What’s the difference between Innocent Spouse Relief, Separation of Liability Relief, and Equitable Spouse Relief?
What are these different terms?
If you have been reading about Innocent Spouse Relief, you’ve probably come across the term Equitable Spouse Relief or Separation of Liability Relief and might be wondering what exactly that is. We’ve even talked about it a bit in other posts, but in today’s post, we are going to dive into what is exactly meant by these two phrases: “Equitable Spouse Relief” and “Separation of Liability Relief”, since they are the lesser known, used, and understood phrases related to Innocent Spouse Relief.
What is Innocent Spouse Relief and Why Do People Describe So Many Things With It?
To do that, first, we’re going to talk about what exactly “Innocent Spouse Relief” isn’t. The section of the Internal Revenue Code that is associated with Innocent Spouse Relief doesn’t actually use the term innocent spouse relief. It uses the phrase “Relief from Joint and Several Liability on a Joint Return”. While we use terms like “innocent spouse” and “equitable relief”, they are really just parts of §6015 of the Internal Revenue Code that the Congress passed in order to provide for “Relief from Joint and Several Liability on a Joint Return”. However, it is common to refer to any kind of separation of joint and several liabilities under §6015 as “innocent spouse relief”, so you may have heard many types of liability separation called “innocent spouse relief.”
What Does Traditional Innocent Spouse Relief Do?
Traditional Innocent Spouse Relief provides relief from the additional tax you owe if your spouse or former spouse failed to report income, reported income improperly, or claimed improper credits or deductions. What this basically means is that if your spouse or former spouse cheated on your taxes, the Innocent Spouse Relief is most likely the correct relief option for you.
What Does Equitable Relief Do?
Equitable relief, on the other hand, deals with situations you don’t qualify for Innocent Spouse Relief for an item similar to those described above AND when the amounts are reported correctly but the tax is never paid. Equitable relief can provide relief simply when your spouse never paid the tax due. Innocent Spouse, however, cannot. In addition, Equitable relief can provide relief when you don’t meet the strict requirements for Innocent Spouse relief on misstated items.
What Does Separation of Liability Relief Do?
Lastly, we’ll tackle the “separation of liability relief”. This particular one can make this whole process extra confusing, which is why we saved it for last. Now that you understand how the other types of relief it will be easier to understand how this type functions differently from them. Separation of Liability Relief as the phrase is used when talking about relief provides for an allocation of tax between you and your former spouse when an item wasn’t properly reported on a joint tax return. Separation of Liability Relief is a little different from Equitable or Innocent Spouse Relief because the end goal will likely have you owing tax(although less than you did before.) The point, however, is to split up your joint debt with your spouse, so you know how much you need to pay, and your spouse or ex-spouse can’t leave you on the hook for the whole amount by either not paying or promising to pay part of it at a later date, and then failing to do so.
So, that sums up the three kinds of Relief provided for under §6015 of the Internal Revenue Code. As you can see, each has a distinct and different use for spouses and former spouses struggling with a post-audit or post-self-assessment tax controversy.