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The innocent spouse rules with the Internal Revenue Service are provisions designed to protect taxpayers from the tax liabilities of their current or former spouse. In this episode of the Ask Ralph podcast, host Ralph Estep, Jr. explores this crucial...
The innocent spouse rules with the Internal Revenue Service are provisions designed to protect taxpayers from the tax liabilities of their current or former spouse. In this episode of the Ask Ralph podcast, host Ralph Estep, Jr. explores this crucial area of tax law and its impact on individuals facing challenging situations.
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Welcome back to another episode of the Ask Ralph Podcast, where we dive deep into the world of taxes and financial matters. I'm your host, Ralph V. Estep, Jr., and today we have a fantastic topic to discuss. The Innocent Spouse Rules with the Internal Revenue Service. This might not be something that affects everybody, but if you find yourself in a position where you are an innocent spouse of someone when you filed a joint tax return, this podcast today is going to be valuable.
This is a crucial area of tax law and can have a significant impact on individuals who find themselves in challenging situations. But before we jump into details, I'm going to remind all of our listeners to leave a review on our podcast page at www. askralphpodcast. com. Your feedback is greatly appreciated and helps us improve our content.
Now let's get started talking about these innocent spouse rules.
Welcome to the Ask Ralph Podcast, where [00:01:00] listening to an experienced financial professional can help you make sense of confusing questions, current headlines, and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting, as Ralph makes the complex simple by sharing his real world knowledge with all things financial.
Now here's your host, Ralph Estep, we thought we would talk about the Innocent Spouse Rules today. They're also known as the Innocent Spouse Relief. They're provisions provided by the IRS to protect taxpayers from tax liabilities of their current or former spouses. The relief is available when a taxpayer can prove, that's the important part, that they should not be held responsible for the tax debt incurred by their spouse or ex spouse.
To further understand this, let's discuss the specific forms and filing instructions needed to apply for Innocent Spouse Relief. Now with that said I think this is an area where you should hire a professional [00:02:00] to help you with this situation and someone who really understands what's going on. So the first form to consider is form, and I'm going to talk about IRS forms today, this might be a little bit wonky, but I want you to understand what we're talking about here.
And that's form number 8857, which is named, go figure, request for innocent spouse relief. This form is used to initiate the process of seeking relief from joint tax liability. So if you filed a tax return with your spouse or ex spouse and the IRS is looking to collect that's what would trigger this your need to file this return or this form, excuse me.
It requires detailed information about the taxpayer, their spouse, and the tax years in question. Additionally, Form 8857 requires the taxpayer to provide supporting documentation to demonstrate their eligibility for innocent spouse relief. What would that include, Ralph? That would include financial statements, tax returns, and other relevant [00:03:00] evidence.
Now, once this form is completed, and again, I recommend you use a professional to do this, It should be mailed to the IRS at the address specified in the instructions, it depends on where you live. It's important to ensure that all required documents are included on that form and that the form is filled out accurately.
Any errors or missing information could result in delays or a denial of the innocent spouse relief request. And you're filing this because account's been levied or leaned and all of a sudden you're like, wait a minute, this isn't my debt, this is my ex spouse's debt. After the IRS receives the Form 8857, they will review the request and the supporting documentation that you sent along with it.
This process can take some time. My experience is sometimes it'll take a year or two. As the IRS thoroughly examines the circumstances and evidence provided, it's crucial for taxpayers to be patient during this stage and to promptly respond to any additional information or documentation requests from the [00:04:00] IRS.
Now let's delve into the impact of using the Innocent Spouse Relief method. So to use this, let's talk about what that means. Seeking Innocent Spouse Relief can have significant implications for individuals facing liabilities resulting from their spouse's actions. If the IRS grants innocent spouse relief, the taxpayer will be relieved of this responsibility for the tax debt, including all penalties and interest associated with that joint tax return.
This is a welcome relief. It provides much needed financial assistance to innocent spouses who may have been burdened by the actions or mistakes of their current or former spouse. It can help protect their assets. It can protect their income and credit worthiness from being affected by the tax liabilities they are not responsible for.
