IRS Debt Resolution as a Spouse: Relief by Separation of Liability

New York City Tax Resolution Lawyer Explains How “Relief by Separation of Liability” Can Help You Battle the IRS

When individuals understate the amount of income earned on their taxes, they may face financial consequences from the Internal Revenue Service (IRS).  Whenever this happens, it is best to contact a New York City tax resolution lawyer for assistance and to learn your options.  One option if you or your spouse have accrued unpaid debts from an understatement of tax is called relief by separation of liability.

Here, you separate or split your tax understatement (along with penalties and interest), into portions between yourself and your spouse, generally based upon responsibility for the understatement.  By allocating the debt between you and your spouse, you will then only be liable for whatever portion is in your own name.  To find out more about how understatement of tax allocation works, call our firm for more information.

Relief Eligibility

There are certain requirements in order to request tax relief through separation of liability.  First, you are only eligible if you filed a joint tax return with your current or former spouse.  Second, you must submit paperwork, including Form 8857, and meet one of the form’s following two requirements:

  1. You have divorced the spouse that you originally filed the erroneous joint tax return with.  This rule also applies to those who are legally separated or widowed; or
  2. As of the date that you filed Form 8857, you have not been a member of your former spouse’s household for the past twelve consecutive months (i.e., you are separated.)

Household Membership Explained

If you and your spouse have become estranged or are living apart, you are not members of the same household.  However, two people in the following scenarios will be considered household members:

  1. Those who live in the same residence, or
  2. Those who are not estranged, but live in separate residences, but where one spouse is “temporarily absent” from the other spouse’s household.

The term temporarily absent refers to when one spouse is no longer living in the household and it can be assumed that they will return.  Here, the household must be maintained in such a way as to be substantially similar to the household that the absent spouse is accustomed to, upon their return.  Spouses who have left the household because of military service, imprisonment, education, or illness may be considered temporarily absent.

Burdens and Limitations

In a separation of liability tax relief claim, you will have the burden to prove several requirements, including that you did not sell property in order to avoid the tax.  Additionally, you will need to provide a basis for separating certain items.

New York City tax resolution lawyers commonly see requests for relief denied in the following scenarios:

  1. It is proven that you and your current or former spouse committed fraud.  This includes transferring assets to the other spouse in order to defraud the IRS or other third parties; or
  2. Your current or former spouse sold property to you in order to evade the tax; or
  3. It is proven that you had actual knowledge of false statements on the return at the time you filed the joint tax return.

You will be deemed to have had actual knowledge of a falsely reported item if:

  1. You were aware that items were received and not reported as required;
  2. You were aware of facts which made your joint tax return ineligible for a credit or deduction; or
  3. In the case of inflated or false deductions, you knew that the expense was not earned, or the extent to which it was earned was not properly recorded on the tax return.

Exception for Domestic Abuse

If you had actual knowledge of an erroneous tax statement, you may still be eligible for relief by separation of liability if you can establish:

  1. That you were a victim of domestic abuse prior to signing the joint tax return, and
  2. The abuse you suffered caused you to not challenge your current or former spouse in their completing the joint tax return for fear of retaliation.

In the event that you establish that your joint tax return was filed under duress, then it will not be considered a joint tax return.  Here, you will likely need to file a separate tax return for the years that joint returns were filed under duress.

Want to Learn How Our New York City Tax Resolution Lawyer Can Help You?  Call Our Firm

There is a lot that goes into tax resolution and it can be a complicated maze with many pitfalls.  Call our experienced attorneys at SAMUEL & STEIN today to learn how we can help you successfully navigate this matrix of tax laws and achieve financial freedom by dialing (646) 681-4193 or use the convenient “Evaluate Now” box on our webpage.  Together we can help answer your questions and protect your rights.

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