Innocent Spouse Relief

If you spend the majority of time trying to decode the Internal Revenue Code, as we do at Kansas City Tax Mediation, the mysteries are endless.  Why do we have the rules that we have?  Why are some deductions available for your tax return but not for collections purposes?  What is the exact rule when it comes to S-Corporation owners paying self-employment tax?  We could go on but we won’t.

One of the mysteries is why the IRS has an “Innocent Spouse” relief program and an “Injured Spouse” relief program.  The two programs are similar, and sound similar, and as a result almost nobody except for tax professionals knows the difference without performing an internet search.

Innocent Spouse:  We have a couple, Charles and Laura.  Charles runs a large law firm and Laura works part time as a secretary.  They file a joint tax return one year and then they are audited.  The IRS determines that Charles has been misstating his income and as a result both Charles and Laura now owe much more in taxes.  Laura can apply for Innocent Spouse relief, in which she is not required to pay the extra taxes and penalties arising from the audit.  The IRS will issue a letter approving the innocent spouse status, and that innocent spouse ruling can be applied to Kansas and Missouri state income taxes as well.

Injured Spouse:  Now let’s say next year Charles and Laura are filing another joint tax return.  Charles still owes money to the IRS from the audit but Laura does not owe any money.  Still, Laura had some taxes withheld from her check and she does not want that money to go to pay Charles’s tax liability.  She would claim Injured Spouse on the tax return and receive her portion of the refund.  Unlike Innocent Spouse, Kansas and Missouri do not honor Injured Spouse.

If you are interested in an Innocent Spouse application, or if you have any other tax problems aside from Innocent Spouse, call Kansas City Tax Mediation today and schedule a free, face to face consultation with a tax professional.  Kansas City Tax Mediation: Let’s get through this together.

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