However, it's essential to note that innocent spouse relief is not automatically granted. The taxpayer must demonstrate that they meet specific criteria IRS. [00:05:00] These criteria generally involve proving that they had no knowledge or reason to know about the understatement or incorrect items on the tax return.
Additionally, IRS considers factors such as the taxpayer's level of involvement in the financial affairs of the household and whether it would be unfair to hold them liable for the tax debt. So let's talk about a real world example. So let's say husband and wife File a joint tax return and the wife has no clue that the husband is running a Gambling business on the side.
Let's use that as a simple example So they filed a tax return the husband has a typical w 2 job. She has a w 2 job They signed a return they send it off to the IRS and all of a sudden the IRS comes back and audits them and said You know, wait a second we've performed an audit.
We found all these deposits in your husband's bank account, and we want to explain what these are. Your husband comes to you and says, you know what, I guess I should have told you, but I've been running a sort of gambling operation on the side. The IRS is going to say, [00:06:00] wait a minute, that's income. If it's income, it needs to be reported on your tax return.
Since you filed a joint tax return, that is going to be what we call joint debt on the tax return. So that's a perfect example of where you would use You know, that relief, but that's a situation where the spouse had no idea. of what was going on. Now, let's use a different example. Let's say husband and wife run a small business together.
They file a joint tax return. But let's say that the husband was well aware that the wife was making intentional mistakes. That's what we'll call a funny way of saying fraud on their financial report. So when she handed over the information to the accountant, he knew those numbers don't make any sense.
They filed a joint tax return, and guess what? The IRS audits them, they come back and they review their records and say, wait a minute, we see you've made a few errors here. That's a situation where I doubt that innocent spousal relief is going to be granted. So you need to really pay attention. And I say this to my clients all the time.
How does it in a way come in? [00:07:00] If you don't feel comfortable with filing a joint tax return, you don't want to be responsible for that. What you can do is file a separate return. You can either file head of household or married filing separate. And like I said before, it's important for taxpayers to consult with a qualified tax professional in seeking innocent spouse relief.
This is not a simple fill in the blank kind of thing. A tax professional can provide guidance on the eligibility requirements. Help you gather the necessary documentation and ensure that the Form 8857 is completed accurately. Their expertise can greatly increase the chances of a successful innocent spouse relief request.
Before we wrap up today's episode, I want to remind all of our listeners to visit our podcast page at www. askralphpodcast. com and leave a review. Click on the little. microphone icon down at the bottom right of leave us a voicemail message say, Hey, Ralph, I'd like you to talk about this. Or I had this situation.
Can you do a podcast on this? I actually had a client do that the other day, [00:08:00] and we're going to be talking about in the near future. One of the podcasts will be about the topic that he left. Your feedback is invaluable to us and helps us continue to provide high quality content on tax related matters. I want to thank you for joining me today on the Ask Ralph podcast.
I hope this episode shed some light on the innocent spouse rules with the Internal Revenue Service and more importantly the impact of using this method. Remember, seeking innocent spouse relief can provide much needed financial relief to innocent taxpayers who find themselves in challenging situations.
As always, consult with a qualified tax professional for personalized advice regarding your specific circumstances. And listen, folks, stay tuned for our next episode where we'll be exploring another exciting topic in the world of taxes and finance. Until then, this is Ralph V. Estep, Jr. signing off. And as I always say, take care and be financially savvy.
Thank you for joining us on the Ask Ralph Podcast. And with a simple click to subscribe, we'll invite you back to our next episode. And [00:09:00] remember, financial issues don't have to be complicated. Just Ask Ralph. The information contained in this episode of Ask Ralph is based on data available as of the date of its release.
Saggio Accounting Plus and Ask Ralph Media Inc. is under no obligation to update this content if changes occur. Applying this information to your specific situation requires careful consideration of all facts and circumstances. And any information provided is not to be considered as financial, tax, or legal advice.
Please consult your tax advisor or attorney before acting on any material covered.
