The IRS offers innocent spouse tax relief if you end up in tax trouble thanks to a current or former spouse. However, relief isn't always guaranteed, and the IRS can turn down your request for a variety of reasons. What happens after you're denied relief? Read on to find out.
You'll Get an Opportunity to Appeal
After you receive your denial letter, you'll get a chance to appeal the decision with the IRS Office of Appeals. You must submit a statement explaining why you feel the decision was in error, along with any additional evidence that wasn't included in your initial submission.
Remember that the clock starts ticking the moment the IRS issues its letter regarding your innocent spouse request. You'll only get 30 days from the date the letter was issued to file an appeal. Missing the deadline means missing your one and only chance to file an appeal.
Once you've filed your appeal, an appeals officer will investigate your statement along with your additional evidence and make a final decision regarding your appeal. If your appeal is denied, you'll have 90 days to appeal the decision in the U.S. Tax Court.
The IRS May Attempt a Settlement
Once you've filed your petition for an appeal with the U.S. Tax Court, you'll receive a standing pretrial notice with the date and location of the trial. Before your case reaches the U.S. Tax Court, however, the IRS may contact you in an attempt to settle outside of court.
The IRS's settlement offer may involve a significant reduction or even an outright elimination of your tax assessment. It's worth noting that the IRS settles the overwhelming majority of tax cases before they reach a courtroom.
You'll Get Your Day in Court
Once your case comes up on the Tax Court's docket, your case will be heard de novo or from the very beginning, meaning that the court won't take into account any previous rulings made on the matter. From here, you and your tax attorney will state your case and provide supporting evidence.
How the court decides the case depends on the evidence at hand and a variety of other factors. If the tax court decides in your favor, the IRS will not only offer you innocent spouse relief, but you'll also be reimbursed for your attorney's fees.
If you lose your case, you still have other options, including a petition to have your case heard in the U.S. Court of Federal Claims or U.S. District Court. However, the entire balance owed must be paid in full before either court will hear your case.