Innocent Spouse Relief

Three opportunities for innocent spouse relief exist under I.R.C. § 6015, including: (i) innocent spouse relief; (ii) separation of liability relief; and (iii) equitable relief. This article addresses each category of relief.

Relief from Joint and Several Liability

The reason that the IRS may hold you liable for a joint tax liability is because of “joint and several liability.” By filing your tax return jointly with your spouse, you are both considered jointly and severally liable for the tax liability. What that means is that you are both responsible for all the tax due on the return even if you did not earn any of the family income.

Under federal law, you are jointly and severally liable even if you have a divorce decree that states your spouse is responsible for taxes due on previously filed returns. A divorce decree may create a state law right of contribution against the other spouse. The problem with this remedy is that it may be inadequate after taking into consideration litigation costs and the difficulty in collecting from your ex-spouse.

It does not seem fair to hold you responsible under these circumstances. The IRS agrees, and under the right circumstances, you can be relieved of the tax, interest, and penalties on a joint tax return if you qualify for innocent spouse relief.

Who Qualifies for Innocent Spouse Relief?

To qualify for innocent spouse relief, you must meet certain qualifying criteria. The criteria for relief are established under I.R.C. § 6015 (b), (c), or (f).

• Section 6015(b) Innocent Spouse Relief: Provides relief from additional tax you owe if you can prove that you did not know, or could not have known, that your spouse or former spouse failed to report income, reported income improperly, or claimed improper deductions or credits. It must be inequitable to hold you liable for the tax liability. The issue of whether or not you had “knowledge” is often a difficult burden to overcome because you do not have to be divorced or separated to obtain relief under § 6015(b).

• Section 6015(c) Separation of Liability Relief: You must prove that you were divorced, widowed, legally separated, or not living with your spouse for at least 12 months prior to requesting relief under § 6015(c). The tax liability must be based on a deficiency or understatement, but not underpayment. You cannot have had actual knowledge of the deficiency items, and you cannot have transferred assets as part of a fraudulent scheme.

• Section 6015(f) Equitable Relief: If you do not qualify under § 6015(b) or § 6015(c), the IRS will consider granting § 6015(f) equitable relief for a deficiency or underpayment on a joint return. The deficiency or underpayment must generally be attributable to your spouse. The tax laws contain a list of additional § 6015(f) requirements called “Tier 1” factors that will ordinarily be sufficient to grant relief. If you do not meet all the Tier 1 factors, the IRS will consider the equitable relief items called “Tier 2” factors.

Timing to File for Innocent Spouse Relief

An election under § 6015(b) must be made no later than two year after the date on which the IRS begins “collection activity” with respect to the requesting spouse. I.R.C. § 6015(b)(1)(E). Under § 6015(c), a request for relief may not be made earlier than the time in which a deficiency for the year is asserted, but no later than two years after the date on which collection activity begins with respect to the requesting spouse. I.R.C. § 6015(c)(3)(B). Section 6015(f) actually sets forth no time limits. But, the IRS generally uses the two-year requesting window. See Rev. Proc. 2003-61. On July 25, 2011, the IRS expanded the time to request § 6015(f) equitable relief.

Practice Pointer: While the latest a spouse can request relief is generally two years after the date collection activity begins, the election is normally made much earlier when the requesting spouse receives the 30-day letter or a collection notice.