Innocent or Injured Spouse Relief

Transcription

1 CPE/CE 1 Credit Hour Innocent or Injured Spouse Relief Don t Marry Into Tax Liability 2014 Tax Year Interactive Self-Study CPE/CE Course

2 Innocent or Injured Spouse Relief Self-Study CPE/CE Course Overview Program Content: This course provides continuing professional education for tax preparers to enhance competence in assisting married clients with seeking relief under injured spouse or innocent spouse provisions of the Internal Revenue Code. Topics include joint and several liability, differences between injured spouse relief and innocent spouse relief, refund offsets, equitable relief, separation of liability, and proper means of filing for relief. Publication Date: September Expiration Date: The Final Exam must be completed online within one year from your date of purchase or shipment. See the Final Examination Instructions on the next page for information regarding final exam completion. Field of Study: Taxes. Program Level: Overview. This course provides a general overview of the subject area from a broad perspective. It is appropriate for tax professionals at all organization levels. Recommended Participants: This course is recommended for tax professionals who prepare tax returns for compensation and other individuals who assist paid preparers. Prerequisites: None. Advance Preparation: No advanced preparation is needed to complete this course. Type of Delivery Method: Interactive self-study. CPE/CE Credit Hours: 1 Credit Hour. One 50-minute period equals one CPE/CE Credit Hour. Passing Grade: Participants who answer a minimum of 70% correct on the final exam will receive a Certificate of Completion. See the Final Examination Instructions on the next page for further information regarding passing requirements and acquiring the Certificate of Completion. Record Retention: As an IRS-approved provider of continuing education, Tax Materials, Inc. will report successful completion of this course to the IRS. According to the IRS, at some point in the future, you will be able to view your completed continuing education credits through your online PTIN account. Complaint Resolution Policy: Please contact our customer service department toll-free at Refund Policy: 30-day money-back guarantee. For information about our refund, complaint, and/or program cancellation policies, visit our website at Tax Materials, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: National Registry of CPE Sponsors ID Number In accordance with the standards set forth in Circular 230, section 10.6, CPE/CE credits have been granted based on a 50-minute hour. IRS Program Number is 7VT8K-T S Tax Materials, Inc. has been approved by the California Tax Education Council to offer the Innocent or Injured Spouse Relief Self-Study CPE/CE Course 6193-CE-0029, which provides 1 hour of federal credit and 0 hours of state credit towards the annual continuing education requirement imposed by the State of California. A listing of additional requirements to register as a tax preparer may be obtained by contacting CTEC at P.O. Box 2890, Sacramento, CA, , toll-free by phone at , or on the internet at CTEC Course ID Number 6193-CE-0029 Copyright 2014 Tax Materials, Inc. All Rights Reserved TheTaxReview Innocent or Injured Spouse Relief i

3 Innocent or Injured Spouse Relief Self-Study CPE/CE Course Completion Instructions Helpful Hint: Attempt to relate your tax preparation experience with the information you are studying. By doing so, you will increase retention and maximize your results. Also, utilize the Notes sections to jot down reminders and information that will be helpful to you in your tax practice. Follow the instructions below: 1) Start each chapter by reading the Learning Objectives. 2) Read the course materials in the chapter. Pay close attention to: a) Key Facts: Information that is particularly pertinent to the Learning Objective. b) Examples: Review the examples to associate the information to real-world application. c) Notes: Many of the main points of the chapter are highlighted. Review the notes and try to relate the content with your experience. 3) Complete the Self-Quiz at the end of the chapter. The questions are broken out by Learning Objective. Review the Learning Objectives before completing each set of questions. Determine your progress by comparing your answers to the correct ones on the pages that follow. 4) After completing the study material, and taking the Self-Quiz, complete the Final Exam located at the back of this instruction booklet. Final Examination Instructions Expiration Date Reminder: The Final Exam must be completed online within one year from your date of purchase or shipment. CPE/CE credits are not available more than one year after your date of purchase or shipment. All Final Exams are administered online at It is recommended that you review the Final Exam at the end of the course before taking it online. Final Exams mailed in will not be graded. Follow the instructions below: 1) Go to 2) Click on Login to Education Center, where you will find a location to log in to the Final Exam. 3) Enter your User Name in the self-study CPE/CE login location. The address associated with your account at Tax Materials, Inc. is your User Name. If you do not have an address, or have not provided one, please call our toll-free number at to be assigned a User Name. 4) Enter your Password. The zip code associated with your account is your password. If you are having difficulty logging onto the Final Exam, please call our toll-free number at ) Select the Innocent or Injured Spouse Relief Exam and click the Take Exam button. 6) You will be taken to the Final Exam. First confirm your First Name and Last Name are correct. This is how your name will appear on your Certificate of Completion should you achieve a score of 70% or higher. Take the Final Exam. Read the questions carefully and answer them to the best of your ability. At the bottom of the exam, click on Submit Answers when finished. You will instantly know if you have passed the test. If you failed, you are able to retake the test. If you passed, the Certificate of Completion will be available for you to print. Complete Evaluation Form Please provide suggestions and feedback regarding this CPE/CE course. The last page contains an Evaluation Form. After completion, please mail to: Tax Materials, Inc Minnetonka Ind. Rd., Ste. 221 Minnetonka, MN Thank you for helping us improve our CPE/CE course offerings! ii TheTaxReview Innocent or Injured Spouse Relief

4 Learning Objectives / Table of Contents Learning Objective A Learning Objective A Distinguish between an innocent spouse and an injured spouse and determine which classification applies to a taxpayer s situation. B Learning Objective B Recognize the steps involved in applying for relief by filing Form 8857, Request for Innocent Spouse Relief. C Learning Objective C Identify the factors involved in applying for injured spouse relief. Final Exam Course Evaluation TheTaxReview Innocent or Injured Spouse Relief iii

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6 Innocent or Injured Spouse Relief CPE/CE Learning Objectives Successful completion of this course will enable the participant to: A Distinguish between an innocent spouse and an injured spouse and determine which classification applies to a taxpayer s situation. B Recognize the steps involved in applying for relief by filing Form 8857, Request for Innocent Spouse Relief. C Identify the factors involved in applying for injured spouse relief. Glossary Terms Erroneous items. Erroneous items are any deductions, credits, or basis incorrectly stated on a tax return, and any income that is not properly reported on the return. Injured. A taxpayer who files a joint return may be deemed injured if any of the taxpayer s share of a joint refund will be used by the IRS to pay certain separate past-due debts of the other spouse. Innocent. A taxpayer who filed a joint return may be deemed innocent when the taxpayer s spouse or former spouse understated tax liability on the joint return and the taxpayer meets certain other conditions. Joint and several liability. Married taxpayers who file a joint tax return are each legally responsible for the entire tax liability and any additions to tax, interest, or penalties arising from the joint return. Offset. A federal tax refund offset occurs when all or part of a refund is withheld to pay past-due federal taxes or is withheld under the Treasury Offset Program to pay certain other past-due debts of the taxpayer. Understated tax. A taxpayer has understated tax when the IRS determines that his or her total tax should be more than the amount shown on the tax return. An understatement of tax is also called a tax deficiency or simply a deficiency, and is not the same as an underpayment. Married taxpayers who file a joint tax return are each legally responsible for the entire tax liability and any additions to tax, interest, or penalties arising from the joint return. Learning Objective A Distinguish between an innocent spouse and an injured spouse and determine which classification applies to a taxpayer s situation. Married Filing Jointly Many married taxpayers choose to file jointly due to tax benefits allowed by this filing status. Joint filing status includes tax consequences as well as tax benefits. Both taxpayers accept joint and several liability for the tax shown on the joint return and for any additions to tax, interest, or penalties relating to that return. The IRS may seize joint tax refunds to pay certain past-due tax and non-tax debts of one of the taxpayers. TheTaxReview Innocent or Injured Spouse Relief 1

7 NOTES One spouse may be held responsible for payment of all tax due even if all the income was earned by the other spouse. Joint and Several Liability When a joint return is filed, both taxpayers are responsible for the accuracy of the information reported on that return. Joint and several liability means that each taxpayer is legally responsible for the entire liability (taxes, penalty, and interest) on a jointly-filed return. One spouse may be held responsible for payment of all tax due even if all the income was earned by the other spouse. Key Fact Joint and several liability rules apply even if a divorce decree requires one spouse to pay tax debts on previously filed joint returns. Relief From Joint and Several Liability Internal Revenue Code section 6015 provides three types of relief from joint and several liability. Each type of relief has different requirements. 1) Innocent spouse relief. Innocent spouse relief provides relief to a taxpayer who filed a joint return when the taxpayer s spouse (or former spouse) failed to report income, reported income improperly, or claimed improper deductions or credits on that joint tax return. 2) Separation of liability relief. Separation of liability relief provides for the allocation between the taxpayer and a spouse (from whom the taxpayer is widowed, divorced, legally separated, or not living together for the past 12 months) of additional tax owed on a jointly filed return because an item was not properly reported on that joint return. 3) Equitable relief. Equitable relief provides relief when facts and circumstances convince the IRS that it would be unfair to hold the taxpayer liable for an understatement or underpayment of tax on a jointly filed return. Key Fact Form 8857, Request for Innocent Spouse Relief, is used to request innocent spouse relief, separation of liability relief, and equitable relief. Based on the information provided, the IRS decides which type of relief, if any, will be granted to the taxpayer. Form 8857 is discussed in Learning Objective B, page 6. Innocent Spouse Relief To receive innocent spouse relief, a taxpayer must meet all of the following requirements: The taxpayer filed a joint return that had an understatement of tax (deficiency) due to erroneous items of the other spouse, and The taxpayer must establish that at the time he or she signed the joint return, he or she did not know, and had no reason to know, that there was an understatement of tax, and The taxpayer must demonstrate that, taking into account all the facts and circumstances, it would be unfair to hold the taxpayer liable for the understatement of tax. 2 TheTaxReview Innocent or Injured Spouse Relief

