- Both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the JOINT return even if they later divorce.
- ONE (either / both) spouse may be held responsible for and required to pay ALL the tax due.
- This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns.
- NOTE: innocent spouse relief is NOT necessary for Missouri tax liability because Missouri uses a “combined” return rather than a “joint” return. Each spouse is only liable for their separate Missouri tax (some Department of Revenue (“DOR”) employee’s incorrectly state the liability is joint). But, you must request separation of liability in writing to the DOR. This is because the DOR only records the couple’s total combined liability rather than each spouse’s separate liability, and does not maintain separate liability on its computer. 1/6/07
Spouses are NOT liable for their spouse’s taxes if they do NOT file a joint return, e.g., the tax is for a year for which the couple filed a separate (married or single) return, or a liability was incurred prior to marriage.
While the IRS cannot collect from a non-liable spouse (separate income or property), collection from the liable taxpayer impacts the household, and the IRS can levy on joint property, including the entire balance in a joint bank account, and the liable taxpayer’s interest (share) in a residence.
Innocent spouse relief now falls into 3 categories, each with different requirements:
- Innocent Spouse Relief (§ 6015(b));
- Separation of Liability (§ 6015(c)); and
- Equitable Relief (§ 6015(f)).
A claim can be filed if any of the 3 statutory requirements are met.
Married persons who file separate returns in community property states may also qualify for relief.
Both spouses can request relief
To qualify for innocent spouse relief
You must meet ALL of the following conditions:
- You must have filed a joint return;
- Which has an understatement of tax – tax not reported (see equitable relief below for underpayment – tax reported, but not paid);
- The understatement of tax must be due to erroneous items of your spouse;
- You must establish that at the time you signed the joint return,
- you did not know, and
- had no reason to know, that there was an understatement of tax;
- Considering all of the facts and circumstances it would be unfair to hold you liable for the understatement of tax; and
- You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998 (see Treas. Reg. § 1.6015-5(b)(2)), e.g., when the IRS:
- sends a notice of intent to levy and taxpayer’s right to a collection due process (CDP) hearing,
- offsets a refund from another tax year, or
- files a judicial suit or claim to collect the joint tax liability from specific property belonging to that spouse
Erroneous items are any deductions, credits, or bases incorrectly stated on the return, and any income not reported on the return.
An understatement of tax is generally the difference between the total amount of tax that should have been shown and the amount of tax actually shown on your return. E.g., $2,500 total tax reported and total tax of $3,000 determined due in an IRS audit results in a $500 understatement.
Whether you knew or should have known of an understatement is a “fact question” (different persons reviewing the facts may view the facts differently and come to a different decision).
Under Separation of Liability
You divide (separate) the understatement of tax (plus interest and penalties) on your joint return between the spouses. The understatement of tax allocated to each spouse is generally the amount of income and deductions attributable to their separate earnings and assets.
To qualify for separate liability, you must:
- have filed a joint return and
- meet either of the following requirements at the time you file Form 8857:
- You and the spouse with whom you filed the joint return for which you are requesting relief:
- are no longer married (you are no longer married if you are widowed), or
- are legally separated, or
- You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857
- You and the spouse with whom you filed the joint return for which you are requesting relief:
Living apart does not include a spouse being temporarily absent from the household, i.e., it is reasonable to assume the absent spouse will return to the household, or a substantially equivalent household is maintained in anticipation of such a return. A temporary absence may include absence due to incarceration, illness, business, vacation, military service, or education.
Even if you meet the above requirements, a request for separate liability will not be granted if the IRS proves:
- you and your spouse transferred assets for the main purpose of avoiding payment of tax, or
- at the time you signed your joint return, you had actual knowledge that any items allocable to your spouse giving rise to the deficiency were incorrect.
Equitable relief is only available if you meet ALL of the following conditions:
- You do not qualify for innocent spouse relief or the separation of liability election, and
- The IRS determines that it is unfair to hold you liable for the understatement of tax after considering all the facts and circumstances.
Unlike innocent spouse relief or separation of liability, you can get relief from an understatement of tax or an underpayment of tax if you qualify for equitable relief.
The following factors may be considered, but this list is not all-inclusive:
- Current marital status
- Abuse experienced during the marriage
- Requesting spouse’s reasonable belief at the time they signed the return that:
- the tax was going to be paid; or
- there was no understatement (e.g., whether the requesting spouse had knowledge or reason to know of the understatement)
- Current financial hardship/inability to pay basic living expenses
- Each Spouse’s legal obligation to pay the tax liability pursuant to a divorce decree or agreement to pay the liability
- Spouse to whom the liability is attributable
- Significant benefit received by the requesting spouse
- Mental or physical health of the requesting spouse:
- on the date the requesting spouse signed the return, or
- at the time relief is requested
- Compliance with income tax laws following the taxable year or years that relief is requested for
“Economic hardship” means that you are unable to pay your basic living expenses, e.g. food, clothing, housing, utilities, medical expenses (including health insurance), transportation, child care, child support, etc.
