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How to Improve Business Profitability
You improve business profitability by increasing revenue, reducing costs, or both at the same time. That sounds simple, but most business owners struggle with it because they focus on the wrong levers, lack accurate financial data, or make decisions based on gut feeling instead of numbers. According to industry data compiled by Zippia, only about 40% of small businesses are profitable at any given time, while 30% break even and another 30% operate at a loss. Below, we cover the specific strategies that move businesses from the losing or break-even category into consistent profitability, including pricing, cost reduction, cash flow management, tax planning, and the financial metrics that tell you where to focus first.
How Can Business Profitability Be Improved?
Business profitability can be improved through five core strategies: optimizing pricing, increasing sales volume or average transaction value, reducing operating costs, improving cash flow management, and planning taxes proactively. Each of these levers moves the needle independently, and using all five together produces the biggest results.
The math behind profitability is straightforward. Revenue minus expenses equals profit. But inside that simple equation, there are dozens of variables that most owners do not track closely enough. A 3% price increase across all products can improve net profit by 20% to 30% for a business running at a 10% margin, because the increase drops almost entirely to the bottom line. A 5% reduction in operating costs on a $2 million revenue business frees up $100,000 per year. Those are real numbers that real businesses can hit with the right plan.
According to Vena Solutions, the average net profit margin across all industries is 8.54%, and the average gross profit margin is 36.56%. That means the typical business spends about 28 percentage points of revenue on operating expenses between the gross profit line and the bottom line. Every point of improvement in that gap drops directly to profit. Structured business consulting support helps owners identify exactly where those points are hiding and how to capture them.
What Is a Good Profit Margin for a Small Business?
A good profit margin for a small business is a net margin of 7% to 10%, though the right target varies significantly by industry. A margin above 10% is considered healthy in most sectors, and a margin above 20% is excellent. Margins below 5% leave very little room for unexpected expenses, market shifts, or reinvestment in growth.
According to data compiled by Zippia from IRS Statistics of Income reports, the average small business net profit margin falls between 7% and 10%. However, the range across industries is enormous. Financial services businesses average a 32.33% net margin. Professional services firms like consulting and accounting typically run between 15% and 25%. Retail businesses average 2% to 6%. Restaurants average 2.8% to 4% for full-service and about 4% to 6% for quick-service.
Knowing your industry benchmark is the starting point. If your business is running at a 5% net margin in an industry where peers average 12%, the gap represents money you are leaving on the table. The first step is figuring out why you are below benchmark, whether it is pricing, cost structure, inefficiency, or something else. Accurate financial statements give you the numbers you need to make that comparison and track your progress as you close the gap.
Why Do So Many Small Businesses Struggle With Profitability?
So many small businesses struggle with profitability because they lack accurate financial data, do not price their products or services correctly, underestimate their operating costs, and fail to manage cash flow tightly enough. According to a U.S. Bank study, 82% of small businesses that fail do so because of poor cash flow management. The problem is rarely that the business does not have enough customers. The problem is almost always that the business does not manage its money well enough to turn revenue into profit.
According to the 2025 Federal Reserve Small Business Credit Survey, 75% of small business owners cite rising costs as their top financial concern. Costs have gone up across the board, from materials and rent to wages and insurance. But not all businesses respond to rising costs with the same level of discipline. The ones that survive and grow are the ones that track every dollar, adjust pricing regularly, and eliminate waste wherever they find it.
Another major factor is underpricing. Many small business owners set their prices based on what competitors charge or what feels right, without calculating the actual cost of delivering the product or service. According to research from Toggl, the average company net margin has been squeezed to 8.54%, largely because businesses have not raised prices fast enough to keep pace with rising input costs. A business that raises prices by 5% while costs go up 8% is actually losing ground even though revenue looks higher.
How to Increase Revenue Without Increasing Costs
Increasing revenue without increasing costs is possible through better pricing strategy, higher average transaction values, improved customer retention, and more effective use of existing marketing channels. These are the highest-leverage moves a business can make because they grow the top line without adding proportional expense.
Pricing is the single most powerful lever. A price increase goes straight to the bottom line because it does not come with additional cost of goods or labor. According to research published by McKinsey, a 1% improvement in price produces an average 8% to 11% improvement in operating profit for most businesses. That makes pricing the highest-return profitability strategy available, yet most small business owners review their pricing once a year or less.
