies you of your rights.
Types of Relief:
1. Innocent Spouse Relief
2. Separation of Liability Relief
3. Equitable Relief
4. Relief from Liability arising from community property laws.
We will only discuss Innocent Spouse and Equitable Relief herein: Note that all the following must apply.
1. You filed a joint return(s) for the years for the relief requested.
2. The understatement of tax on the return(s) that is due to erroneous items (income, deductions, credits, or basis) of your spouse with whom you filed the return.
3. You can show (demonstrate through statements and actions) when you signed the return(s) you did not know and “had no reason to know” that the understatement existed or the extent to which it existed.
Equitable Relief: You may be allowed equitable relief if both of the following conditions apply.
1) You have an understated tax or underpaid tax (tax properly shown on your return but has not been paid.)
2) Taking into account all the facts and circumstances the IRS determines it would be unfair to hold you liable for the understatement or underpaid tax.
a) Note: Equitable relief is the only type of relief available for underpaid tax.
Good news if you do not qualify for innocent spouse relief but your circumstances are right, IRS will consider equitable relief without completing additional forms.
Two scenarios that should be explained in the Form 8857 and attachments:
1) If your spouse was self-employed; controlling; handled the bank accounts; gave you a debit card or an allowance in a separate bank account to pay bills; kept the personal and business records on password protected QuickBooks; received the US Mail; made every major purchase decision in your life and threatened or coerced you into signed the tax return not knowing that he did not make estimated tax payments, then you may qualify for relief. If your spouse forged your name to the return then you may qualify for relief.
2) If you are in a second marriage and your spouse did all the above items and his adult children were held by him/her to be superior to you then include that information in the attachments to explain what happened to you. If there are police reports that reveal abuse by your spouse or his children get copies for the IRS. If you have witnesses to events that show abuse have them prepare affidavits and include them with you Form 8857.
It will be best for you to be separated or divorced from your spouse when the Form 8857 is filed.
Also, remember just like any other IRS document you submit to them are signing under penalties of perjury thus the contents of your Form 8857 must be truthful and well documented.
To learn more contact Fraud Expert Ed Martin, CFE, TCI, at Sage Investigations, LLC, e-mail: firstname.lastname@example.org