How to request relief
- .Form 8857, Request for Innocent Spouse Relief . One form can cover multiple years.
- Attach Form 12508, Questionnaire for Non-Requesting Spouse.
- You may include a letter and any other information you want the IRS to consider.
The IRS will base their decision upon all the information available to them. If enough information is not available, it could adversely affect a request for relief.
You can request innocent spouse relief during an examination by filing Form 8857 with the employee assigned to examine your return.
If relief is denied under 1 of the other 2 provisions the IRS automatically considers whether any of the other provisions apply and you do not need to reapply. The only time you can reapply for relief is if you were denied relief because you were considered still married at the time the request for relief was filed and you now satisfy the marital status requirements.
All collection activity is suspended on receipt of a request for relief unless the liability is in jeopardy or the statute of limitation on collection will expire shortly.
The non-requesting spouse has the right to appeal the preliminary determination to grant partial or full relief to the requesting spouse when the preliminary determination letter is issued April 1, 2003 or later (Rev. Proc. 2003-19). By law, if relief is denied in part or in full, and the requesting spouse petitions the U.S. Tax Court the non-requesting spouse will be given the opportunity to become a party in that proceeding. The non-requesting spouse may not petition the Tax Court from the final determination letter.
The Tax Court held it did not have jurisdiction to decide the appeal of denial of innocent spouse relief in the case of a “non-deficiency stand-alone” petition – “non-deficiency” because the IRS accepted his amended return as filed and asserted no deficiency against him, and “stand-alone” because his claim for innocent spouse relief was made under § 6015 and not as part of a deficiency action or in response to an IRS decision to begin collecting his tax debt through liens or levies. Billings v. Commissioner, Dkt. No. 6148-03, 127 TC –, No. 2, July 25, 2006, CCH Dec. 56,572. 8/3/06
Tax Court in Ewing v. CIR, 122 T.C. No. 2, 122 T.C. 32, Tax Ct. Rep. (CCH) 55,519, Tax Ct. Rep. Dec. (RIA) 122.2, held that the Court would consider evidence introduced at trial which was not included in administrative record, and taxpayer was entitled to equitable innocent spouse relief. The Tax Court in S.L. Porter,130 T.C. No. 10, 2008 WL 2065189 (U.S. Tax Ct.) affirmed Ewing, and held that taxpayers seeking judicial review of an IRS denial of equitable spouse relief under Code Sec. 6015(f) may present evidence at trial not included in the administrative record. 5/21/08
The non-requesting spouse had no appeal rights when the preliminary determination letter granted relief in part or in full to the requesting spouse for claims where a preliminary determination was issued PRIOR to April 1, 2003. By law, if relief was denied and the requesting spouse petitioned the U.S. Tax Court the non-requesting spouse was given the opportunity to be a party in that proceeding.
The IRS is required to notify the non-requesting spouse to allow them to participate. They will also be notified of the determination on your election and have the opportunity to appeal IRS’s preliminary determination to grant you full or partial relief.
Things that prevent granting relief
The IRS cannot consider your claim for any year in which an Offer in Compromise was accepted. Acceptance of an Offer in Compromise conclusively closes the tax year(s) compromised from any re-determination of the tax liability. (see Johnson and Dutton.)
Closing Agreements. If you signed Form 866, Agreement as to Final Determination of the Tax Liability, the tax year is closed and you cannot apply for innocent spouse relief. If you signed Form 906, Closing Agreement on Final Determination Covering Specific Matters, only those matters covered in the closing agreement are conclusively closed and Innocent spouse relief may be requested for matters NOT covered. If the closing agreement involved TEFRA issues refer to Treas. Reg. 1.6015-1(c) for exceptions to this rule.
Agreeing to audit result
Agreeing to the additional liability determined in an audit does NOT bar innocent spouse relief.
Whether the IRS will refund amounts already collected
IRS refunds of amounts paid depends on the provision under which relief is granted:
- innocent spouse relief, refunds are allowable for amounts paid on or after July 22, 1998;
- separation of liability, no refunds are allowable;
- equitable relief, the requesting spouse must establish they provided the funds used to make the payment for which a refund is sought.
- Understatements – Refunds are allowed for installment agreement (if not defaulted) payments made after the request for relief is filed.
