Publication 971 (Rev. April 2008) - Innocent Spouse Relief (Page 7 of 23) in pdf

Burden of proof. You must be able to prove that you

treated on the tax return. For example, if you knew that

meet all of the requirements for separation of liability relief

your spouse received dividend income, relief is not avail-

(except actual knowledge) and that you did not transfer

able for that income even if you did not know it was taxable.

property to avoid tax (discussed later). You must also

establish the basis for allocating the erroneous items.

Example. Bill and Karen Green filed a joint return show-

ing Karen’s wages of $50,000 and Bill’s self-employment

income of $10,000. The IRS audited their return and found

Limitations on Relief

that Bill did not report $20,000 of self-employment income.

The additional income resulted in a $6,000 understated

Even if you meet the requirements discussed previously, a

tax, plus interest and penalties. After obtaining a legal

request for separation of liability relief will not be granted in

separation from Bill, Karen filed Form 8857 to request

the following situations.

separation of liability relief. The IRS proved that Karen

•

The IRS proves that you and your spouse (or former

actually knew about the $20,000 of additional income at

spouse) transferred assets to one another as part of

the time she signed the joint return. Bill is liable for all of the

a fraudulent scheme. A fraudulent scheme includes

understated tax, interest, and penalties because all of it

a scheme to defraud the IRS or another third party,

was due to his unreported income. Karen is also liable for

such as a creditor, ex-spouse, or business partner.

the understated tax, interest, and penalties due to the

•

$20,000 of unreported income because she actually knew

The IRS proves that at the time you signed your joint

of the item. The IRS can collect the entire $6,000 plus

return, you had actual knowledge (explained below)

interest and penalties from either Karen or Bill because

of any erroneous items giving rise to the deficiency

they are jointly and individually liable for it.

that were allocable to your spouse (or former

spouse). For the definition of erroneous items, see

Factors supporting actual knowledge. The IRS may

Erroneous Items earlier under Innocent Spouse Re-

rely on all facts and circumstances in determining whether

lief.

you actually knew of an erroneous item at the time you

•

Your spouse (or former spouse) transferred property

signed the return. The following are examples of factors

to you to avoid tax or the payment of tax. See Trans-

the IRS may use.

fers of Property To Avoid Tax, later.

•

Whether you made a deliberate effort to avoid learn-

ing about the item in order to be shielded from liabil-

Actual Knowledge

ity.

•

Whether you and your spouse (or former spouse)

The relief discussed here does not apply to any part of the

jointly owned the property that resulted in the errone-

understated tax due to your spouse’s erroneous items of

ous item.

which you had actual knowledge. You and your spouse

remain jointly and severally liable for this part of the under-

stated tax.

Exception for spousal abuse or domestic violence.

If you had actual knowledge of only a portion of an

Even if you had actual knowledge, you may still qualify for

erroneous item, the IRS will not grant relief for that portion

relief if you establish that:

of the item.

•

You were the victim of spousal abuse or domestic

You had actual knowledge of an erroneous item if:

violence before signing the return, and

•

You knew that an item of unreported income was

•

Because of that abuse, you did not challenge the

received. (This rule applies whether or not there was

treatment of any items on the return because you

a receipt of cash.)

were afraid your spouse (or former spouse) would

•

You knew of the facts that made an incorrect deduc-

retaliate against you.

tion or credit unallowable.

If you establish that you signed your joint return under

•

For a false or inflated deduction, you knew that the

duress (threat of harm or other form of coercion), then it is

expense was not incurred, or not incurred to the

not a joint return, and you are not liable for any tax shown

extent shown on the tax return.

on that return or any tax deficiency for that return. How-

ever, you may be required to file a separate return for that

Knowledge of the source of an erroneous item is not

tax year. For more information about duress, see the

sufficient to establish actual knowledge. Also, your actual

instructions for Form 8857.

knowledge may not be inferred when you merely had a

reason to know of the erroneous item. Similarly, the IRS

does not have to establish that you knew of the source of

Transfers of Property To Avoid Tax

an erroneous item in order to establish that you had actual

knowledge of the item itself.

If your spouse transfers property (or the right to property)

Your actual knowledge of the proper tax treatment of an

to you for the main purpose of avoiding tax or payment of

erroneous item is not relevant for purposes of demonstrat-

tax, the tax liability allocated to you will be increased by the

ing that you had actual knowledge of that item. Neither is

fair market value of the property on the date of the transfer.

your actual knowledge of how the erroneous item was

The increase may not be more than the entire amount of

Publication 971 (April 2008)

Page 7

Publication 971 (Rev. April 2008) - Innocent Spouse Relief Page 7

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