8 Example Cindy and Ron filed a joint return for In 2014, they received an IRS Notice CP2000, informing them that Cindy s $40,000 gambling winnings were omitted from their 2012 tax return. Proposed additional tax was $10,000 plus penalties and interest. Ron had no idea that Cindy had any gambling income, and Cindy confessed that she had spent all of her winnings on herself. Ron is a good candidate for innocent spouse relief with respect to the jointly-filed 2012 return. NOTES Separation of Liability Relief To receive separation of liability relief with respect to a jointly filed return that included erroneous items of the spouse or former spouse, the taxpayer must meet one of the following requirements at the time relief is requested: The taxpayer is divorced or legally separated from the spouse with whom the joint return was filed, or The person with whom the joint return was filed is deceased, or The taxpayer has not been a member of the same household as the spouse with whom the joint return was filed at any time during the 12-month period before requesting relief. A request for separation of liability relief is considered an election. If the IRS establishes that the taxpayer had actual knowledge of the erroneous items on the tax return, the taxpayer does not qualify for separation of liability relief. Community property states. Taxpayers who used married filing separate status while residing in a community property state may also qualify for separation of liability relief. Example Fred and Wilma divorced in In 2013, Fred withdrew $100,000 from his 401(k) and deposited the money in a bank account that Wilma didn t know about. Fred and Wilma filed a joint tax return for 2013 without reporting the $100,000 distribution. During the 2014 divorce process, Wilma learned about the 401(k) withdrawal. Wilma is a good candidate for separation of liability relief with respect to the understatement of tax on the jointly-filed 2013 tax return. Equitable Relief Equitable relief may apply when the taxpayer does not qualify for other relief from joint and several liability. All of the following conditions must be met: The taxpayer is not eligible for innocent spouse relief or for separation of liability relief, and The taxpayer and spouse did not transfer assets to one another in order to avoid tax or the payment of tax or as part of a fraudulent scheme, and The taxpayer must establish that given all the facts and circumstances, it would be unfair to hold him or her liable for the understatement or underpayment of tax on a joint return. Equitable relief may apply when the taxpayer does not qualify for other relief from joint and several liability. TheTaxReview Innocent or Injured Spouse Relief 3

9 NOTES Example Barney and Betty filed jointly in Betty suspected that Barney had not reported all of his self-employment income, but agreed to file jointly because she thought she was required to do so. In 2014 the IRS notified them of a deficiency and assessed additional tax, interest, and penalties. Betty has no income of her own and no way to pay any of the amount due. Betty is a good candidate for equitable relief with respect to the understatement of tax on the jointly-filed 2012 tax return. Summary: Relief From Joint and Several Liability Factors Innocent Spouse Relief Separation of Liability Equitable Relief Filing status Joint return for year of liability. Joint* return for year of liability. Joint* return for year of liability. Marital status at time of request Type of liability Knowledge of erroneous items Refunds available Considered by IRS with other factors. Divorced, widowed, legally separated, or Not living together for at least 12 months prior to election. Considered by the IRS with other factors. Deficiency. Deficiency. Deficiency or underpayment. Taxpayer had no knowledge of or reason to know about erroneous items. Taxpayer disqualified if IRS establishes that he or she had actual knowledge of erroneous items. Taxpayer knowledge of erroneous items considered by the IRS with other factors. Yes. No refunds. Yes, for requesting spouse s separate payments and when requesting spouse provided funds for joint payments. * MFS allowed in community property states. A taxpayer may be an injured spouse if all or part of an overpayment on a jointly-filed return is applied to past-due debts of the other spouse. Injured Spouse Relief An innocent spouse should not be confused with an injured spouse. A taxpayer may be an injured spouse if all or part of an overpayment on a jointlyfiled return is applied to past-due debts of the other spouse. An injured spouse can request a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount. Refund offset. Certain unpaid debts of a taxpayer are subject to a federal tax refund offset. That is, a federal refund will be withheld to help pay the amount owed. The following types of debt are subject to a refund offset: Federal tax liability. Child support and spousal support, if included in the child support award. Federal nontax debt, such as a student loan. State income tax liability. Certain state unemployment compensation debt. 4 TheTaxReview Innocent or Injured Spouse Relief

10 Injured spouse. To be considered an injured spouse, a taxpayer must meet all four of following requirements: 1) The taxpayer made and reported tax payments or claimed a refundable tax credit, and 2) The taxpayer files a joint tax return that has a refund, and 3) All or part of the refund was, or is expected to be, applied to certain legally enforceable past-due financial obligations of the taxpayer s husband or wife, and 4) The taxpayer is not legally obligated to pay the past-due amount. Community property states. If the taxpayer requesting injured spouse relief is a resident of a community property state, then condition (1) above need not be met. Refunds that involve community property states must be divided according to local law. If the taxpayer lives in a community property state in which all community property is subject to the debts of either spouse, the entire refund is generally used to pay those debts. In this case, injured spouse relief is not available. Tax payments. Examples of tax payments made by an injured spouse include federal income tax withheld on wages and pensions, federal backup withholding, federal estimated tax payments, and excess social security tax withholding. Key Fact Form 8379, Injured Spouse Allocation, is used to request injured spouse relief. Based on the information provided on Form 8379, the IRS allocates the joint refund. Form 8379 is discussed in Learning Objective C, page 20. NOTES Example Wayne and Joan file a joint return for Wayne had no income at all but the 2014 return shows a $4,000 refund based on tax withheld from Joan s wages. Wayne owes $50,000 in back taxes predating his marriage to Joan, and the IRS has been seizing his refunds to pay down his debt. Joan is an injured spouse because her refund was applied to Wayne s past-due financial obligation, of which Joan is not legally obligated to pay. Example Jon and Carrie file a joint return for Carrie has defaulted on her student loan and knows that any tax refunds will be applied against the past-due amount. Jon is self-employed, has not paid estimated taxes, and has no other income. They have no refundable credits but still expect a refund based on Carrie s federal tax withholding. Even though the joint refund will be taken to help pay Carrie s past-due loan, Jon is not an injured spouse. The legally enforceable obligation of the defaulted student loan is not a past-due amount. TheTaxReview Innocent or Injured Spouse Relief 5

11 NOTES Summary: Innocent Spouse and Injured Spouse Requesting spouse wants Nonrequesting spouse Relief affects Innocent: Form 8857 Injured: Form 8379 Relief from joint and several liability for tax. Included erroneous items on joint return or did not pay tax (equitable relief only). Innocent spouse s share of federal tax owed. Relief from past-due tax and nontax debt of other spouse. Has debt subject a federal refund offset. Injured spouse s share of federal refund. Joint return Year of tax liability. Year of allocation request. Multiple years Yes, for a single spouse. One spouse per One tax year per Form on same form Form File with Form May not be filed with Form 1040 or 1040X. May be filed with Form 1040 or 1040X Stand-alone Required. Optional. Learning Objective B Recognize the steps involved in applying for relief by filing Form 8857, Request for Innocent Spouse Relief. Form 8857, Request for Innocent Spouse Relief, is used by a taxpayer who filed a joint federal return but believes that only the other spouse (or former spouse) should be held responsible for all or part of the jointly-owed federal tax. Form 8857, Request for Innocent Spouse Relief Form 8857, Request for Innocent Spouse Relief, is used by a taxpayer who filed a joint federal return but believes that only the other spouse (or former spouse) should be held responsible for all or part of the jointly-owed federal tax. The taxpayer may qualify for innocent spouse relief, separation of liability relief, or equitable relief. The requirements for each type of relief are discussed in Learning Objective A, page 1. Form 8857 includes a section for taxpayers who were or are victims of domestic violence or spousal abuse. See Part V: Victims of domestic violence or spousal abuse, page 10. Key Fact Form 8857 is not filed with a tax return. Submit the form and all attachments directly to the IRS, even if already working with an IRS employee. By mail: Internal Revenue Service Or by fax: Stop 840F, P.O. Box Covington, KY When to File Form 8857 A taxpayer may learn of a previously unknown liability through an IRS deficiency notice, during an audit, or by some other means. Form 8857 should be filed as soon as the taxpayer becomes aware of a tax liability for which he or she believes only his or her spouse (or former spouse) should be responsible, but generally no later than two years after the first IRS attempt to collect the tax. IRS collections. Collection activities that may start the two-year period include: The IRS offsets the taxpayer s refund against an amount owned on a joint return, and the IRS informs the taxpayer of the right to file Form TheTaxReview Innocent or Injured Spouse Relief