- Underpayments – Refunds are allowed for payments made after July 22, 1998 unless:
- the payments were made jointly with the non-requesting spouse,
- payments were made with the return or
- payments were made by the non-requesting spouse.
All refunds are subject to Internal Revenue Code § 6511, limiting refunds to payments made within 2 years after the tax was paid or 3 years after the return was filed, whichever is later.
You can apply for relief if you have an installment agreement in effect, BUT, failure to continue making payments while the IRS considers the request for relief defaults the installment agreement, and full payment will be due immediately IF the request for relief is denied.
Injured spouse relief is different from innocent spouse relief. When a joint return is filed and the refund is used to pay one spouse’s past-due child and/or spousal support, a past-due federal debt, or past-due state income tax, the other spouse may be considered an injured spouse. The injured spouse can claim his/her share of the refund using Form 8379, Injured Spouse Claim and Allocation.
If your spouse forged your signature to a joint return, relief does not fall under the innocent spouse rules. If you can establish your signature was forged, and there was not tacit (implied) consent, the joint election is invalid and you will only be liable for your separate tax liability.
Innocent spouse relief is in no way meant to transfer the claim to an accountant due to an error on the accountant’s part. If the income was yours (rather than your spouse’s), or was your spouse’s but you knew about it, you will probably not be relieved of liability.
Signing an examination report that lists omissions of income, does NOT indicate there was knowledge of items giving rise to the deficiency for relief. The innocent spouse provisions clearly state the knowledge has to do with what was known at the time the return was signed.
New IRS Procedure Expands Relief for Innocent Spouses in Abuse Cases 4/28/14
New Rev. Proc. 2013-34, 2013-43 IRB 397, gives greater deference to abuse than Rev. Proc. 2003-61, and recognizes abuse can be relevant to analyzing other factors, and can negate the presence of certain factors.
Actual knowledge of the item giving rise to an understatement or deficiency will no longer be weighed more heavily than other factors.
If the nonrequesting spouse:
- abused the requesting spouse or
- maintained control over household finances by restricting the requesting spouse’s access to financial information,
and because of the abuse or financial control, the requesting spouse was not able to challenge the treatment of any items on the joint return for fear of the nonrequesting spouse’s retaliation, then that abuse or financial control will result in this factor weighing in favor of relief even if the requesting spouse knew or had reason to know of the items giving rise to the understatement or deficiency.
Expectation tax on return will be paid
A requesting spouse may be presumed to have reasonably expected that the nonrequesting spouse would pay the liability if a request for an installment agreement to pay the tax was filed by the later of 90 days after the due date for payment of the tax, or 90 days after the return was filed.
if the nonrequesting spouse:
- abused the requesting spouse or
- maintained control over the household finances by restricting the requesting spouse’s access to financial information,
and because of the abuse or financial control:
- the requesting spouse was not able to question the payment of the taxes reported as due on the return or
- challenge the nonrequesting spouse’s assurance regarding payment of the taxes for fear of the nonrequesting spouse’s retaliation,
then that abuse or financial control will result in this factor weighing in favor of relief even if the requesting spouse knew or had reason to know that the nonrequesting spouse would not pay the tax liability.
Any significant benefit a requesting spouse may have received from the unpaid tax or understatement will not weigh against relief (will be neutral) if the nonrequesting spouse:
- abused the requesting spouse or
- maintained financial control and made the decisions regarding living a more lavish lifestyle,
This factor will weigh in favor of relief if only the nonrequesting spouse significantly benefitted from the unpaid tax or understatement, and the requesting spouse:
- had little or no benefit, or
- the nonrequesting spouse enjoyed the benefit to the requesting spouse’s detriment,
This factor is neutral if the amount of unpaid tax or understatement of tax was small such that neither spouse received a significant benefit.
Requesting spouse’s own items
Although a spouse usually cannot ask for relief from the mishandling of one of that spouse’s own tax items, the innocent spouse still may be granted relief if the other spouse controlled the household finances.
A requesting spouse’s subsequent compliance with all Federal income tax laws is a factor that may weigh in favor of relief, instead of always being neutral.
This revenue procedure eliminates the rule that limited refunds in cases involving deficiencies to payments made by the requesting spouse pursuant to an installment agreement.
Two-Year Limit No Longer Applies to Many Innocent Spouse Requests IR-2011-80, July 25, 2011 7/26/11
The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency. By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.
A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired.
Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.
See information on prior controversy on IRS regulations requiring application for relief within two years: lower and Appellate courts continue to inconsistently decide the validity of IRS regulation requiring that a spouse must request equitable relief under Code Sec. 6015(f) no later than two years from the first collection activity against the spouse. Lanz and similar cases.