When the innocent spouse relief from IRS collection is available
Spouses filing jointly may unknowingly become liable for their spouse’s tax liability. Nonetheless, even if a spouse knew of the tax underpayment, inequitable situations potentially allow for relief from tax debt. Multiple options exist for taxpayers finding themselves with tax debt resulting from a joint filing.
Types of Filers Eligible for Relief:
• All Joint Filers
• Divorced, Widowed, or Separated Taxpayer who previously filed a Joint Return
Relief for All Joint Filers:
Under §6015(b), the IRS provides relief to all joint filers who incurred a tax debt that resulted from their joint filing. This includes joint filers who are still married. A requesting spouse may successfully be relieved of their liability if the following circumstances occur:
(1) A Joint Return filed for a Taxable Year;
(2) On such Return, an Understatement of Tax is Attributable to Erroneous Items of only one of the Joint Filers;
(3) The Other Individual Establishes that they did not Know of the Understatement at the Time they Signed the Joint Return ;
(4) Weighing All the Facts & Circumstances, it is Inequitable to hold the to Hold the Other Party Liable for Deficiency in Tax in the Taxable Year of the Attributable Understatement; and
(5) An Innocent Spouse claim is submitted within Two Years of the IRS Initiating Collection Activities with Respect to the Individual making the Claim.
Relief for Divorced, Widowed or Separated previously filing a Joint Return:
Under §6015(c) & (d), the IRS provides relief to previous joint filers who are now divorced, widowed, or separated. Relief under §6015(c) & (d) is easier to obtain than the relief discussed in §6015(b). By electing §6015(c) & (d), the taxpayer determines their tax liability as if they filed a separate return. Therefore, items giving rise to a tax deficiency will be allocated to the proper spouse. A taxpayer using such relief can eliminate their tax debt partially, or even completely, if the item attributable to the understatement can be allocated to their former spouse. To qualify for consideration, a taxpayer must submit an Innocent Spouse claim within two years of the IRS initiating collection activities with respect to the individual making the claim.
Relief for those failing to qualify under §6015(b), (c) & (d)
When a taxpayer fails to qualify for relief under any of the above relief, §6015(f) provides relief if in consideration of all facts & circumstances, it would be “inequitable” to hold the taxpayer liable for their deficiency. Rev. Proc. 2003-61 assists in making the determination of inequity. Furthermore, IRS Notice 2012-8 proposes that §6015(f) will expand the statute of limitation as to making a claim. This notice provides a claim may be submitted anytime within the allowable 10-year collection period. It essentially provides no expiration to claim §6015(f) relief. However, if the claim results in a refund to the taxpayer, the taxpayer must submit a §6015(f) claim within a period of three years from the time the return was filed or two years, from the time the tax was paid, whichever is later, to qualify for the refund amount.
US Tax Court
A taxpayer submits an Innocent Spouse relief request directly to the IRS. However, a taxpayer may petition the US Tax Court for relief within the earlier of: (1) The receipt of an IRS Final Determination of request for relief under §6015(b), (c), (d), or (f), or; (2) Any time after six months from the date the Innocent Spouse claim is made If taxpayer receives the IRS Final Determination relating to their Innocent Spouse claim, they must file a petition with the US Tax Court within 90 days of the receipt of that letter. Failure to do so will result in forfeiture of the taxpayer’s right petition the US Tax Court regarding the IRS Final Determination.