Innocent Spouse – Equitable Relief

Under the Innocent Spouse/Equitable Relief program the IRS can discharge an individual of liability if it would be unfair to hold the individual liable for any unpaid tax or any deficiency.

Eligibility

The IRS may release a requesting spouse of all or part of the income tax liability under IRC § 66(c) or IRC § 6015(f) if the IRS concludes it would be inequitable to hold the requesting spouse liable for the liability and if the requesting spouse meets the following applicable threshold conditions:

  • A joint return was filed by the requesting spouse for the taxable year(s) on which they seek relief.
  • Relief is not available to the requesting spouse under IRC § 6015(b) or (c).
  • The claim for relief is timely filed.
  • The spouses did not transfer assets between themselves as part of a fraudulent scheme.
  • The non-requesting spouse did not transfer disqualified assets, e.g., assets transferred solely for the purpose of avoiding payment or assessment of tax, to the requesting spouse.
  • The requesting spouse did not knowingly join in the filing of a fraudulent joint return.
  • The income tax liability from which relief is being requested is either fully or partly attributed to the non-requesting spouse or an underpayment ensuing from the non-requesting spouse's income. The IRS will consider granting relief even if the understatement, deficiency, or underpayment is partially or fully attributable to the requesting spouse, if any of the following apply:

o If an income item is attributed, whether fully or partially, to the requesting spouse based solely on community property law, it will be deemed attributable to the non-requesting spouse.

o If the requesting spouse is deemed to have only nominal ownership of an income item(s).

o If the requesting spouse was not aware, and did not have reason to be aware, moneys intended for payment of tax were instead used by the non-requesting spouse for the non-requesting spouse's benefit.

o If the requesting spouse proves they were victims of abuse by the non-requesting spouse during relevant periods and were fearful of retaliation if they questioned the non-requesting spouse about the preparation of returns and/or payment of tax.

o If the requesting spouse proves an erroneous item on a return(s) was the result of fraud by the non-requesting spouse.

Streamlined Equitable Relief

The IRS will streamline determinations granting equitable relief under IRC § 66(c) or IRC § 6015(f) in situations where the requesting spouse proves they:

  • Are no longer married to the non-requesting spouse. For purposes of equitable relief, the IRS will consider the requesting spouse no longer married if the requesting spouse is:
    • divorced from the non-requesting spouse.
    • legally separated from the non-requesting spouse under relevant state laws.
    • widowed and is not heir to the non-requesting spouse's estate that has ample assets to pay the tax liability.
    • excluding temporary absences of the non-requesting spouse, such as incarceration, military service, education, business, et cetera, the requesting spouse has not shared the same household/residence as the non-requesting spouse during a 12-month period ending on the date the IRS makes its determination. 
  • will suffer economic adversity, e.g., the requesting spouse will not be able to pay reasonable basic living expenses, if relief is not granted
  • were not aware, or did not have reason to be aware:
    • I.R.C. § 6015(f) cases: 
      • the joint income tax return was deficient or understated, or
      • the non-requesting spouse did not intent to pay or did not have the means to pay the tax reported on the joint income tax return.
    • in cases where the requesting spouse was aware or had reason to be aware, but suffered abuse by the non-requesting spouse or the non-requesting spouse maintained control over the household finances, then the abuse or financial control will result in this factor being satisfied
    • I.R.C. § 66(c) cases 
      • Was not aware or did not have reason to be aware that an item of community income includible in gross income would be treated as the income of the non-requesting spouse.

If a requesting spouse does not meet the requirements of a streamlined determination, the requesting spouse may still request considered for relief under the equitable factors set forth below.

Factors for granting of equitable relief

The following is a very limited list of the factors considered by the IRS when determining whether to grant equitable relief under § 6015(f) or § 66(c):

  • Marital status

Is the requesting spouse no longer married to the non-requesting spouse?

  • Hardship

Will the requesting spouse suffer economic hardship if not granted relief?

  • Knowledge

Did the requesting spouse know the joint income tax return was deficient or that payment of the tax would not be made?

  • Reason to know

Did the requesting spouse have reason to know the joint income tax return was deficient or that payment of the tax would not be made?

  • Abuse by the non-requesting spouse

Did the requesting spouse suffer abuse by the non-requesting spouse?

  • Legal Obligation

Was the requesting spouse or the non-requesting spouse court-ordered to pay the federal income tax liability?

  • Significant Benefit

Did the requesting spouse significantly benefit from the unpaid income tax liability or understatement?

  • Compliance with income tax laws

Has the requesting spouse made a good faith effort to comply with the income tax laws since the year(s) relevant to the equitable relief request?

  • Mental or physical health

Was the requesting spouse in poor physical or mental health?

The Tax Court has authority to review IRS denials of equitable innocent spouse relief in cases where the IRS has issued a deficiency notice.

Tenancy by Entirety

Tenancy by the entirety is similar to joint tenancy except it can only occur between husband and wife. Through tenancy by the entirety, each spouse owns 100 percent of the property; therefore, state courts have held that a creditor cannot take a portion of the property to satisfy the debt of one spouse without harming the interest of the innocent spouse. The Supreme Court has held that immune status under state law, such as tenancy by the entirety, does not protect property from an IRS tax lien.

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