Injured or Innocent Spouse Tax Relief 

You may be an injured spouse if you file a joint tax return and all or part of your portion of a refund was, or is expected to be, applied to your spouse’s legally enforceable past due financial obligations.

Here are seven facts about claiming injured spouse relief:

1. To be considered an injured spouse; you must have paid federal income tax or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint return, and not be legally obligated to pay the past-due debt.

2. Special rules apply in community property states. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.

3. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation.

4. You may file form 8379 along with your original tax return or your may file it by itself after you receive an IRS notice about the offset.

5. You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

6. If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form.

7. Do not use Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857, Request for Innocent Spouse Relief. This relief from a joint liability applies only in certain limited circumstances. However, in 2011 the IRS eliminated the two-year time limit that applies to certain relief requests. IRS Publication 971, Innocent Spouse Relief, explains who may qualify, and how to request this relief.

By Ivan Alvarez, CPA

Many small businesses, specially construction contractors, that require an audit maybe surprised by additional requirements CPA's must comply with when issuing an audit opinion. 

First, it seems that small entities, generally speaking, have much to be desired when it comes to internal controls. Many firms believe that internal controls is something that CPA's "do." This is incorrect. Management is responsible for internal controls. Further, your CPA auditor has to be independent, hence, auditors cannot be involved in the design and implementation of internal controls without losing their independence. Hence, the audit is not going to "fix" your internal control issues. Internal controls should be designed and operating effectively to prevent, detect, and correct a material misstatement before the audit begins. 

What if internal controls are not designed or operating effectively when the audit begins? Well, more than likely, material adjustments will be made by the auditor (see below, material adjustments discovered during an audit are not optional1). If such material adjustments are proposed by the auditor then these proposed adjustments are evidence that a deficiency in internal control exist since internal controls did not prevent, detect, or correct the material amount.  

Okay. A deficiency in internal control exist. So what? The big deal is that in addition to an audit opinion letter, the client (management and those charged with governance) will receive an internal control deficiency letter that must be shared with outsiders relying on the audit opinion. This deficiency letter can affect lenders decision to lend or surety companies from underwriting.

Now, what if you don't require an audit? Well, internal controls, when properly designed should be cost-effective and help your business reduce waste. According to a leading fraud reporting organization, fraud costs the typical organization about 5% of annual revenues. This 5% can be made up of employees doing personal errands on company time, employees padding expense reports with personal expenses, stealing supplies, etc.  

How do you fix internal controls if you have an issue or how do you design internal controls effectively? Well, the best equipped person to help you with is your local Certified Public Accountant or experienced business consultant. You can always try to do this on your own, but  internal controls do require some professional judgement. A CPA should help you prioritize which controls are essential and help you implement the right controls.  

1-If the adjustments proposed are material, the client must accept the adjustment or an alternative adjustment to prevent their financial statements from being "materially misstated." No auditor will sign an audit opinion if the financials are materially misstated.