Increasing average transaction value is the second lever. If a customer is already buying, getting them to spend 10% more per visit through bundling, upselling, or adding complementary products costs almost nothing in additional overhead. Customer retention is the third lever. According to research cited by the Harvard Business Review, increasing customer retention by just 5% can increase profits by 25% to 95%, because repeat customers cost far less to serve than new ones.
Building a clear revenue growth plan that focuses on these three levers, pricing, transaction value, and retention, is one of the most effective things a business owner can do. Strong strategic planning turns these ideas into a structured roadmap with specific targets and timelines.
What Is the Fastest Way to Increase Profit?
The fastest way to increase profit is to raise prices on your best-selling products or services. Price adjustments take effect immediately, require no additional spending, and the entire increase flows directly to the bottom line. For a business with a 10% net profit margin, a 5% across-the-board price increase can improve profit by 50%, because the cost structure stays the same while revenue goes up.
The second-fastest move is cutting obvious waste. Most businesses have expenses they are paying for but not using, whether it is software subscriptions, underperforming marketing channels, excess inventory, or overtime that does not produce proportional output. A focused cost audit that takes a few days can often find 3% to 5% of total expenses that can be eliminated without affecting quality or customer experience.
The third-fastest move is improving collections. Many businesses have money sitting in unpaid invoices that represents profit they have already earned but not yet received. According to a 2025 Intuit QuickBooks report, late payments are one of the top cash flow challenges for small businesses, and tightening payment terms or following up more aggressively on overdue accounts can free up significant cash quickly. Tracking these key financial metrics on a weekly basis keeps the owner focused on the numbers that matter most.
How to Reduce Costs Without Cutting Quality
Reducing costs without cutting quality requires a disciplined review of every expense line, separating the costs that directly serve customers from the costs that exist out of habit or inefficiency. The goal is not to spend less on everything. The goal is to stop spending money on things that do not produce proportional value.
Start with vendor contracts. Most businesses have not renegotiated their key vendor agreements in one to three years. Suppliers expect negotiation, and a 5% to 10% improvement on your top three vendor contracts can save thousands annually without changing anything about what you receive. Next, look at labor efficiency. According to the Bureau of Labor Statistics, labor is the largest expense for most service businesses, and small improvements in scheduling, cross-training, and automation can reduce labor cost as a percentage of revenue by 2 to 4 points.
Automation is another high-impact area. According to research from ProfileTree, automation adoption can deliver a 30% to 200% return on investment within the first year by reducing labor costs and eliminating manual errors. Automating invoicing, payroll, inventory tracking, and basic reporting frees up hours every week that can be redirected toward revenue-producing work. The businesses that resist automation are often the same businesses that complain about thin margins.
Overhead expenses like rent, insurance, and utilities deserve a hard look too. Miami-based businesses and companies across the country often find that renegotiating a lease, switching insurance carriers, or upgrading to energy-efficient equipment can cut overhead by 5% to 15% without any loss of capability. Owners who go through a structured profit improvement process tend to find savings they never expected.
How Does Cash Flow Affect Profitability?
Cash flow affects profitability because even a profitable business on paper can fail if it does not have enough cash on hand to pay bills, make payroll, and cover operating expenses when they come due. Profit and cash flow are related but not the same thing. Profit is an accounting measure. Cash flow is what keeps the lights on.
A business can show a profit on its income statement and still run out of money. This happens when customers pay slowly, when inventory ties up cash before it generates revenue, or when the business takes on debt payments that exceed its monthly cash generation. According to a U.S. Bank study, 82% of small businesses that fail do so because of cash flow problems, not because they were unprofitable on paper. The gap between earning a profit and having the cash to support operations is where most small businesses get into trouble.
Cash flow management improves profitability in several direct ways. It reduces the need for expensive short-term borrowing, eliminates late-payment penalties, creates the ability to take advantage of early-payment discounts from vendors, and gives the owner the confidence to invest in growth at the right time instead of holding back out of uncertainty. A virtual CFO who monitors cash flow weekly or biweekly catches problems before they become crises and keeps the business operating from a position of strength instead of reaction.
How Tax Planning Improves Profitability
Tax planning improves profitability by legally reducing the amount of money the business pays in taxes, which means more of every dollar earned stays in the company. Most small business owners think about taxes once a year at filing time. The owners who plan proactively throughout the year consistently keep more money.
