Injured spouse and innocent spouse relief are two different types of relief and requested by filing two different forms with the IRS. Innocent spouse relief is appropriate when two spouses file their return jointly and there are erroneous items of income or deductions which give rise to a tax liability. When a spouse requests innocent spouse relief, the effect of the granting of such relief is to vitiate the joint and several tax liability created by the filing of the joint return.
Injured spouse occurs when there is no understatement of income or erroneous items of deduction, but instead when a spouse’s refund would be used toward the payment of some type of debt which belongs solely to the other spouse. To be granted injured spouse relief, the non-requesting spouse must have a debt that an overpayment of tax would be used to pay. Further, the requesting spouse must have no legal obligation to pay that debt. Types of debt that commonly qualify are past-due federal income tax (usually from before the marriage), child or spousal support and other debts such as state income tax or student loans.
Generally, injured spouse status in itself is not particularly useful for most California taxpayers. This is due to how California’s community property system interacts with collection law. However, in one recent tax case, a California taxpayer was able to use an erroneously filed injured spouse petition to serve as the informal basis for securing innocent spouse relief despite the exhaustion of the statute of limitations period.
In Palomares v. Commissioner, No. 15-70659, 2017 U.S. App. LEXIS 9565 (9th Cir. May 31, 2017), the taxpayer was the victim of an abusive relationship and only spoke Spanish. She mistakenly filed an injured spouse relief claim on the advice of volunteer counsel and did not file a claim for innocent spouse relief until several years had passed and the refund claim limitations period had expired. On appeal to the Ninth Circuit Court, the court overturned the Tax Court and found that informal claim doctrine favored the granting of equitable relief. Reasons cited as supporting the relief determination include the presence of domestic abuse, her inability to read and understand English at the time, improper advice received from a volunteer attorney, and a lack of responsibility for the tax mistakes.