Innocent Spouse Relief
When a joint tax return is filed, both spouses are jointly and severally liable for any tax due. Joint and several liability means the government can go after assets owned jointly, such as a joint bank account, and it can go after individually owned property, such as a separately owned account, wage income, or inherited property. Additionally, after a tax return is filed jointly, it cannot be amended using a separate filing status. This means that once a joint tax return is filed, both spouses are liable for the full amount of tax due. Further, the amount of back taxes collected need not be equally collected from either spouse. Absent duress or an otherwise invalid tax return, the only way to avoid joint and several liability is to obtain innocent spouse relief under IRC section 6015.
There are three types of innocent spouse relief: traditional relief, apportionment of liability, and equitable relief.
Internal Revenue Code section 6015(b) provides for the traditional form of innocent spouse relief. Such relief requires (1) a joint tax return, (2) an understatement of tax due to an erroneous item of one of the spouses, and (3) lack of knowledge of the erroneous item by the spouse requesting relief at the time he or she signed the tax return. Taking into account all facts and circumstances, it must be inequitable to hold the requesting spouse liable for the tax. If these elements are met, a spouse may obtain relief from the portion of the tax attributable to the erroneous item of the other spouse, so long as relief is requested within two years from the date the government commenced collection action.
Apportionment of Liability
Internal Revenue Code section 6015(b) provides for an apportionment of liability between taxpayers that are either (1) no longer married, (2) legally separated, or (3) not a member of the same household at any time 12 months prior to the election. This relief requires that the spouse electing relief have no actual knowledge of the item giving rise to the deficiency at the time of signing the tax return. If granted, the result of this apportionment is a retroactive division of the tax liability from the taxpayers, as long as such relief is requested within two years from the date the government began collection activities.
Internal Revenue Code section 6015(f) provides for equitable relief. Equitable relief may be granted if, after taking into account all of the facts and circumstances, it would be inequitable to hold the requesting spouse liable for any unpaid tax, and relief is not available under subsections (b) or (c). Unlike the other two avenues for innocent spouse relief, there are no time constraints for requesting equitable relief.
In order for equitable relief to be granted, the following conditions must be met:
- There must be a joint return.
- Relief is not available under subsections (b) or (c).
- The request for relief must be made before the statute of limitations on collection expires.
- No assets were transferred between spouses as part of a fraudulent scheme.
- The non-requesting spouse did not transfer disqualified assets to the requesting spouse.
- The requesting spouse did not knowingly participate in the filing of a fraudulent joint return.
- The income tax liability is attributable to an item of the non-requesting spouse, unless EITHER:
- The attribution is due to the operation of community property law.
- The item is titled to the requesting spouse but is attributable to the non-requesting spouse under a nominal ownership theory.
- The requesting spouse did not know and did not have reason to know, that funds intended for the payment of tax were misappropriated by the non-requesting spouse for the non-requesting spouse’s benefit.
- The requesting spouse establishes that she was the victim of abuse prior to the time the return was signed, which prevented her from questioning the tax return for fear of retaliation.
- The requesting spouse establishes that the non-requesting spouse’s fraud is the reason for the erroneous item.
In addition to these threshold requirements, Rev. Proc. 2013-34 provides for nonexclusive factors to be weighed, including:
- Whether the spouses are still married
- Whether the requesting spouse will suffer economic hardship if relief is not granted
- Whether the requesting spouse knew or should have known of the item giving rise to the deficiency when signing the return
- Whether either spouse has a legal obligation to pay the tax (i.e., a divorce decree)
- Whether the requesting spouse received significant benefit from the unpaid tax
- Whether the requesting spouse made a good faith effort to comply with income tax laws in later tax years
- Whether the requesting spouse was in poor mental or physical health at the time of signing the return or at the time relief is requested
Contact an Experienced Tax Attorney in the Sacramento Area
If you have filed a joint tax return but feel you should not have the same tax liability as your spouse, we encourage you to contact a tax attorney from NewPoint Law Group, LLP. To schedule a free consultation, call 800-358-0305 or contact us online today.