The strategies include choosing the right business entity structure, maximizing deductions, timing income and expenses strategically, contributing to tax-advantaged retirement accounts, and taking advantage of credits like the Research and Development Tax Credit, the Work Opportunity Tax Credit, and Section 179 depreciation for equipment purchases. Each of these can produce thousands to tens of thousands of dollars in annual savings, but only if the owner knows they exist and plans for them in advance.
According to data from the IRS and industry research, the effective tax rate for small businesses varies from 15% to over 30% depending on entity type, income level, and how well the business plans. A 5-point reduction in effective tax rate on $500,000 in taxable income saves $25,000 per year, every year. Over five years, that is $125,000 in retained earnings that can be reinvested in the business or distributed to the owner. Proactive tax planning is one of the highest-return investments a business owner can make, and it is the area where many businesses leave the most money on the table.
Profit Margin Benchmarks by Industry
IndustryAverage Gross MarginAverage Net MarginFinancial Services60-70%25-32%Professional Services (Consulting, Accounting)50-70%15-25%Software / SaaS70-90%20-30%Healthcare Products55%8-12%Retail25-35%2-6%Construction / Engineering14-18%2-5%Restaurants (Full-Service)60-70%3-8%All Industries Average36.56%8.54%
Sources: Vena Solutions 2026 industry profit margin benchmarks, New York University Stern School of Business profit margin database, Zippia 2026 small business statistics, QualiFi 2025 profit margin analysis.
How a CPA or Financial Advisor Helps Improve Profitability
A CPA or financial advisor helps improve profitability by giving the business owner accurate financial data, objective analysis of where money is being lost, a structured plan to fix the leaks, and ongoing accountability to make sure the improvements stick. Most business owners know they should be more profitable, but they do not know exactly where the problem is or what to do about it. That is exactly the gap a qualified advisor fills.
The advisor starts by reviewing the financials in detail: the P&L, balance sheet, cash flow statement, and key ratios. They compare every number to industry benchmarks and identify the specific areas where the business is underperforming. Then they build a plan that prioritizes the highest-impact improvements and puts timelines and targets on each one.
According to the 2024 CPA.com and AICPA Client Advisory Services Benchmark Survey, CPA firms that provide CFO-level and business insights advisory services generate more than 30% higher monthly recurring revenue per client than firms that only handle compliance. That premium exists because the advisory work produces measurable financial improvement for the client, not just a filed tax return. Owners who work with an experienced business advisor consistently report better margins, stronger cash flow, and more confidence in their financial decisions.
New businesses benefit just as much as established ones. An owner in their first or second year who brings in advisory help early avoids the trial-and-error that costs most startups thousands of dollars in preventable mistakes. Structured startup advisory support during the early stages sets the financial foundation that profitability is built on.
Frequently Asked Questions
What Expenses Should a Small Business Cut First?
The expenses a small business should cut first are the ones that do not produce proportional revenue or value. Start with unused software subscriptions, redundant tools, and marketing channels that are not producing measurable results. Then review vendor contracts and negotiate better terms on your largest recurring expenses. According to industry research, most businesses can find 3% to 5% in waste by doing a line-by-line expense audit, and those savings drop directly to the bottom line.
How Often Should a Business Review Its Profitability?
A business should review its profitability at least monthly, and the most disciplined operators review weekly. Monthly reviews of the P&L, cash flow statement, and key ratios like gross margin, net margin, and customer acquisition cost give the owner enough data to catch problems early. According to the CPA.com Benchmark Survey, businesses that receive regular financial reporting from an advisor generate significantly higher revenue per client relationship than those that only look at their numbers at tax time.
Can Raising Prices Hurt Profitability?
Raising prices can hurt profitability only if the increase drives away more customers than the additional margin it produces. In practice, most small businesses underprice their products and services, and moderate price increases of 3% to 10% rarely cause significant customer loss. According to McKinsey research, a 1% price increase produces an average 8% to 11% improvement in operating profit. The risk of losing customers is almost always smaller than the profit gained from charging a fair price.
How Do You Measure Profitability Accurately?
You measure profitability accurately by tracking three margins: gross profit margin, operating profit margin, and net profit margin. Gross margin shows how much you keep after the direct cost of goods or services. Operating margin shows what is left after operating expenses. Net margin shows the final profit after taxes and all other costs. Comparing these margins to industry benchmarks and tracking them month over month reveals whether the business is improving, declining, or holding steady.
