Filing for Equitable Relief Under IRC §6015(f)
Former or separated spouses who have not been widowed, divorced, legally separated, or living apart for at least twelve months from the spouse they filed a joint return with are ineligible to file a separate liability election. However, under IRC § 6015(F), they may still apply for equitable relief for any deficiency attributable to an erroneous item of the guilty spouse.
A taxpayer may find filing for equitable relief more advantageous than filing form 8857 for traditional innocent spouse relief (IRC § 6015(b)) and separate liability election (IRC § 6015(c)). The latter relief only provides relief from a proposed or assessed deficiency. In the case of equitable relief, relief for understatements is possible.
Relief Granted Under Equitable Relief
Whenever a taxpayer seeks relief under IRC § 6015(f) or equitable relief, the relief comes in the form of being excused from joint and several liabilities for the joint tax due.
In deficiency cases, the IRS will grant relief by determining the percentage of adjustments to income attributable to the guilty spouse and multiplying that percentage by the deficiency to compute the relief. However, in underpayment cases, the IRS may grant various reliefs. First, the innocent spouse can be relieved of all liability for the year requested, even for tax relating to the innocent spouse’s income or items. Second, the IRS can grant relief for the underpayment liability on a pro-rata basis using the percentage of each spouse’s income multiplied by the underpayment.
(f) Equitable relief
(1)In general – Under procedures prescribed by the Secretary, if— (A) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either), and (B) relief is not available to such individual under subsection (b) or (c), the Secretary may relieve such individual of such liability.
(2)Limitation – A request for equitable relief under this subsection may be made with respect to any portion of any liability that— (A) has not been paid, provided that such request is made before the expiration of the applicable period of limitation under section 6502, or (B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment.
26 U.S. Code § 6015(f)
Discretionary Authority to Relieve from Joint Return Liability
The IRS has discretionary authority to grant relief to a spouse or former spouse from a joint return liability when:
- Considering all the facts and circumstances, it is inequitable to hold the innocent spouse liable for any unpaid tax or deficiency in tax.
- Relief is not available to the innocent spouse under the election procedures.
Threshold Requirement of Equitable Relief
The IRS has introduced revised procedures for spouses who want to file for equitable relief from joint and several liability under IRC § 6015. For spouses to be considered for equitable relief, they should meet the following requirements:
- The requesting spouse filed a joint return for the taxable year for which he or she seeks relief.
- Relief is not available to the requesting spouse under either IRC § 6015(b) or § 6015(c).
- The requesting spouse applies for relief no later than two (2) years after the IRS’ first collection activity date after July 22, 1998, concerning him.
- No assets were transferred between the innocent spouse and the guilty spouse as part of their fraudulent scheme.
- The non-requesting spouse did not transfer disqualified assets to the requesting spouse.
- The requesting spouse did not file or fail to file the return with fraudulent intent.
- The income tax liability from which the requesting spouse seeks relief is attributable to the non-requesting spouse unless any of the following exceptions applies:
- An item is attributable or partially attributable to the requesting spouse due only to the operation of community property law.
- The requesting spouse can rebut the presumption that the item in his or her name is presumptively attributable to him or her.
- The requesting spouse does not know or has no reason to know that the non-requesting spouse misappropriated the funds intended for tax payment for his or her (non-requesting spouse) benefit.
- The requesting spouse had established that he or she was the victim of abuse before signing the return. As a result of the prior abuse, he or she did not challenge the treatment of any item on the return for fear of the non-requesting spouse’s retaliation.
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