Relief from Joint and Several Liability § 6015
Married taxpayers who file jointly are jointly and severally liable for any tax, interest and penalties due as shown on the return. § 6013(d)(3). This is true even if the taxpayers later divorce, or if the other spouse earned all the income. Relief from joint and several liability may be available under IRC § 6015. The Innocent Spouse provisions should not be confused with an Injured Spouse claim (discussed below) filed using Form 8379 to receive an allocation of an overpayment.
In 1998, Congress amended prior law and provided three forms of relief from joint and several liability. Before the amendment, more limited relief was available. § 6015:
Guidance on the administrative appeals rights for the non-requesting spouse is contained in Rev. Proc. 2003-19.
To receive "innocent spouse relief" the taxpayer must:
If it is established that the taxpayer signed a joint return under duress, then a joint return has not been filed.
Understatement of Tax: An understatement of tax is generally the difference between the total tax liability that should have been shown on the return and the amount that was actually shown on the return. § 6662(d)(2)(A). It is to be compared with underpayment.
Underpayment of tax: An underpayment of tax is an amount of tax the taxpayer properly reported on the return but has not paid. For example, a joint 2000 return shows that the taxpayer and his spouse owe $5,000. They paid $2,000 with the return. They have an have an underpayment of $3,000.
A taxpayer may qualify for partial relief if, under § 6015(b), at the time she filed her return, she knew or had reason to know, that there was an understatement of tax due to her spouse's erroneous items, but she did not know how large the understatement was. She will be relieved of the understatement to the extent she did not know about it and had no reason to know about it.
Erroneous items are either of the following:
The following are examples of erroneous items:
Knowledge or reason to know: Regulation § 1.6015-2(c) states that a requesting spouse has knowledge or reason to know of an understatement if he or she actually knew of the understatement, or if a reasonable person in similar circumstances would have known of the understatement. Facts and circumstances considered in determining whether a requesting spouse had reason to know of an understatement include, but are not limited to:
Indications of unfairness: The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold the taxpayer responsible for the understatement. Two indicators the IRS may use in deciding that it is unfair to hold the taxpayer responsible are whether she:
Under this type of relief, there is an allocation of the understatement of tax (plus interest and penalties) on the joint return between the taxpayer and the spouse (or former spouse). The understatement of tax allocated to the taxpayer is generally the amount he or she is responsible for. Taxpayers may request this type of relief in addition to innocent spouse relief.
Requirements: To request relief by separation of liability, a taxpayer must have filed a joint return and must meet one of the following requirements at the time he or she files Form 8857:
Invalid requests: Even if the taxpayer meets the requirements above, a request for separation of liability will not be granted in the following situations:
1. Fraudulent transfers. The IRS proves that the taxpayer and her spouse transferred assets to third parties as part of a fraudulent scheme.
2. Actual knowledge. The IRS proves that at the time the taxpayer signed the joint return, she had actual knowledge of any items giving rise to the deficiency that were allocable to the spouse.
3. The spouse (or former spouse) transferred property to the taxpayer to avoid tax or the
payment of tax.
If it is established that the taxpayer signed the joint return under duress, then it is not a joint return, and the taxpayer is not liable for amounts from that return. However, the taxpayer may be required to file a separate return for that tax year.
Unlike innocent spouse relief or separation of liability, the taxpayer can get equitable relief from both an understatement of tax (defined earlier under Innocent Spouse Relief) or an underpayment of tax.
A taxpayer may be able to receive a refund of:
Indications of "unfairness" for equitable relief:
The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold the taxpayer responsible for the understatement or underpayment of tax. The IRS will consider all factors and weigh them appropriately. There are positive and negative factors.
To request for Innocent Spouse Relief, Separation of Liability, or Equitable Relief, the IRS requires taxpayer to complete and file IRS Form 8857. The taxpayer only needs to file one Form 8857, even if she is requesting relief for more than one tax year. The taxpayer must attach a statement to Form 8857 explaining why she believes she qualifies for relief and attach thereto supporting exhibits. She must also provide certain information for each type of relief she is requesting. The instructions for Form 8857 offers more information pertaining to the required information.
The IRS is required to inform the spouse (or former spouse) if taxpayer requests innocent spouse relief or separation of liability and to allow the spouse (or former spouse) to participate in the determination of the amount of relief from liability. You should inform your client that the IRS will attempt to contact his or her former spouse and advise him or her of the request for relief. To protect victims of domestic abuse, the IRS has adopted several measures. You should consult the IRS web site in this situationand write on the top of Form 8857 "Potential Domestic Abuse Case."
Tax Court Review of Request
Within 90 days after the taxpayer is mailed a negative final determination notice indicating that the relief requested has been denied, she may ask the U.S. Tax Court to review the denial. This is a statutory period of time that may not be extended. If taxpayer does not file a petition, or files it late, the Tax Court cannot review the request for relief.
An appeal of an IRS denial of spousal relief may be conducted under the small tax case procedures only if the amount of relief sought, including accrued but unassessed interest and penalties, does not exceed $50,000 on the date the petition is filed. Otherwise, the petition for review of the IRS' denial of relief must be filed under the regular procedure.
A taxpayer may also file a petition in U.S. Tax Court if she has not received a final determination notice from the IRS within 6 months from the date he or she filed Form 8857.
Refunds of tax are limited if innocent spouse relief under § 6015 is granted, as follows:
When Request May be Filed:
A request for relief under § 6015(b) and (c) but not (f) must be filed no later than 2 years from when first collection activity begins after 7/22/98. § 6015(b)(1)(E), (c)(3)(B);
Reg.§ 6015-5(b) currently provides that the 2 year limit on relief applies to relief requested under § 6015(f); however, the Notice 2011-70, 2011-32 I.R.B. (see link below) revokes so much of the above regulation as limits § 6015(f) claims to a 2 year period. The Commissioner in Issue Number: IR-2011-80 (see link below) made this Notice effective immediately and retroactively.
Previously, the IRS was successful at the Circuit Court level in sustaining the the 2 year limitation period under Reg § 1.6015-5(b)(1). Lantz v. Commissioner 607 F.3d 479 (7th Cir.. 2010.§ 1.6015-5(b)(1)§ 1.6015-5(b)(1)Mannella v. Commissioner, 631 F.3d 115 (3d Cir. 2011); Jones v. Commissioner, 642 F.3d 459 (4th Cir. 2011). (#3 2010 TNT 110-3, June 8, 2010(#3 2010 TNT 110-3, June 8, 2010Notice 2011-70 (see link below) will be incorporated in a revision to the regulation in the future. The Notice provides :
Likewise, the Chief Counsel has issued Notice CC-2011-017 (linked below) providing instructions to Chief Counsel Attorneys and specifically superseding CC Notices CC_2009-012 (April 17, 2009) CC-2010-005( March 12, 2010), and CC-2010-011 (June 18, 2010).
Collection activity, for this purpose, begins when the requesting spouse receives:
An "Injured Spouse" should not be confused with an "Innocent Spouse". A taxpayer who has filed a joint return with her spouse and all or part of her share of an overpayment was applied against her spouse's past-due Federal tax liability, child or spousal support, Federal nontax debt or state income tax may file a claim as an injured spouse to request a refund of the amount of offset. For example, if a spouse is in arrears on his child support, it is possible that any refund generated by the filing of a joint tax return, may be withheld by the IRS and applied toward the arrearage.
A spouse who has income and withholdings or estimated tax payments and who files a joint return with an individual who owes past-due child support must file a request for a refund of his or her allocation of the joint return refund (Form 8379, Injured Spouse Claim and Allocation).
Revenue Procedure 2003-61 - Links to IRS Bulletin 2003-32 which contains the new rules for applying for innocent spouse relief under Code Section 6015(f). You will need to scroll down to page 296 (p.13 of 65).
Chief Counsel Advice - Grant of Innocent Spouse Relief Does Not 'Abate' Tax Liability
Chief Counsel Advice - Advises attorneys on handling of Tax Court cases in light of Lanz.
Change in Litigating Position on the Two-Year Deadline to Request Section 6015(f) Equitable Relief - CC-2011-17
Two-Year Limit No Longer Applies to Many Innocent Spouse Requests - IR-2011-80
Equitable Relief under Section 6015(f) - August 8, 2011 - Notice 2011-70
|IRC §66(c)||Treatment of community income: Spouse relieved of liability in certain other cases|
|IRC §6013||Old section of code relating to Innocent Spouse relief|
|IRC §6015||Relief from joint and several liability on joint return|
|Form 8857||Request for Innocent Spouse Relief|
|IRS Publication 971||Innocent Spouse Relief|
|Form 12509||Statement of Disagreement|
|Innocent Spouse||On-line Self Help Tool (Start)|