The innocent spouse rule is one of three types of relief offered by the Internal Revenue Service (IRS) from the joint and several liability of a joint tax return. The rule provides for relief from responsibility for paying tax, interest, and penalties resulting from erroneous items reported by the applicant’s current or former spouse on their joint return. Erroneous items are any unreported gross income received, or any incorrect deduction, credit, or property basis claimed by that spouse. The applicant can receive total relief if they had no knowledge or reason to know of the erroneous item, or partial relief if they were only unaware of a portion of the erroneous item.
As explained by the IRS, a person applying for innocent spouse relief must meet three requirements: (1) that the applicant filed a joint return that has an understatement of tax as a result of erroneous items attributable only to their current or former spouse; (2) that the applicant did not know and had no reason to know that there was an understatement of tax at the time they signed the joint tax return; and (3) that it would not be fair to hold the applicant liable for their spouse’s understatement of tax, given their situation’s facts and circumstances. Additionally, the applicant and their spouse must not have participated in a fraudulent transfer of property. If an applicant meets the requirements, they must file Form 8857 with the IRS no more than two years after the IRS first attempted to collect the increased tax, unless the applicant qualifies for an exception, such as for equitable relief.
Readers can access Publication 971 for detailed information on who qualifies for relief, as well as flowcharts, a question and answer section, and a list of resources to aid readers who think they may qualify.
[Last updated in June of 2020 by the Wex Definitions Team]