There is significant confusion about the difference between Injured Spouse and Innocent Spouse Relief. Not just by the public, but also by tax and accounting professionals. I suspect the confusion even among tax professionals stems from the following four facts.
Where is the Confusion Coming From?
- The names are very similar.
- They are not common claims for the average tax professional to make.
- They both keep one spouse from having to pay a tax debt.
- The low amount of experience most storefront tax professionals have reading tax law.*Congress authorized the two claims in very different parts of the Internal Revenue Code. I also admit confusing them early in my career until I read the code sections.
Despite all the confusion, they are very different claims with very different purposes. Causing further consternation is the fact that confusing them can cause tremendous problems. Not only practitioners but also taxpayers stand to lose substantial rights when the wrong claim is filed.
Palomares v. Commissioner
For example, in Palomares v. Commissioner, T.C. Memo 2014-243, a confused divorce attorney filed for Injured Spouse Relief instead of Innocent Spouse. The ensuing dispute went all the way to the 9th Circuit Court of Appeals. In that case, the 9th Circuit overruled the Tax Court and sided with the petitioner, Ms. Palmores.
To sum up some complex case tax law the 9th Circuit essentially said that the information present on the Injured Spouse Form filed by Ms. Palmores’ divorce attorney met the requirements of an informal Injured Spouse claim. The 9th Circuit also said that because she had timely filed an information claim the IRS should have reviewed it.
In my experience, I saw similar situations all the time while working at an online tax prep company. My job was to answer questions for people who were confused by the software or the law and regulations. During that time, I answered quite a few calls about Injured Spouse Relief.
I, however, cannot recall a single one where I did not need to clarify the differences between Innocent and Injured Spouse relief. These facts suggest that thousands or even tens of thousands of claims are denied each year for the wrong reasons. Not because of the actual facts of a person’s claim but rather because of the confusion between two similar names.
What is Next?
To help alleviate this confusion, there will be further blog posts about these topics. In particular, the next few blog posts highlight what defines Innocent and Injured Spouse claims.