Many taxpayers find themselves receiving that surprising letter from the IRS through no fault of their own. After all, their spouse has years of experience working in the financial industry, so why shouldn’t they handle the tax return? Most taxpayers consider it a done deal when the return is filed and accepted.
Imagine their shock when they discover an additional $50,000 of income that their spouse did not report. Now the IRS is demanding $20,000 for back taxes, penalties, and interest!
There are two possible courses of action to obtain relief in that unfortunate circumstance: innocent spouse and injured spouse.
Before we go any further, let’s look at the distinction between an innocent spouse and an injured spouse.
An injured spouse is the most common of the two. To qualify for an injured spouse, the non-owing spouse usually knows about the other spouse’s debt when filing a joint return. They are shifting responsibility for the debt.
This type of debt could be student loans or child support, or a few other reasons. The key here is that this is not a 50-50 split of the refund but is an allocation based on an IRS formula.
An innocent spouse often comes into play following a divorce, and the innocent spouse did not know whatsoever of the debt owed by the other/former spouse. Again, this is only an issue when a joint return is filed.
