Getting Innocent Spouse Relief For Tax Debts
Many married couples file joint tax returns. But when a divorce, death or cover-up of financial realities occurs, one of the more undesirable side effects continued liability for tax issues created by a former spouse. Numerous individuals have been startled to find that the IRS is holding them liable for additional taxes, penalties and interest levied against current or former spouses. But depending on circumstances, there may be very real alternatives to paying for tax issues that weren’t your fault.
If you’re facing a tax issue that should not be your responsibility, contact Daniel Rosefelt & Associates, LLC, Attorney & CPA at (301) 656-4424 or reach out by completing our ten-second consultation form. We serve clients throughout the U.S. and around the world from our offices in Bethesda, Maryland.
Are you being held liable for taxes that weren’t yours?
Although the facts may vary, there are a few common tax disputes that occur between couples. Sometimes a spouse died before you discover their unreported income or “aggressive” tax planning. Sometimes a spouse filed a bankruptcy before you discovered the problem. Sometimes you’re moving on from a divorce when the IRS knocks at your door, asking about back or unfiled taxes your ex-spouse owes. The problem common to all of those circumstances is the fact that the government is trying to garnish your wages or attach liens to your bank account simply because you filed a joint tax return with your spouse.
A fair solution is now available. As a part of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), Congress changed the Internal Revenue Code to make “innocent spouse relief” easier and fairer. Subsequent regulations and cases have broadened the availability of Innocent Spouse Relief. At Daniel Rosefelt & Associates, our tax professionals regularly obtain tax debt relief through the innocent spouse provision. Let us put our knowledge and experience to work for you.
Innocent Spouse Rules
The wisest precaution is that if you believe there is something wrong with your joint tax return, don’t sign it. If your spouse won’t agree to file a correct return, file separately. Although filing a joint return usually results in a lower immediate tax liability, filing an incorrect return can also mean paying a lot more taxes in the future.
If, despite your best efforts, you’ve found that you’re liable for tax debts you didn’t create, the Innocent Spouse rules created by Congress in RRA 98 provide for three types of relief. You may qualify for “general liability relief” — often called 6015(b) relief — an improved and fairer version of previous innocent spouse rules; “allocated liability relief,” also known as 6015(c) relief; or even simple IRS “equitable relief” if you fail to qualify for one of the first two types. However, despite the changes that make spousal relief easier to obtain, it is important to understand that even under these easier, fairer rules, spousal relief is not always allowed.
I. General Liability or 6015(b) Relief
A requesting spouse may elect relief from joint and several liabilities if:
- a joint return was filed
- the return had an understatement of tax attributable to erroneous items of the non-requesting spouse
- the requesting spouse establishes that he or she had no knowledge or reason to know that there was an understatement of tax when they signed the return
- it would be inequitable to hold the requesting spouse liable for the understatement (taking into account all the facts and circumstances)
- the requesting spouse elects 6015(b) relief no later than two years after the date of the first collection activity, after July 22, 1998
Note: Section 6015(b) Relief is available for proposed or assessed deficiencies, but is not available for liabilities that were properly reported on the return but not paid. Relief may be sought for these liabilities under the 6015(c) provisions for equitable relief, subject to IRS approval.
II. Allocated Liability or 6015(c) Relief
A requesting spouse may elect to allocate a deficiency between the spouses if:
- a joint return was filed
- the requesting spouse is no longer married to, is legally separated from, or has not been a member of the same household as the nonrequesting spouse at any time during the 12-month period ending on the date the 6015(c) election was filed
- the application is filed no later than two years after the date of the first collection activity after July 22, 1998
- the deficiency remains unpaid
Note: Allocated liability or 6015(c) Relief will be denied if:
- the IRS establishes that assets were transferred between the requesting spouse and the nonrequesting spouse as part of a fraudulent scheme (and § 6013(d)(3) shall apply to the joint return)
- the IRS demonstrates that the requesting spouse had actual knowledge of an item giving rise to a deficiency at the time the return was signed
- disqualified assets are transferred to the requesting spouse by the nonrequesting spouse, unless the liability exceeds the value of the disqualified assets
6015(c) Relief is available for proposed or assessed deficiencies, but is not available for liabilities that were properly reported on the return but not paid. Relief may be obtained for these unpaid liabilities under the equitable relief provisions if allowed by the IRS.
III. Equitable Relief
If a spouse does not qualify for either 6015(b) Relief or 6015(c) Relief, the IRS is authorized to grant “equitable relief” if it determines that it would be inequitable to hold a requesting spouse liable for any unpaid tax or any deficiency (or any portion of either). The IRS will generally grant equitable relief for unpaid joint return liability if:
- the requesting spouse is no longer married or is legally separated from the nonrequesting spouse, or has not been a member of the same household as the nonrequesting spouse for 12 months
- the requesting spouse had no knowledge or reason to know that the tax would not be paid when the return was signed and establishes that it was reasonable to believe that the nonrequesting spouse would pay the reported liability
- the requesting spouse will suffer economic hardship if relief is not granted
Equitable Relief Factors
The IRS will consider a number of factors before determining whether to grant equitable relief. Some of the factors (positive and negative), include:
Positive factors that influence the granting of equitable relief:
- the requesting spouse is separated or divorced from the nonrequesting spouse
- the requesting spouse would suffer economic hardship if relief from the liability is not granted
- the requesting spouse was abused by the nonrequesting spouse (but the abuse did not amount to duress)
- the requesting spouse did not know and had no reason to know of the item or that the liability would not be paid
- the nonrequesting spouse has a legal obligation pursuant to a divorce decree or agreement to pay the outstanding liability
- liability is solely attributable to the nonrequesting spouse.
Negative factors that influence the granting of equitable relief:
- the liability is attributable to the requesting spouse
- the requesting spouse knew or had reason to know of the item or that the reported liability would be unpaid at the time the return was signed
- the requesting spouse has significantly benefited from the unpaid liability or items giving rise to the deficiency
- the requesting spouse will not experience economic hardship if relief from the liability is not granted
- the requesting spouse has not made a good faith effort to comply with federal income tax laws in the tax years following the tax year(s) in question
- the requesting spouse has a legal obligation pursuant to a divorce decree or agreement to pay the liability
Note: The IRS will not consider granting equitable relief for joint and several liability unless:
- the requesting spouse filed a joint return for the taxable year in question
- no relief is available under 6015(b) or 6015(c)
- relief is applied for no later than two years after the date of the first collection activity after July 22, 1998
- the liability generally remains unpaid
- no assets were transferred between the spouses as part of a fraudulent scheme
- there were no disqualified assets transferred to the requesting spouse by the other spouse
- the requesting spouse did not file the return with fraudulent intent
If you don’t qualify for innocent spouse relief, we may be able to help you reduce your tax liabilities through other means, such as an Offer in Compromise. We have the experience and knowledge to help you solve your problem with a comprehensive solution that fits your unique case.
Call Us About Getting Tax Debt Relief
If you are facing a large tax liability because of your spouse and need help, call the tax professionals of Daniel Rosefelt & Associates, LLC, Attorney & CPA at (301) 656-4424 or reach out by completing our ten-second consultation form. We serve clients from around the world at our office in Bethesda, Maryland.