12 The IRS files a claim in a court proceeding in which the taxpayer was a party. The IRS issues a Notice of Intent to Levy. Equitable relief time limit exception. The amount of time to request equitable relief depends on whether the requesting taxpayer is seeking a credit or refund or relief from a balance due. Credit or refund. A credit or refund must generally be requested within three years after the date the original return was filed or within two years after the tax was paid, whichever is later. See Part VII: Refunds, page 10. Balance due. Generally, a request for equitable relief must be filed within the 10-year statutory period that the IRS has to collect the tax. Both a balance due and a refund. If a taxpayer requests both a refund of amounts paid and relief from a balance due over and above amounts already paid, these two time limits will be applied separately. Example #1 On May 31, 2014, Mike and Janet received an IRS notice informing them that Mike s $30,000 IRA distribution had been omitted from their joint 2012 tax return. Janet had not known about the distribution, and she is able to show that it would be unfair to hold her liable for the resulting understatement of tax. She qualifies for innocent spouse relief and should file Form 8857 by May 31, NOTES Example #2 Assume the same facts as Example #1, but Janet qualifies only for equitable relief. She may file Form 8857 at any time during the 10-year statutory period that the IRS has to collect the tax deficiency. Court Case On April 15, 2005, the IRS issued a statutory notice of deficiency to the taxpayer for tax years 2001 and The taxpayer did not file a petition contesting the deficiency and on December 27, 2005, the IRS issued a Final Notice Notice of Intent to Levy and Notice of Your Right to a Hearing. On May 8, 2008, the taxpayer filed Form 8857, requesting relief as an innocent spouse for the tax years in question. Shortly after, the IRS provided the taxpayer with a preliminary determination proposing to deny the taxpayer s request because the request for innocent spouse relief was not timely filed. The taxpayer filed Form 12509, Statement of Disagreement, in response to the preliminary determination. The Appeals Office issued a final determination maintaining the request was not timely filed. Shortly after the petition was filed, the IRS referred the petition to the Cincinnati Centralized Innocent Spouse Operations (CCISO), an administrative body within the IRS that considers the merits of innocent spouse claims. CCISO reviewed the petition under the consideration of equitable relief and denied the relief based on the merits of the request. The findings from the CCISO determination were reflected in the pretrial memorandum on April 30, 2010, but were not shared with the taxpayer until September 16, continued on next page TheTaxReview Innocent or Injured Spouse Relief 7

13 NOTES A taxpayer may already be in an installment agreement when he or she decides to file Form 8857 for a tax year involved in the agreement. Court Case continued The taxpayer asserted that he should have been informed of the CCISO s determination and he was therefore denied material due process rights. The taxpayer also believed the final determination should have been based on the merits of the request, which he did not have an opportunity to address because the CCISO determination was not shared with him in a timely manner. On July 25, 2011, the IRS issued Notice which expanded the period within which individuals may request equitable relief from joint and several liability. The time period of two years to seek relief remained for innocent spouse relief and relief by separation of liability. The court ruled the request for relief based on innocent spouse relief or separation of liability was not timely filed. In light of the new time period available for equitable relief, the petitioner could have argued the case based on merit to see if he qualified for equitable relief. However, the taxpayer did not point to any authority that would allow the court to grant relief in this manner. (Pham, T.C. Memo ) Installment agreements. A taxpayer may already be in an installment agreement when he or she decides to file Form 8857 for a tax year involved in the agreement. The taxpayer should continue to make timely payments while waiting for an IRS determination. If the taxpayer defaults on the agreement, the entire amount will be due immediately if the request for relief is denied. If relief is granted, overpaid tax can be refunded. See Part VII: Refunds, page 10. Information Needed to File Form 8857 The IRS uses the information provided on Form 8857 and any attachments to determine whether the taxpayer qualifies for innocent spouse relief, separation of liability relief, or equitable relief. Each attachment should have the applicant s name and social security number written at the top. The 2013 Form 8857 has seven parts. Part I: Tax years and eligibility. Affected tax years are identified and questions help the applicant determine whether Form 8857 applies. Part II: Applicant and spouse or former spouse information. The applicant s contact information and the name and contact information (if known) of the person who was the taxpayer s spouse during the affected year(s) are provided. Key Fact The IRS is required by law to contact the applicant s spouse (or former spouse). There are no exceptions, even for victims of spousal abuse or domestic violence. The applicant s personal information will not be disclosed. The current marital status between the applicant and spouse (or former spouse) is stated. If the applicant is widowed, separated, or divorced from that spouse (or former spouse), then a copy of the death certificate, will (if 8 TheTaxReview Innocent or Injured Spouse Relief

14 one existed), entire separation agreement, or entire divorce decree must be attached. The applicant s educational level is disclosed, including college-level business or tax-related courses completed. The applicant can state whether spousal abuse or domestic violence, mental or physical health problems, or any other information should be considered as part of the Request for Innocent Spouse Relief. An explanation and documentation must be attached regarding physical or mental problems. Applicants who are afraid to disclose information on Form 8857 can request to provide it orally. NOTES Key Fact A single Form 8857 can cover multiple years, but provides for relief from joint and several liability for taxes owed with just one spouse. File a separate Form 8857 for each spouse or former spouse. Example Mark married Lois after divorcing Kathy in He filed jointly with Kathy for 2010 and 2011 and jointly with Lois for Mark believes he qualifies to file Form 8857 for all three years. He must file one Form 8857 for 2010 and 2011 listing Kathy as his spouse, and another for 2012 listing Lois as his spouse. Part III: Applicant s involvement in tax preparation and household finances. The applicant first answers questions to determine whether a joint return was actually filed for the year(s) in question. Key Fact If a taxpayer can establish that his or her signature on a joint tax return was forged and that there was not tacit (implied) consent, then a joint return has not been filed. The taxpayer will be liable only for his or her separate liability. The applicant provides information about his or her involvement in preparing the returns, knowledge of missing or incorrect information, knowledge of the spouse s (or former spouse s) income, and awareness of any balance due. The applicant provides information about financial problems, household finances, and large expenditures during the affected year(s). All asset transfers between the applicant and spouse (or former spouse) must be disclosed. If the IRS proves that assets were transferred between spouses for the main purpose of avoiding payment of tax, separation of liability relief will not be granted. Key Fact Information provided in Part III helps the applicant establish whether he or she had knowledge or reason to know of the spouse s (or former spouse s) erroneous items that resulted in an understatement of tax. If the IRS establishes that at the time the return was signed, the applicant had actual knowledge of the erroneous items, then the IRS will consider only equitable relief. If a taxpayer can establish that his or her signature on a joint tax return was forged and that there was not tacit (implied) consent, then a joint return has not been filed. TheTaxReview Innocent or Injured Spouse Relief 9

15 NOTES The applicant can add any other information for the IRS to consider in determining whether to grant relief from joint and several liability for tax. Part IV: Applicant s current financial situation. The applicant must complete: A statement of assets and any outstanding liabilities relating to acquisition of those assets, and A current monthly cash flow statement. Part V: Victims of domestic violence or spousal abuse. If the applicant stated in Part II that he or she was a victim of domestic violence or spousal abuse during any of the years for which relief is requested (or when the returns were filed), details can be provided in Part V. Providing this information is not mandatory but may strengthen the applicant s request. Attach documentation, including copies of protection or restraining orders, police reports, medical records, statements from doctors or others, injury photographs, etc. When the IRS contacts the applicant s spouse (or former spouse) as required by law, the Part V attachments could be disclosed. The applicant has the option to provide this information orally, as indicated in Part II. Part VI: Additional information. The applicant can add any other information for the IRS to consider in determining whether to grant relief from joint and several liability for tax. Part VII: Refunds. Innocent spouse and equitable relief requests may result in a refund of tax paid with money provided by the requesting taxpayer. The applicant must explicitly state in Part VII that he or she wants to receive the refund. Limit on amount of refund. Installment agreement payments made after Form 8857 has been filed are eligible for refund, if the requesting taxpayer has not defaulted on the agreement. Other payments may also be eligible for refund. Refunds are limited as follows: If Form 8857 is filed: Within three years after filing the original return. After the three years but within two years from the time the tax was paid. Then the refund is limited to: Tax paid within three years (plus extension of time to file) before filing Form Tax paid within two years immediately before filing Form After Form 8857 is Filed While Form 8857 is being considered, the IRS generally cannot collect any tax from the applicant for the affected year(s). However, filing Form 8857 extends the time the IRS has to collect tax, if any, for those years. Notification of spouse (or former spouse). The spouse (or former spouse) will have the opportunity to complete Form 12507, Innocent Spouse Statement, in order to add information about the affected year(s). Determination letters and appeals. Once the IRS has all the necessary information, a preliminary determination letter and notification of appeal rights will be sent to the applicant and the spouse (or former spouse). If neither the applicant nor the spouse (or former spouse) appeals the preliminary decision, the IRS will issue final determination letters. 10 TheTaxReview Innocent or Injured Spouse Relief

