As we covered in previous blogs, while Married Filing Joint filing status (MFJ) is popular for married taxpayers because it often results in a lower tax liability, another consequence of filing MFJ, is that each spouse is jointly and severally liable for the taxes due on a joint return, regardless of who earned the income, and the IRS can collect from both spouses. In some situations, this can result in an inequitable tax liability for a “Innocent Spouse”.
In these circumstances, the “Innocent Spouse” taxpayer may qualify for Innocent Spouse Relief for all or a part of the tax liability. We often help taxpayers who come to our Richardson TX Tax office with this problem.
IRC 6015 Creates 3 types of innocent spouse relief:
- 6015(b) – Innocent Spouse Relief
- 6015(c) – Separation of Liability
- 6015(f) – Equitable Relief
Today we will cover Innocent Spouse Relief under IRC Section 6015(f) – Equitable Relief
The Qualifications under IRC 6015(f) Equitable Relief include the following:
- Revenue Procedure 2013-34 lays out the IRS approach to evaluating claims for equitable relief.
- Takes into account all facts and circumstances.
- Like 6015(b) and 6015(c), 6015(f) covers understatement of the liability.
- Unlike 6015(b) and 6015(c), for underpayments you must use 6015(f) - equitable relief. For example, let's say that one spouse claims estimated payments on a tax return that were not made, creating an additional tax liability due to underpayment. In this case, the tax liability was correct, but the payments were not, and only 6015(f) is available for relief.
What is the impact of 6015(f) relief?
- The liability is apportioned similar to 6015(b) The total tax liability is split by the percentage of total income contributed by each taxpayer. For example, Mr. Smith earned $100,000 and Mrs. Smith, the “Innocent Spouse” earned $20,000 and the total tax liability was $30,000. In this case, Mrs. Smith is responsible for 1/6 of the total tax or $5,000.
- Refunds are available.
Factors that the IRS will consider for equitable relief include:
- Collectability – Form 8857 includes providing financial information. Will the IRS be able to collect from the Innocent Spouse?
- CNC (Currently Not Collectable) is good as an indicator but is not necessary.
- The specific facts and circumstances of the case are considered under Equitable Relief Qualification.
- Marital Status – Are they still married?
- Economic Hardship
- Did the requesting spouse have knowledge or reason to know?
- Non-requesting spouse’s legal obligation. An example is if a spouse has agreed to be responsible under the divorce decree. IRS does not have to follow but is a factor.
- Did the requesting spouse have significant benefit?
- Is the requesting spouse in compliance with income tax laws.
- Was there abuse in the relationship?
- The Physical/Mental Health of the requesting spouse.
- Is there Financial Dominance?
How to File for Innocent Spouse Relief?
A taxpayer will use Form 8857 (Request for Innocent Spouse Relief) to file for relief. To request relief under IRC Sections 6015(b) or (c), it must be filed within two within two years after the IRS begins collection activities. Under 6015(f), you have 10 years from the date the tax liability was assessed to request relief for a balance due. For a refund, you must file within 3 years after the date the original return was filed or 2 years after the tax was paid, whichever is later.
Do You Need Help?
Do you believe that you may qualify for Innocent Spouse Relief or have an IRS Collection issue that you need help with? If so, we’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates.