When you file an Innocent Spouse claim, you are in essence telling the IRS that although you assume that I am responsible for the tax with my spouse, I have a reason to show you that as a matter of fairness I should not be. Then you present the facts that support that claim. That is why it is said that Innocent Spouse issue is a factual one because it depends on the facts you are presenting. Your mission is to show your innocence.
Innocent Spouse defense is a also critical in addition to being a factual defense. Critical because it seeks to overturn a presumption in the tax law. The presumption is that if you and your spouse file the tax return as married filed jointly, both of you are severally and jointly liable to pay the taxes. It means they will collect ALL the taxes from whoever has a deeper pocket.
How does the Innocent Spouse problem come into existence? If both of you file a return and the IRS determines, through an IRS audit or otherwise, that the return is erroneous and you will face some tax ramification. The return can be wrong when it understates income or when it claims expenses that should not have been claimed. On the other hand, both of you do file the correct return, but choose or fail to pay the taxes. That is how the problem starts; wrong return or unpaid taxes.
Seeking tax relief can be made whether you are married, separated or divorced. If you are in the collection stage, or going through an audit or audit appeal you can apply for the tax relief with the collection officer, with the revenue agent (the auditor) or raise the issue in the Appeals. You can also raise Innocent Spouse Relief if you receive a notice of Intent to Levy and you have requested collection due process hearing (CDP)
If you receive a 90-day letter which means you can only to protest the deficiency in court, request the Innocent spouse relief from the IRS, but in the mean time file the petition with the court specifically requesting the Innocent Spouse Relief to protect the 90-day deadline. The mere filing of Innocent Spouse Relief stops the IRS from taking actions against you. Notice that filing the relief, like any other filing should not be a frivolous filing.
When you file for tax relief, you will be asked questions such as you level of education at the time of filing the tax return. Obviously, they want to determine if your level of education does not allow you to understand the tax situation that got you in trouble. The higher your education is, the less likely you will appear innocent. You will also appear innocent if you were subject to a domestic violence. However, the IRS wants to see police reports, photos and other documents.
You must be careful but truthful in answering the questions in the application for the relief. They will ask you about your degree of involvement in the preparation of the tax returns that gave rise to the IRS debt. They also want to know if you were involved in the household financing. They would ask you that if your husband was self employed, did you help him in the business and how. They want to know what bank accounts joint or separate did you both have. They want to know who made the deposits. As you see the questions are fraught with serious ramifications and warrants seeking guidance if possible.
Generally speaking you will be granted the relief if:
1) You are indeed innocent
2) You prepared the proper documentation
Notice that it is very difficult to plead an innocent spouse if you are still married. It may appear that you are trying to have your cake and eat it too.