16 If either or both appeal to the IRS Office of Appeals, Appeals will issue final determination letters after consideration of the appeal. If the applicant petitions to Tax Court, the spouse (or former spouse) may see the applicant s personal information unless the applicant asks the Tax Court to withhold it. Tax court petitions. An innocent spouse who petitions the Tax Court in response to a Notice of Deficiency should raise innocent spouse relief as a defense to the deficiency. Provide supporting information, including when and why Form 8857 was filed. Doing so preserves taxpayer rights if the IRS is unable to consider Form 8857 before the end of the usual 90-day period for petitioning tax court. Example #1 Terrie and Curt have been divorced since After learning of a deficiency due to Curt s erroneous items on their joint 2011 return, Terrie timely files Form Even though she has hidden from Curt since the divorce, the IRS notifies him of her request for relief. Curt is not given Terrie s address, phone number, employment information, or any other information about her current income and assets. If Terrie also petitions the Tax Court, she should raise the issue of innocent spouse relief and request that Curt not be given her personal information. NOTES Key Fact Taxpayers should consider all options, including an offer in compromise. The IRS is not required to notify a spouse (or former spouse) of an offer in compromise. If the offer in compromise is accepted, the affected tax year is closed from any redetermination of the taxpayer s liability. The taxpayer cannot file Form 8857 for that year. The IRS is not required to notify a spouse (or former spouse) of an offer in compromise. Example #2 Assume the same facts as Example #1 above, but Terrie is afraid of what Curt will do if the IRS notifies him that she is requesting innocent spouse relief. Instead of filing Form 8857, she applies for an offer in compromise under the Doubt as to Liability provisions. Curt will still have to deal with his erroneous items, but the IRS is not required to notify him of Terrie s actions. TheTaxReview Innocent or Injured Spouse Relief 11

17 NOTES Form 8857 (Rev. January 2014) Department of the Treasury Internal Revenue Service (99) Request for Innocent Spouse Relief Information about Form 8857 and its separate instructions is at OMB No Important things you should know Do not file this form with your tax return. See Where To File in the instructions. Review and follow the instructions to complete this form. Instructions can be obtained at or by calling TAX-FORM ( ). While your request is being considered, the IRS generally cannot collect any tax from you for the year(s) you request relief. However, filing this form extends the amount of time the IRS has to collect the tax you owe, if any, for those years. The IRS is required by law to notify the person on line 5 that you requested this relief. That person will have the opportunity to participate in the process by completing a questionnaire about the tax years you enter on line 3. This will be done before the IRS issues preliminary and final determination letters. The IRS will not disclose the following information: your current name, address, phone numbers, or employer. Part I Should you file this form? Generally, both you and your spouse are responsible, jointly and individually, for paying any tax, interest, or penalties from your joint return. If you believe your current or former spouse should be solely responsible for an erroneous item or an underpayment of tax from your joint tax return, you may be eligible for innocent spouse relief. Innocent spouse relief may also be available if you were a resident of a community property state (see list of community property states in the instructions) and did not file a joint federal income tax return and you believe you should not be held responsible for the tax attributable to an item of community income. 1 Do either of the paragraphs above describe your situation? Yes. You should file this Form Go to question 2. No. Do not file this Form 8857, but go to question 2 to see if you need to file a different form. 2 Did the IRS take your share of a joint refund from any tax year to pay any of the following past-due debt(s) owed ONLY by your spouse? Child support Spousal support Student loan (or other federal nontax debt) Federal or state taxes Yes. You may be able to get back your share of the refund. See Form 8379, Injured Spouse Allocation, and the instructions to that form. Go to question 3 if you answered "Yes" to question 1. No. Go to question 3 if you answered "Yes" to question 1. If you answered "No" to question 1, do not file this form. 3 If you determine you should file this form, enter each tax year you want innocent spouse relief. It is important to enter the correct year. For example, if the IRS used your 2011 income tax refund to pay a 2009 joint tax liability, enter tax year 2009, not tax year Tax Year Tax Year Tax Year Tax Year Tax Year Tax Year Part II Tell us about yourself and your spouse for the tax years you want relief 4 Your current name (see instructions) Your social security number Address where you wish to be contacted. If this is a change of address, see instructions. Number and street or P.O. box Apt. no. County City, town or post office, state, and ZIP code. If a foreign address, see instructions. Best or safest daytime phone number (between 6 a.m. and 5 p.m. Eastern Time) 5 Who was your spouse for the tax years you want relief? File a separate Form 8857 for tax years involving different spouses or former spouses. That person s current name Social security number (if known) Current home address (number and street) (if known). If a P.O. box, see instructions. Apt. no. City, town or post office, state, and ZIP code. If a foreign address, see instructions. Daytime phone number (between 6 a.m. and 5 p.m. Eastern Time) For Privacy Act and Paperwork Reduction Act Notice, see instructions. Cat. No V Form 8857 (Rev ) 12 TheTaxReview Innocent or Injured Spouse Relief

18 Form 8857 (Rev ) Page 2 Note. If you need more room to write your answer for any question, attach more pages. Be sure to write your name and social security number on the top of all pages you attach. Part II Tell us about yourself and your spouse for the tax years you want relief (Continued) 6 What is the current marital status between you and the person on line 5? Married and still living together Married and living apart since MM DD YYYY Widowed since MM DD YYYY Attach a photocopy of the death certificate and will (if one exists). NOTES Legally separated since Divorced since MM DD YYYY MM DD YYYY Attach a photocopy of your entire separation agreement. Attach a photocopy of your entire divorce decree. Note. A divorce decree stating that your former spouse must pay all taxes does not necessarily mean you qualify for relief. 7 What was the highest level of education you had completed when the return(s) were filed? If the answers are not the same for all tax years, explain. Did not complete high school High school diploma or equivalent Some college College degree or higher. List any degrees you have List any college-level business or tax-related courses you completed Explain 8 Were you or other members of your family a victim of spousal abuse or domestic violence, or suffering the effects of such abuse during any of the tax years you want relief or when any of the returns were filed for those years? Yes. If you want the IRS to consider this information in making its determination, complete Part V of this form in addition to other parts of the form. First read the instructions for Part V, to understand how the IRS will proceed with evaluating your claim for relief in these circumstances. If you checked Yes above, we will put a note on your separate account. This will enable us to respond appropriately and be sensitive to your situation. We will remove the note from your account if you request it (as explained in the instructions). If you do not want us to put a note on your account, check here No. Complete the other parts of this form except for Part V. 9 When any of the returns listed on line 3 were filed, did you have a mental or physical health problem or do you have a mental or physical health problem now? If the answers are not the same for all tax years, explain below. Yes. Attach a statement to explain the problem and when it started. Provide photocopies of any documentation, such as medical bills or a doctor s report or letter. No. Explain 10 Is there any information you are afraid to provide on this form, but are willing to discuss? Yes No Part III Tell us if and how you were involved with finances and preparing returns for those tax years 11 Did you agree to file a joint return? Yes No Explain why or why not 12 Did you sign the joint return? See instructions. Yes No Explain why or why not Form 8857 (Rev ) TheTaxReview Innocent or Injured Spouse Relief 13

19 NOTES Form 8857 (Rev ) Page 3 Note. If you need more room to write your answer for any question, attach more pages. Be sure to write your name and social security number on the top of all pages you attach. Part III Tell us if and how you were involved with finances and preparing returns for those tax years (Continued) 13 What was your involvement with preparing the returns? Check all that apply and explain, if necessary. If the answers are not the same for all tax years, explain. You were not involved in preparing the returns. You filled out or helped fill out the returns. You gathered receipts and cancelled checks. You gave tax documents (such as Forms W-2, 1099, etc.) for the preparation of the returns. You reviewed the returns before they were filed. You did not review the returns before they were filed. Explain below why you did not review the returns. You did not know a joint return was filed. Other Explain how you were involved 14 When the returns were filed, what did you know about any incorrect or missing information? Check all that apply and explain, if necessary. If the answers are not the same for all tax years, explain below. You knew something was incorrect or missing, but you said nothing. Explain below. You knew something was incorrect or missing and asked about it. Explain below. You did not know anything was incorrect or missing. Not applicable. There was no incorrect or missing information. Explain 15 When any of the returns were filed, what did you know about the income of the person on line 5? Check all that apply and explain, if necessary. If the answers are not the same for all tax years, explain. You knew that the person on line 5 had income. List each type of income on the lines provided below. (Examples are wages, social security, gambling winnings, or selfemployment business income.) Enter each tax year and the amount of income for each type you listed. If you do not know any details, enter I don t know. You knew that the person on line 5 was self-employed and you helped with the books and records. You knew that the person on line 5 was self-employed and you did not help with the books and records. You knew that the person on line 5 had no income. You did not know whether the person on line 5 had income. Explain why you did not know whether the person on line 5 had income 16 When the returns were filed, did you know if the returns showed a balance due to the IRS for those tax years? If the answers are not the same for all tax years, explain. Yes. Explain when and how you thought the amount of tax reported on the return would be paid No. Explain why you did not know the return showed a balance due. Not applicable. There was no balance due on the return. 17 When any of the returns were filed, were you having financial problems (for example, bankruptcy or bills you could not pay)? If the answers are not the same for all tax years, explain. Yes. Explain No. Did not know. Explain Form 8857 (Rev ) 14 TheTaxReview Innocent or Injured Spouse Relief

20 Form 8857 (Rev ) Page 4 Note. If you need more room to write your answer for any question, attach more pages. Be sure to write your name and social security number on the top of all pages you attach. Part III Tell us if and how you were involved with finances and preparing returns for those tax years (Continued) 18 For the years you want relief, how were you involved in the household finances? Check all that apply. If the answers are not the same for all tax years, explain. You were not involved in handling money for the household. Explain below. You knew the person on line 5 had separate accounts. You had joint accounts with the person on line 5, but you had limited use of them or did not use them. Explain below. You used joint accounts with the person on line 5. You made deposits, paid bills, balanced the checkbook, or reviewed the monthly bank statements. You made decisions about how money was spent. For example, you paid bills or made decisions about household purchases. Other Explain anything else you want to tell us about your household finances NOTES 19 Did you (or the person on line 5) incur any large expenses, such as trips, home improvements, or private schooling, or make any large purchases, such as automobiles, appliances, or jewelry, during any of the years you want relief or any later years? Yes. Describe (a) the types and amounts of the expenses and purchases and (b) the years they were incurred or made. No. 20 Has the person on line 5 ever transferred assets (money or property) to you? (Property includes real estate, stocks, bonds, or other property that you own or possess now or possessed in the past.) See instructions. Yes. List the assets, the dates they were transferred, and their fair market values on the dates transferred. If the property was secured by any debt (such as a mortgage on real estate), explain who was responsible for making payments on the debt, how much was owed on the debt at the time of transfer and whether the debt has been satisfied. Explain why the assets were transferred to you. If you no longer possess or own the assets, explain what happened with the assets. No. Part IV Tell us about your current financial situation 21 Tell us about your assets. Your assets are your money and property. Property includes real estate, motor vehicles, stocks, bonds, and other property that you own. In the table below, list the amount of cash you have on hand and in your bank accounts. Also list each item of property, the fair market value (as defined in the instructions) of each item, and the balance of any outstanding loans you used to acquire each item. Do not list any money or property you listed on line 20. Description of Assets Fair Market Value Balance of Any Outstanding Loans You Used To Acquire the Asset Form 8857 (Rev ) TheTaxReview Innocent or Injured Spouse Relief 15

21 NOTES Form 8857 (Rev ) Page 5 Note. If you need more room to write your answer for any question, attach more pages. Be sure to write your name and social security number on the top of all pages you attach. Part IV Tell us about your current financial situation (Continued) 22 How many people are currently in your household, including yourself? Adults Children 23 Tell us your current average monthly income and expenses for your entire household. Monthly Income If family or friends are helping to support you, include the amount of support as gifts below. Gifts Wages (Gross pay) Pensions Unemployment Social security Government assistance, such as housing, food stamps, grants Alimony Child support Self-employment business income Rental income Interest and dividends Other income, such as disability payments, gambling winnings, etc. List each type below: Type Type Type Total Monthly Income Monthly Expenses Enter all expenses, including expenses paid with income from gifts. Food and Personal Care: Food Housekeeping supplies Clothing and clothing services Personal care products and services Transportation: Auto loan/lease payment, gas, insurance, licenses, parking, maintenance, etc Public transportation Housing and Utilities: Rent or mortgage Real estate taxes and insurance Electric, oil, gas, water, trash, etc Telephone and cell phone Cable and Internet Medical: Health insurance premiums Out-of-pocket expenses Other: Child and dependent care Caregiver expenses Income tax withholding (federal, state, and local) Estimated tax payments Term life insurance premiums Retirement contributions (employer required) Retirement contributions (voluntary) Union dues Unpaid state and local taxes (minimum payment) Student loans (minimum payment) Court-ordered debt payments (for example, court- or agency-ordered child support, alimony and garnishments). List each type below: Type Type Type Miscellaneous Total Monthly Expenses Amount Amount Form 8857 (Rev ) 16 TheTaxReview Innocent or Injured Spouse Relief

22 Form 8857 (Rev ) Page 6 Note. If you need more room to write your answer for any question, attach more pages. Be sure to write your name and social security number on the top of all pages you attach. Part V Complete this part if you were (or are now) a victim of domestic violence or spousal abuse As stated in line 8, providing this additional information is not mandatory but may strengthen your request. Additionally, if you prefer to provide this information orally, check the "Yes" box on line 10. If you were (or are now) a victim of domestic violence or spousal abuse by the person on line 5, the IRS will consider the information you provide in this part to determine whether to grant innocent spouse relief. However, the IRS is required by law to notify the person on line 5 that you requested this relief. There are no exceptions to this rule. That person will have the opportunity to participate in the process by completing a questionnaire about the tax years you entered on line 3. This will be done before the IRS issues preliminary and final determination letters. However, the IRS is also required by law to keep all the personal identifying information (such as current names, addresses, and employment-related information) of both you and the person on line 5 confidential. This means that the IRS cannot disclose one person's information to the other person. If the IRS does not grant you relief and you choose to petition the Tax Court, your personal identifying information is available, unless you ask the Tax Court to withhold it. NOTES The person on line 5 will receive a questionnaire about the tax years you entered on line 3. Except for your current name, address, phone numbers, and employer, this form and any attachments could be disclosed to the person on line 5. If you have any privacy concerns, see instructions. The IRS understands and is sensitive to the effects of domestic violence and spousal abuse, and encourages victims of domestic violence to call 911 if they are in immediate danger. If you have concerns about your safety, please consider contacting the 24-Hour (Confidential) National Domestic Violence Hotline at SAFE (7233), or (TTY), or (Video Phone Only for Deaf Callers) before you file this form. A representative from the IRS may call you to gather more information and discuss your request. Be sure you enter your correct contact information on line 4. 24a During any of the tax years for which you are seeking relief or when any of the returns were filed for those years, did the person on line 5 do any of the following? Check all that apply. (Note. If this does not apply to you, skip lines 24a, b, and c, and complete lines 25 through 29.) Physically harm or threaten you, your children, or other members of your family. Sexually abuse you, your children, or other members of your family. Make you afraid to disagree with him/her. Criticize or insult you or frequently put you down. Withhold money for food, clothing, or other basic needs. Make most or all the decisions for you, including financial decisions. Restrict or control who you could see or talk to or where you could go. Isolate you or keep you from contacting your family members and/or friends. Cause you to fear for your safety in any other way. Stalk you, your children, or other members of your family. Abuse alcohol or drugs. b Describe the abuse you experienced, including approximately when it began and how it may have affected you, your children, or other members of your family. Explain how this abuse affected your ability to question the reporting of items on your tax return or the payment of the tax due on your return. c Attach photocopies of any documentation you have, such as: Protection and/or restraining order. Police reports. Medical records. Doctor's report or letter. Injury photographs. A statement from someone who was aware of or witnessed the abuse or the results of the abuse (notarized if possible). Any other documentation you may have. 25 Are you afraid of the person listed on line 5? Yes No 26 Does the person listed on line 5 pose a danger to you, your children, or other members of your family? Yes No 27 Were the police, sheriff, or other law enforcement ever called? Yes No 28 Was the person listed on line 5 charged or arrested for abusing you, your children, or other members of your family? Yes. Provide details below. No 29 Have you sought help from a local domestic violence program? Yes. Provide details below. No Form 8857 (Rev ) TheTaxReview Innocent or Injured Spouse Relief 17

23 NOTES Form 8857 (Rev ) Page 7 Note. If you need more room to write your answer for any question, attach more pages. Be sure to write your name and social security number on the top of all pages you attach. Part VI Additional Information 30 Please provide any other information you want us to consider in determining whether it would be unfair to hold you liable for the tax. Part VII Tell us if you would like a refund 31 By checking this box and signing this form, you are indicating that you would like a refund if you qualify for relief and if you already paid the tax. See instructions Caution By signing this form, you understand that, by law, we must contact the person on line 5. See instructions for details. Sign Here Keep a copy for your records. Paid Preparer Use Only Under penalties of perjury, I declare that I have examined this form and any accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Your signature Print/Type preparer s name Preparer's signature Date Firm s name Firm's address Date PTIN Check if self-employed Firm's EIN Phone no. Form 8857 (Rev ) 18 TheTaxReview Innocent or Injured Spouse Relief

24 Form (December 1999) Innocent Spouse Statement NOTES Purpose of form: You can use this form to provide additional information to the Internal Revenue Service (IRS) to consider in determining relief of joint and several liability for the tax year(s) at issue in the letter you received with this form. Note: You can use the back of this page or attach additional pages if you need more space. My Name Social Security Number Telephone Number Best Time to Call Innocent Spouse Statement I,, residing at, make the following statement to be used in the determination of innocent spouse relief for Mr. / Mrs. : a Under penalties of perjury, I declare that I have examined this statement, and to the best of my knowledge and belief, it is true, correct and complete. My Signature Date Form ( ) Catalog Number 28728D Department of the Treasury Internal Revenue Service TheTaxReview Innocent or Injured Spouse Relief 19

25 NOTES There is no injured spouse unless the joint return shows a refund for the year in question. Learning Objective C Identify the factors involved in applying for injured spouse relief. Form 8379, Injured Spouse Allocation Form 8379, Request for Injured Spouse Allocation, is used by a taxpayer who filed a joint return with a refund, and the overpayment was (or is expected to be) applied to a past-due obligation of the other spouse for which the taxpayer is not liable. By filing Form 8379, the injured spouse may be able to get back his or her share of a joint federal refund. See Injured spouse, page 5, for information about injured spouse requirements. There is no injured spouse unless the joint return shows a refund for the year in question. Do not file Form 8379 for a tax year when there is a balance due. An injured spouse allocation does not offer protection from joint and several liability for tax on a jointly-filed return. It only protects the injured spouse s share of the joint refund from being used to pay the other spouse s debts. An injured spouse should not be confused with an innocent spouse. See Summary: Innocent Spouse and Injured Spouse, page 6, for a chart that compares the two situations. Federal refund offset. If a taxpayer has an unpaid federal tax liability, the IRS will withhold, or offset, refunds in order to help pay the amount owed. A Notice of Offset for federal tax debts is issued by the IRS. Treasury Offset Program. The Financial Management Service (FMS), which issues federal tax refunds, has been authorized by Congress to conduct the Treasury Offset Program. Federal and state agencies submit taxpayer identification numbers and debt information to FMS. Once FMS matches a TIN to a pending tax refund, the Treasury Offset Program offsets the refund to pay the taxpayer s past-due legally enforceable debts, including: Child support and spousal support (if included in the child support order). Federal nontax debt, such as a student loan. State income tax liability. State unemployment compensation debt (including fraudulently obtained benefits or contributions that were unpaid due to fraud). FMS issues a Notice of Offset, indicating the original refund amount, the offset amount, and the name, address, and phone number of each agency receiving payment. Taxpayers can get more information about the debts by contacting agencies listed in the Notice. Example Dan and Stephanie expect a refund on their joint 2014 return. Stephanie owes $20,000 on a student loan despite being subject to refund offset for the past few years. Dan did not co-sign Stephanie s student loan. They include Form 8379 when they file so Dan will receive his share of the refund. Dan and Stephanie remain jointly and severally liable for the tax on their joint return. 20 TheTaxReview Innocent or Injured Spouse Relief

26 Key Fact Not all debts are subject to a refund offset. To determine if a debt (other than federal tax) is part of the Treasury Offset Program and if an offset will occur, contact FMS at Filing Form 8379 when there are no past-due obligations subject to offset will delay payment of a refund. NOTES Example Larry had a judgment filed against him in 2013 as a result of a lawsuit relating to defective work by his sole proprietorship. He and his wife were expecting a big refund on their 2013 tax return, so they included Form 8379 just in case of a refund offset. Their refund was delayed many months while FMS investigated and finally determined that they were not subject to a refund offset. When to File Form 8379 The taxpayer should file Form 8379 as soon as he or she becomes aware that all or part of his or her share of a joint overpayment was, or is expected to be applied against his or her spouse s legally enforceable past-due obligations. A separate Form 8379 must be filed for each tax year, within the usual time limit for obtaining tax refunds for that year. Timely returns. The IRS does not issue Notices of Disallowance to inform nondebtor spouses of refund offsets on joint tax returns. That means that the nondebtor spouse has an unlimited period of time to file Form 8379 with the IRS, as long as the original Form 1040 was timely-filed. (IRM ) Example Chad and Melanie timely filed their 2004 joint return, and their refund was offset to pay Chad s unemployment debt. Melanie did not file Form 8379 with the 2004 return, although she qualified as an injured spouse. After they divorced in 2014, she decided that her share of the 2004 refund should not pay Chad s debts. Since the original return was timely filed, the Form 8379 she files with respect to 2004 is eligible to be processed by the IRS. Example Phil and Cindy always file late, and always have refunds on their joint tax returns. If either wants to assert injured spouse status, Form 8379 must be filed within the usual time for requesting refunds (generally three years from when the return was filed or two years from when the tax was paid, whichever is later). Filing Form 8379 Form 8379 may be filed with an original return, an amended return, or by itself as a stand-alone return. File Form 8379 with Form 1040X only if amending the original return to claim a joint refund. If a return that originally included Form 8379 is being amended, then an amended Form 8379 must be completed and attached to Form 1040X. Write Injured Spouse at the top of page 1 of returns that include Form Form 8379 may be filed with an original return, an amended return, or by itself as a stand-alone return. TheTaxReview Innocent or Injured Spouse Relief 21

27 NOTES Example Jerry and Kim filed separately in 2013 because Kim didn t want her small refund offset to pay Jerry s back child support. They decided to amend and file jointly when they realized that the total refund amount would increase. They include Form 8379 with their Form 1040X and write Injured Spouse at the top of Form 1040X, page 1. Their joint filing status increases not only the Jerry s share of the refund available for offset, but also Kim s share of the joint refund. Form 8379 as a stand-alone form. Form 8379 can be filed by itself instead of with the original or amended return to which it applies. Attach all Forms W-2 and W-2G for both spouses, as well as any Forms 1099 showing federal income tax withholding. Processing will be delayed if required attachments are missing. Processing will be delayed if a copy of the joint tax return has been attached to a stand-alone Form Example Charlie and Gail filed joint returns for 2012 and 2013 before divorcing in Each year, their joint refund was offset to pay Charlie s delinquent state income taxes from prior years. After the divorce, Gail changes her mind about helping Charlie pay off his debt. She files Form 8379 for both years. Processing of Gail s refunds is delayed because she doesn t have copies of Charlie s W-2s, but she eventually receives her share of the joint refunds. The IRS uses the information provided on Form 8379 to determine how much of the joint refund should be allocated to the injured spouse. Information Needed to File Form 8379 The IRS uses the information provided on Form 8379 to determine how much of the joint refund should be allocated to the injured spouse. The calculation is made by the IRS, not by the taxpayer who files Form Part I: Affected year and eligibility. The tax year to which the form applies is indicated and a questionnaire helps determine whether an injured spouse situation exists. Part II: Information about the joint return. Both names and social security numbers are listed in the same order as on the original return, and a checkbox indicates which taxpayer is the injured spouse. A divorced or separated injured spouse can request the refund to be issued in his or her name only. An address different from the address on the joint tax return can be specified for receiving the refund. Part III: Allocation of items on the joint return. A worksheet is used to allocate income, expenses, credits, deductions, and payments to each spouse. Complete one column of the worksheet for each spouse, entering each item as if a separate tax return had been filed. Include all tax credits except the earned income credit. The IRS uses the allocation worksheet to determine the separate liability of each taxpayer, recalculate refundable credits, and calculate the injured spouse s refund. 22 TheTaxReview Innocent or Injured Spouse Relief

28 Community property states. In community property states, overpayments are considered joint property and are generally offset to past-due obligations of either spouse. The IRS uses each community property state s rules to determine the amount, if any, that would be refundable to the injured spouse. See the instructions to Form 8379 for more information about income allocation in community property states. Key Fact In order to qualify as an injured spouse, a taxpayer must not be liable for the other spouse s debt. Unless the taxpayer lived in a community property state, at least one of the following must also be met: The taxpayer made and reported tax payments, The taxpayer had earned income and claimed the earned income credit or additional child tax credit, or The taxpayer claimed another refundable tax credit. NOTES Example #1 Stan and Kristin file jointly each year. They have no refundable credits and do not live in a community property state. Their federal refunds are offset to pay Stan s delinquent student loans for which Kristin is not liable. Kristin wants her share of their $1,000 refund for However, she had no income at all during 2014, and made no tax payments. None of the refund can be allocated to Kristin. She is not an injured spouse. Example #2 Assume the same facts as Example #1, except Kristin made a $3,000 estimated tax payment using money she had set aside. She completes the allocation worksheet, indicating no income or deductions. She claims her own exemption and reports the estimated tax payment she made. Kristin is an injured spouse and the IRS will allocate the $1,000 refund to her instead of using it to help pay Stan s student loan debt. The difference between Kristin s estimated tax payment and the $1,000 is not refundable. Part IV: Signature. It is not necessary to sign Form 8379 unless the form is being filed by itself. Only the injured spouse signs Form After Form 8379 is Filed In general, the time needed by the IRS to process a properly prepared and complete Form 8379 is: 14 weeks, if filed with a paper Form 1040 or with Form 1040X. 11 weeks, if filed electronically with Form Eight weeks, if filed as a stand-alone form. Appealing an injured spouse allocation. An injured spouse can challenge the refund allocation calculated by the IRS by resubmitting Form 8379 with additional information. File the resubmitted Form 8379 with the same tax office as the original Form An injured spouse can challenge the refund allocation calculated by the IRS by resubmitting Form 8379 with additional information. TheTaxReview Innocent or Injured Spouse Relief 23

29 NOTES Form 8379 (Rev. Novermber 2012) Department of the Treasury Internal Revenue Service Injured Spouse Allocation Information about Form 8379 and its separate instructions is at Part I Should You File This Form? You must complete this part. 1 Enter the tax year for which you are filing this form. Answer the following questions for that year. OMB No Attachment Sequence No Did you (or will you) file a joint return? Yes. Go to line 3. No. Stop here. Do not file this form. You are not an injured spouse. 3 Did (or will) the IRS use the joint overpayment to pay any of the following legally enforceable past-due debt(s) owed only by your spouse? (see instructions) Federal tax State income tax State unemployment compensation Child support Spousal support Federal nontax debt (such as a student loan) Yes. Go to line 4. No. Stop here. Do not file this form. You are not an injured spouse. Note. If the past-due amount is for a joint federal tax, you may qualify for innocent spouse relief for the year to which the overpayment was applied. See Innocent Spouse Relief, in the instructions for more information. 4 Are you legally obligated to pay this past-due amount? Yes. Stop here. Do not file this form. You are not an injured spouse. Note. If the past-due amount is for a joint federal tax, you may qualify for innocent spouse relief for the year to which the overpayment was applied. See Innocent Spouse Relief, in the instructions for more information. No. Go to line 5. 5 Were you a resident of a community property state at any time during the tax year entered on line 1? (see instructions) Yes. Enter the name(s) of the community property state(s). Skip lines 6 through 9 and go to Part II and complete the rest of this form. No. Go to line 6. 6 Did you make and report payments, such as federal income tax withholding or estimated tax payments? Yes. Skip lines 7 through 9 and go to Part II and complete the rest of this form. No. Go to line 7. 7 Did you have earned income, such as wages, salaries, or self-employment income? Yes. Go to line 8. No. Skip line 8 and go to line 9. 8 Did (or will) you claim the earned income credit or additional child tax credit? Yes. Skip line 9 and go to Part II and complete the rest of this form. No. Go to line 9. 9 Did (or will) you claim a refundable tax credit (see instructions)? Yes. Go to Part II and complete the rest of this form. No. Stop here. Do not file this form. You are not an injured spouse. Part II Information About the Joint Tax Return for Which This Form Is Filed 10 Enter the following information exactly as it is shown on the tax return for which you are filing this form. The spouse s name and social security number shown first on that tax return must also be shown first below. First name, initial, and last name shown first on the return Social security number shown first If Injured Spouse, check here First name, initial, and last name shown second on the return Social security number shown second If Injured Spouse, check here 11 Check this box only if you are divorced or legally separated from the spouse with whom you filed the joint return and you want your refund issued in your name only Do you want any injured spouse refund mailed to an address different from the one on your joint return? Yes No If Yes, enter the address. Number and street City, town, or post office, state, and ZIP code For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No Q Form 8379 (Rev ) 24 TheTaxReview Innocent or Injured Spouse Relief

30 Form 8379 (Rev ) Page 2 Part III Allocation Between Spouses of Items on the Joint Tax Return (see instructions) (a) Amount shown (b) Allocated to Allocated Items on joint return injured spouse (c) Allocated to other spouse NOTES 13 Income: a. Income reported on Form W-2 b. All other income 14 Adjustments to income 15 Standard deduction or Itemized deductions 16 Number of exemptions 17 Credits (do not include any earned income credit) 18 Other taxes 19 Federal income tax withheld 20 Payments Part IV Signature. Complete this part only if you are filing Form 8379 by itself and not with your tax return. Under penalties of perjury, I declare that I have examined this form and any accompanying schedules or statements and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Keep a copy of this form for your records Paid Preparer Use Only Injured spouse s signature Date Phone number (optional) Print/Type preparer s name Preparer's signature Date PTIN Check if self-employed Firm s name Firm's EIN Firm's Address Phone no. Form 8379 (Rev ) TheTaxReview Innocent or Injured Spouse Relief 25

31 NOTES Self-Quiz Instructions Test your knowledge and comprehension of information presented in this course. 1) Donna and Ken, a married couple, live together in a non-community property state and have no refundable credits. Neither of them is subject to refund offset. Donna had no income in In addition to wages, Ken gave his 2013 IRA distribution of $10,000 to his brother. Ken prepared their joint 2013 return and decided to omit the distribution since he had given away the entire amount. Donna was aware of the omission but signed the tax return anyway. In 2014, the IRS notified Ken and Donna of the deficiency and assessed tax, interest, and penalty on the $10,000. Which type of relief is available to Donna using Form 8857, Request for Innocent Spouse Relief? a) If Donna can show that it would be unfair to hold her liable for the tax on Ken s IRA distribution, she may qualify for equitable relief. b) Since all of the 2013 income was Ken s, Donna should not use Form 8857, but instead should file Form 8379, Injured Spouse Allocation. c) Donna qualifies as an innocent spouse because the erroneous item was Ken s and she had no income of her own. d) If the IRS is unable to prove that Donna knew of the omission of the IRA distribution, then Donna may elect separation of liability relief and allocate all of the 2013 income to Ken. 2) Which of the following statements about what occurs after Form 8857 is filed is true? a) While Form 8857 is being considered, the IRS will continue to collect any tax from the applicant for the affected years. b) Unless the applicant asks the court to withhold it, the spouse (or former spouse) may see the applicant s personal information if the applicant petitions the Tax Court. c) Once the IRS Office of Appeals issues a final determination, the applicant can no longer petition the Tax Court. d) Once the IRS issues a preliminary determination letter, the spouse (or former spouse) will have the opportunity to complete the Innocent Spouse Statement. 26 TheTaxReview Innocent or Injured Spouse Relief

32 3) Which of the following scenarios about injured spouse relief is true? a) Bill and Lisa file a joint return. Bill is self-employed and paid no estimated tax payments. Lisa s withholding from her W-2 is applied to Bill s selfemployment tax due. Lisa is an injured spouse. b) Cindy files Form 8379 with her jointly filed return with her husband, Tim, to protect her portion of the refund from going to pay for Tim s past-due child support. c) If Mary had filed separately, she would have had a refund of $500. But because she filed a joint return with her husband, John, they have an amount due of $1,000. Mary is an injured spouse. d) Tom files Form 8379 with the joint tax return to establish that he is not liable for tax on his wife s income. NOTES TheTaxReview Innocent or Injured Spouse Relief 27

33 NOTES Self-Quiz Answers 1) Donna and Ken, a married couple, live together in a non-community property state and have no refundable credits. Neither of them is subject to refund offset. Donna had no income in In addition to wages, Ken gave his 2013 IRA distribution of $10,000 to his brother. Ken prepared their joint 2013 return and decided to omit the distribution since he had given away the entire amount. Donna was aware of the omission but signed the tax return anyway. In 2014, the IRS notified Ken and Donna of the deficiency and assessed tax, interest, and penalty on the $10,000. Which type of relief is available to Donna using Form 8857, Request for Innocent Spouse Relief? a) If Donna can show that it would be unfair to hold her liable for the tax on Ken s IRA distribution, she may qualify for equitable relief. Correct. Since Donna knew that the distribution had been omitted from income, she does not qualify for innocent spouse relief or for separation of liability. b) Since all of the 2013 income was Ken s, Donna should not use Form 8857, but instead should file Form 8379, Injured Spouse Allocation. Incorrect. Form 8379 can only be used when the refund on a joint return is subject to offset. Ken and Donna s situation does not meet this requirement. c) Donna qualifies as an innocent spouse because the erroneous item was Ken s and she had no income of her own. Incorrect. In order to be granted innocent spouse status, a taxpayer must have had no knowledge of and no reason to know of the other spouse s erroneous items. Donna does not meet this requirement. d) If the IRS is unable to prove that Donna knew of the omission of the IRA distribution, then Donna may elect separation of liability relief and allocate all of the 2013 income to Ken. Incorrect. Separation of liability relief is available only to taxpayers who were divorced, widowed, legally separated, or who did not live together for at least 12 months prior to the election. Donna does not meet this requirement. 2) Which of the following statements about what occurs after Form 8857 is filed is true? a) While Form 8857 is being considered, the IRS will continue to collect any tax from the applicant for the affected years. Incorrect. While Form 8857 is being considered, the IRS generally cannot collect any tax from the applicant for the affected year(s). b) Unless the applicant asks the court to withhold it, the spouse (or former spouse) may see the applicant s personal information if the applicant petitions the Tax Court. Correct. If the applicant petitions the Tax Court, the spouse (or former spouse) may see the applicant s personal information unless the applicant asks the Tax Court to withhold it. 28 TheTaxReview Innocent or Injured Spouse Relief

34 c) Once the IRS Office of Appeals issues a final determination, the applicant can no longer petition the Tax Court. Incorrect. If the IRS does not grant the applicant relief, the applicant can choose to petition the Tax Court. NOTES d) Once the IRS issues a preliminary determination letter, the spouse (or former spouse) will have the opportunity to complete the Innocent Spouse Statement. Incorrect. The preliminary determination is made by the IRS once it has received all the necessary information, including Form 12507, Innocent Spouse Statement. 3) Which of the following scenarios about injured spouse relief is true? a) Bill and Lisa file a joint return. Bill is self-employed and paid no estimated tax payments. Lisa s withholding from her W-2 is applied to Bill s selfemployment tax due. Lisa is an injured spouse. Incorrect. The tax obligation of the other spouse must be a past-due obligation. Bill s self-employment tax is a current obligation. b) Cindy files Form 8379 with her jointly filed return with her husband, Tim, to protect her portion of the refund from going to pay for Tim s past-due child support. Correct. To qualify for injured spouse relief, there must be a refund on a jointly filed return and the refund is applied to a past-due obligation of the spouse for which the taxpayer is not liable. c) If Mary had filed separately, she would have had a refund of $500. But because she filed a joint return with her husband, John, they have an amount due of $1,000. Mary is an injured spouse. Incorrect. In order to be eligible for injured spouse relief, a joint return must be filed which results in a refund. d) Tom files Form 8379 with the joint tax return to establish that he is not liable for tax on his wife s income. Incorrect. Tax on his wife s income is a current liability. Injured spouse relief is only available if a refund is applied to a past-due obligation of the other spouse for which the taxpayer is not liable. TheTaxReview Innocent or Injured Spouse Relief 29

35 30 TheTaxReview Innocent or Injured Spouse Relief

36 Final Exam Go to and click on Login to Education Center to take the Final Exam. Do not mail. CPE/CE Circle the correct answer. 1) Ron and Laura filed joint tax returns until Laura s death in 2014 and have always had small federal refunds. After Laura s death, Ron discovered that Laura s 2012 net Schedule C income had been understated by $20,000. He had no prior reason to suspect an error. Which of the following correctly describes Ron s situation? a) Ron is an innocent spouse, but since his 2012 return has already been filed, he must include Form 8857, Request for Innocent Spouse Relief, with an amended return for b) Since Laura died before the error was discovered, Ron is liable only for the income tax on the $20,000. The self-employment tax on the $20,000 was Laura s separate debt and Ron is not liable for it. c) Ron can file Form 8857, Request for Innocent Spouse Relief, and receive a refund of his 2012 withholding if he files by April 15, d) Ron can file Form 8857, Request for Innocent Spouse Relief. The IRS will determine whether he qualifies for either innocent spouse or separation of liability relief. 2) Which of the following is true regarding injured spouse claims? a) The calculation of the refund for the injured spouse is made by the taxpayer on Form b) When filing Form 8379 as a stand-alone form, a copy of the originally filed return must be enclosed. c) In community property states, overpayments are considered joint property and are generally used to offset past-due obligations of either spouse. d) The non-injured spouse must sign Form 8379 so he or she is made aware that the spouse s refund will not be offsetting the past-due liability. 3) Which of the following would disqualify an individual from seeking separation of liabilities relief? a) The taxpayer filed as married filing separately in a community property state. b) The taxpayer is legally separated, but not yet divorced from the spouse with whom the joint return was filed. c) The spouse (or former spouse) with whom the joint return was filed is now deceased. d) The taxpayer had knowledge of errors on the tax return, but agreed to file a joint return because she thought she was required to do so. DO NOT MAIL Go to and click on Login to Education Center to take the Final Exam. TheTaxReview Innocent or Injured Spouse Relief Final Exam 31

37 DO NOT MAIL Go to and click on Login to Education Center to take the Final Exam. 4) Brett received an illegal kickback of $40,000 in his sole proprietorship. He didn t tell his wife Belle about the money and deposited it into a secret bank account. They filed their joint tax return without including the $40,000 on Brett s Schedule C and received a federal tax refund. One of Brett s competitors told the IRS about the kickback and the IRS issued a Notice of Deficiency for the affected year. How should Belle protect herself from liability for taxes on the $40,000? a) Belle should file for divorce and provide documentation to the IRS that she did not know about the $40,000. b) Belle should immediately file Form 8857, Request for Innocent Spouse Relief. c) Belle is jointly and severally liable for the tax because she filed a joint return with Brett. There is no protection for her. d) Belle should immediately file Form 8379, Injured Spouse Allocation. 5) Ryan and Sally have filed joint returns since they were married in Ryan abused Sally and she filed for divorce, which was final in During the course of the divorce, Sally learned that Ryan had inflated the basis of stocks they sold in When the IRS audited the joint 2011 return in 2014, Sally told the auditor what she had learned. The IRS assessed additional tax, interest, and penalties. Which of the following is true? a) Sally cannot file Form 8857, Request for Innocent Spouse Relief, with respect to 2011 because several years have passed since the joint return was filed. b) Because Sally is a victim of spousal abuse, she can prevent the IRS from notifying Ryan if she files Form 8857, Request for Innocent Spouse Relief. c) The fact that Sally told the auditor about Ryan s erroneous items on their joint 2011 return does not relieve her from joint and several liability. d) Sally can request an offer in compromise for 2011 based on doubt as to liability. If her offer is accepted, she must still file Form 8857 for Final Exam TheTaxReview Innocent or Injured Spouse Relief

38 INSTRUCTIONS Final Examination Instructions Expiration Date Reminder: The Final Exam must be completed online within one year from your date of purchase or shipment. CPE/CE credits are not available more than one year after your date of purchase or shipment. All Final Exams are administered online at It is recommended that you review the Final Exam at the end of the course before taking it online. Final Exams mailed in will not be graded. Follow the instructions below: 1) Go to 2) Click on Login to Education Center, where you will find a location to log in to the Final Exam. 3) Enter your User Name in the self-study CPE/CE login location. The address associated with your account at Tax Materials, Inc. is your User Name. If you do not have an address, or have not provided one, please call our toll-free number at to be assigned a User Name. 4) Enter your Password. The zip code associated with your account is your password. If you are having difficulty logging onto the Final Exam, please call our toll-free number at ) Select the Innocent or Injured Spouse Relief Exam and click the Take Exam button. 6) You will be taken to the Final Exam. First confirm your First Name and Last Name are correct. This is how your name will appear on your Certificate of Completion should you achieve a score of 70% or higher. Take the Final Exam. Read the questions carefully and answer them to the best of your ability. At the bottom of the exam, click on Submit Answers when finished. You will instantly know if you have passed the test. If you failed, you are able to retake the test. If you passed, the Certificate of Completion will be available for you to print. DO NOT MAIL Go to and click on Login to Education Center to take the Final Exam. TheTaxReview Innocent or Injured Spouse Relief Final Exam 33

39 34 Final Exam TheTaxReview Innocent or Injured Spouse Relief

40 Course Evaluation 2014 Innocent or Injured Spouse Relief Self-Study CPE/CE CPE/CE Please comment on all the following evaluation points for this program and assign a number grade, using a 1 5 scale, with 5 as the highest. Grade (1 5) 1) Were the stated learning objectives met? Comments: 2) Were the prerequisite requirements appropriate? Comments: 3) Were program materials accurate? Comments: 4) Were program materials relevant? Comments: 5) Did the program materials contribute to the achievement of the learning objectives? Comments: 6) Was the time allotted to the learning activity appropriate? Comments: 7) Was the use of the online test-taking satisfactory? Comments: 8) Did the online grading and certificate delivery systems work well? Comments: 9) Was the study guide appropriate and complete with regard to assisting with learning the material? Comments: 10) Did the layout and overall visual presentation make the study guide easy to read and understand? Comments: Other feedback or suggestions: Please mail to: Tax Materials, Inc Minnetonka Ind. Rd., Ste 221, Minnetonka, MN Thank you for helping us improve our CPE/CE course offerings! TheTaxReview Innocent or Injured Spouse Relief Course Evaluation 35