According to the National Taxpayer Advocate, innocent spouse claims have consistently ranked high among the most serious problems taxpayers have faced in the past 10 years. The IRS Restructuring and Reform Act of 1998 expanded innocent spouse relief to include three categories: Section 6015(b) traditional innocent spouse relief, Section 6015(c) allocation of liability, and equitable relief, which serves as a last resort for those who do not qualify for traditional innocent spouse relief or allocation of liability.
Section 6015(f) does not provide specific guidelines by which the IRS determines when innocent spouse equitable relief should be granted. Instead, the section simply states that after taking all the pertinent facts and circumstances into account, the IRS can grant relief in instances in which it would be inequitable to hold the individual liable for all or part of a tax delinquency.
Joint and Several Liability
Couples are jointly liable when they file and sign a joint tax return. However, there are cases in which joint and several liability would be unfair to one of the spouses. This is often the case in situations in which one spouse is engaged in financial crimes while the other spouse is completely unaware of the criminal activity. If the innocent spouse, who is deemed to have been unaware that the crime was taking place, does not qualify for relief under Sections b or c, the IRS may grant equitable relief under section f on the premise that it would simply be unfair to hold the innocent spouse liable for the other spouse’s tax debt and penalties.
Factors the IRS Considers
Although Section 6015(f) may seem vague in terms of providing specific guidelines the IRS will follow in determining whether relief will be granted, the agency does provide a list of factors it will consider. Equitable relief may be granted if 1) a couple is either legally separated or divorced, 2) the requesting spouse will experience economic hardship if relief is not granted, 3) the requesting spouse has knowledge or reason to know about items that give rise to understatement or deficiency in an understatement case or knowledge or reason to know that the spouse could not pay his or her tax liability within a reasonable amount of time after filing the return in an underpayment case, 4)the requesting spouse does not have a legal obligation to pay the debt, such as an order in a divorce decree 5)the requesting spouse did not significantly benefit from the unpaid tax liability or understatement, 6) the requesting spouse has made a good faith effort to remain in compliance with tax laws following the years for which the spouse is requesting relief and 6) the requesting spouse’s mental or physical health is a factor.
Gary M. Kaplan, C.P.A. is qualified to assist you with your questions regarding innocent spouse equitable relief. Call us today, or visit us at our website to learn more about the services we provide.