Is It Better to Focus on Revenue or Cost Cutting?
It is better to focus on both revenue growth and cost control at the same time, but if you have to pick one starting point, start with pricing. A price increase requires no additional spending and flows directly to profit. Cost cutting has limits, because you can only cut so far before you hurt quality or capacity. Revenue growth, driven by smart pricing, higher transaction values, and better customer retention, has no ceiling. The most profitable businesses pursue both simultaneously.
How Long Does It Take to Improve Profitability?
Improving profitability can produce results within 30 to 90 days for quick wins like pricing adjustments and expense cuts. Deeper improvements like operational restructuring, new financial systems, and customer retention programs usually take 6 to 12 months to show their full impact. According to industry research, well-structured consulting engagements typically produce a 3 to 10 times return on fees within the first year, with the compounding effect growing in subsequent years.
What It All Comes Down To
Improving business profitability is not about working harder. It is about working smarter with better data, better pricing, tighter cost control, stronger cash flow management, and proactive tax planning. The businesses that consistently outperform their peers are the ones that track the right numbers, make decisions based on data instead of gut feeling, and have experienced advisors helping them see what they cannot see on their own. The strategies in this article work across every industry, and the math is always the same: small improvements in multiple areas compound into significant profit gains over time.
If your business is profitable but you know there is room to do better, or if margins have been tightening and you want a clear plan to fix it, we would be glad to help. At NR CPAs & Business Advisors, we work with business owners across the country to turn financial data into actionable strategies that produce measurable improvement in profitability.
Reach out to our team at (954) 231-6613 to start the conversation.
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Tax and Financial Insights
by NR CPAs & Business Advisors
Federal Tax Lien: How To Remove Or Withdraw It
A federal tax lien is the government's legal claim against your property when you fail to pay a tax debt after the IRS has assessed the amount owed and sent you a bill. According to the IRS, the lien attaches to all of your property, including real estate, vehicles, financial accounts, and business assets, as well as any property you acquire in the future while the lien is active. The lien protects the government's interest by establishing its priority over other creditors.
A federal tax lien is created automatically by law once three conditions are met: the IRS assesses the tax, sends you a Notice and Demand for Payment, and you neglect or refuse to pay the balance in time. According to the IRS, the agency then files a public document called a Notice of Federal Tax Lien (NFTL) with your state or county recording office to alert other creditors that the government has a legal right to your property. The lien itself exists from the moment you fail to pay, but the public notice is what damages your credit and affects your ability to sell or borrow against your assets.
How A Federal Tax Lien Affects You
A federal tax lien can significantly impact your finances, credit, and ability to conduct business. According to the IRS, the effects include the following.
- Credit damage. Once the Notice of Federal Tax Lien is filed, it becomes a public record. Lenders, landlords, and creditors can see it, and it can lower your ability to obtain credit, loans, or mortgages.
- Property restrictions. The lien attaches to all your current and future assets. You cannot sell or refinance real estate without satisfying or addressing the lien first.
- Business impact. The lien attaches to business property and accounts receivable, which can interfere with operations and relationships with vendors and clients.
- Bankruptcy limitations. According to the IRS, a tax lien and the Notice of Federal Tax Lien may continue even after bankruptcy in certain situations.
How To Remove A Federal Tax Lien
The IRS provides four methods for removing or reducing the impact of a federal tax lien: paying the debt in full, requesting a discharge, requesting subordination, and requesting a withdrawal.
Pay The Debt In Full
Paying your tax debt in full is the most direct way to eliminate a federal tax lien. According to the IRS, the agency releases the lien within 30 days after the balance, including penalties and interest, is paid in full. If you cannot pay the entire amount at once, an installment agreement allows you to pay over time, and the lien is released once the final payment is made.
Discharge Of Property
A discharge removes the lien from a specific piece of property, allowing you to sell or transfer it. According to the IRS, a discharge may be granted if the remaining property still subject to the lien is worth at least double the total tax liability plus all other encumbrances, or if the IRS receives payment equal to the government's interest in the property being discharged. This option is commonly used to facilitate real estate sales when the lien amount exceeds the property value.
Subordination
Subordination does not remove the lien but allows other creditors to move ahead of the IRS in priority. According to the IRS, this can make it easier to obtain a mortgage or loan because the lending institution's lien takes priority over the government's claim. The IRS may approve subordination if it determines that doing so will ultimately increase the total amount collected.
Withdrawal
A withdrawal removes the public Notice of Federal Tax Lien from the record, though you remain liable for the underlying debt. According to the IRS, a withdrawal may be granted if the agency filed the notice prematurely or not in accordance with its procedures, if you have entered into a Direct Debit installment agreement, or if the withdrawal would facilitate collection. Under the IRS Fresh Start program, taxpayers who owe $25,000 or less and have a Direct Debit installment agreement may request withdrawal of the NFTL after making three consecutive payments.
Federal Tax Lien vs Levy
A lien and a levy are two different IRS actions, and understanding the distinction is important. According to the IRS, a lien is a legal claim that secures the government's interest in your property. It does not take your property. A levy, by contrast, actually seizes your property to satisfy the tax debt. Levies can target wages, bank accounts, Social Security benefits, vehicles, and real estate.
The IRS typically files a lien first and proceeds to a levy only after sending multiple collection notices and a Final Notice of Intent to Levy. Addressing the lien early through payment, a resolution agreement, or one of the removal options above can prevent the situation from escalating to a levy.
How To Prevent A Federal Tax Lien
The simplest way to prevent a federal tax lien is to file your tax returns on time and pay the full amount owed. If you cannot pay in full, acting before the IRS files a lien gives you the most options. According to the IRS, setting up a payment plan before a lien is filed can prevent the public notice from being recorded. Taxpayers who owe $50,000 or less can apply for a streamlined installment agreement online, and those who qualify for the IRS Fresh Start program benefit from higher thresholds before the IRS will file a lien.
If you already owe the IRS and are unsure which resolution path to pursue, the full range of IRS resolution options includes installment agreements, Offers in Compromise, Currently Not Collectible status, and penalty relief.
Frequently Asked Questions About Federal Tax Liens
How Long Does A Federal Tax Lien Last?
A federal tax lien generally lasts until the underlying tax debt is paid in full or the 10-year Collection Statute Expiration Date (CSED) passes. According to the IRS, the NFTL will self-release 30 days after the 10-year collection period expires if the IRS does not refile it. However, certain actions such as installment agreements, Offers in Compromise, and bankruptcy can suspend or extend the CSED.
Can A Federal Tax Lien Be Filed Without Warning?
The IRS must send you a Notice and Demand for Payment before a lien can arise, and must notify you within five business days after filing the Notice of Federal Tax Lien. According to the IRS, you have the right to request a Collection Due Process (CDP) hearing to challenge the filing.
Does A Federal Tax Lien Show Up On My Credit Report?
The major credit bureaus no longer include tax liens on standard credit reports, but the Notice of Federal Tax Lien remains a public record. Lenders who search public records during the mortgage or loan approval process will still find it, and it can affect your ability to obtain financing.
IRS Innocent Spouse Relief: When You're Not Liable
Innocent spouse relief is an IRS program that can remove your responsibility for paying additional taxes, penalties, and interest when your spouse or former spouse understated the taxes owed on a joint return without your knowledge. According to the IRS, when you file a joint tax return, both spouses are jointly and severally liable for the full tax amount, which means the IRS can collect the entire balance from either spouse, even after a divorce. Innocent spouse relief is an exception to that rule for spouses who did not know about or benefit from the errors on the return.
According to the IRS, innocent spouse relief applies only to taxes due on your spouse's income from employment or self-employment. It does not cover taxes on your own income, household employment taxes, business taxes, or trust fund recovery penalties. The relief is available whether you are still married, separated, or divorced.
The Three Types Of Innocent Spouse Relief
The IRS evaluates three forms of relief when you file a request, and you do not need to specify which type applies to your situation because the IRS will automatically consider all three.
Innocent Spouse Relief
This is the primary form of relief, available when your joint return understated the tax due because of errors attributable to your spouse, and you did not know or have reason to know about those errors. According to the IRS, errors that qualify include unreported income, incorrect deductions or credits, and incorrect asset values. The IRS considers whether a reasonable person in your circumstances would have known about the errors and whether you received any financial benefit from the understated income.
Separation Of Liability Relief
This form of relief divides the understated tax, penalties, and interest between you and your spouse based on each person's share of the errors. According to the IRS, you are generally eligible if you are divorced, legally separated, or have not lived with your spouse for at least 12 months before filing the request. You must also demonstrate that you did not know about the errors when you signed the return.
Equitable Relief
If you do not qualify for innocent spouse relief or separation of liability, the IRS may grant equitable relief if holding you responsible for the tax debt would be unfair given all the facts and circumstances. According to the IRS, equitable relief considers factors including your current marital status, whether you suffered economic hardship, whether you knew or had reason to know about the understated tax, and whether you were a victim of domestic abuse that affected your ability to challenge the return.
Who Qualifies For Innocent Spouse Relief
To be eligible, you must have filed a joint return that understated the tax due because of errors attributable to your spouse, and you must not have known or had reason to know about those errors when you signed the return. According to the IRS, you are not eligible in any year where you signed an Offer in Compromise with the IRS, signed a closing agreement covering the same taxes, or a court has already issued a final decision denying you relief.
Victims of domestic abuse receive a special exception. According to the IRS, you may still qualify for relief even if you had some knowledge of the errors if you signed the return because of spousal abuse, threats, or coercion and were afraid to challenge the items on the return.
The IRS approval rate for innocent spouse relief is relatively low. According to Jackson Hewitt, the IRS received over 26,000 requests in a recent year and fully approved fewer than 5,000. The fact-based, case-by-case nature of the evaluation means that the strength of your documentation and the clarity of your explanation are critical to the outcome.
How To Apply For Innocent Spouse Relief
To request relief, file Form 8857, Request for Innocent Spouse Relief, with the IRS. According to the IRS, Form 8857 covers all three types of relief (innocent spouse, separation of liability, and equitable), so you do not need to determine which type fits your situation. The IRS will evaluate your information and apply the appropriate form of relief if you qualify.
Form 8857 is a seven-page form that requires detailed information about your tax situation, your relationship with your spouse, your knowledge of the return's contents, and your financial circumstances. You should include supporting documentation such as divorce decrees, court orders, financial records, and any correspondence that demonstrates you did not know about the errors. According to the IRS, you must file the request within two years of receiving an IRS notice of an audit or additional taxes due because of an error on your return.
While your request is being reviewed, continue to file your tax returns and pay any taxes you owe. If you received an IRS notice about a balance and cannot pay while the review is pending, you may be able to set up an installment agreement to manage the amount in the meantime.
Innocent Spouse vs Injured Spouse
Innocent spouse relief and injured spouse relief are two separate IRS programs that address different problems. They are frequently confused because of their similar names, but they apply in entirely different situations.
- Innocent spouse relief removes your liability for tax debt caused by your spouse's errors or omissions on a joint return. It addresses the underlying tax, penalties, and interest.
- Injured spouse relief protects your share of a joint tax refund from being applied to your spouse's past-due debts such as student loans, child support, or state taxes. It does not address tax liability at all. You request injured spouse relief by filing Form 8379.
If you owe the IRS because of your spouse's errors, you need innocent spouse relief (Form 8857). If your refund was taken to pay your spouse's separate debts, you need injured spouse relief (Form 8379).
What Happens After You Apply
After you submit Form 8857, the IRS will notify your current or former spouse that you filed a request, which allows them to participate in the review process. According to the IRS, the review can take six months or longer. When the review is complete, the IRS sends a letter of determination with its decision. If approved, the IRS removes your responsibility for the additional tax, penalties, and interest attributable to your spouse's actions.
If the IRS denies your request, both spouses have the right to appeal within 30 days of the determination letter. You can file Form 12509, Statement of Disagreement, and request a review by the IRS Independent Office of Appeals. If you cannot reach agreement through Appeals, you can petition the U.S. Tax Court. Taxpayers exploring other ways to resolve joint tax debt beyond innocent spouse relief can review the full range of IRS resolution options available for balances you cannot pay.
Frequently Asked Questions
Do I Have To Be Divorced To Qualify?
No, you do not have to be divorced to qualify for innocent spouse relief. According to the IRS, the relief is available whether you are married, separated, or divorced. However, separation of liability relief specifically requires that you are divorced, legally separated, or have not lived with your spouse for at least 12 months.
Will My Spouse Be Notified?
Yes, the IRS is required to notify your current or former spouse when you file Form 8857. According to the IRS, the other spouse has the right to participate in the review process and can appeal the decision if relief is granted.
What If I Knew About Some But Not All Of The Errors?
The IRS evaluates each item on the return separately, so you may receive partial relief for items you did not know about while remaining liable for items you were aware of. According to the IRS, the determination depends on whether a reasonable person in your situation would have known about each specific error.
