Request for Innocent Spouse Relief

The 1998 IRS Act made it simpler to get innocent spouse status. It provides three categories of relief.

When spouses file taxes together, they are both responsible for the owed taxes. This relief is crucial for the innocent spouse in overcoming joint and several liability for the return and any additional tax. Here’s an overview of what qualifies for innocent spouse relief.

The three types of relief and requirements to qualify are:

6015(b) – Innocent Spouse

The spouse filed a joint return in the year they are requesting relief for.
There is an understatement of tax because of the erroneous item of your spouse.
You signed the joint return without knowledge of the thing that caused the understatement. There was no reason for you to know about it.
Based on the facts and circumstances, it would be unfair to hold the spouse for the tax error.
Must elect within 2 years of the beginning of the collection action.

Items are considered erroneous when one or both of the following is met:

Unreported income – This is any gross income item received by your spouse that is not reported.
Incorrect deduction, credit, or basis – This is any improper deduction, credit, or property basis claimed by your spouse.

6015(c) – Separation of Liability

Filed a joint return in the year which relief is requested.
There is an understatement of tax because of the erroneous item of your spouse.
You signed the joint return without knowledge of the thing that caused the understatement. There was no reason for you to know about it.
Before submitting the request, the partner is either divorced, widowed, legally separated, or live separately for a period of 12 months. Living apart for 12 months before filing a request does not include a spouse who is temporarily away from home.
Requesting spouse may elect to allocate a deficiency.
Must elect within 2 years of the beginning of the collection action.

6015(f) – Equitable Relief

Relief under 6015(b) or 6015(c) is not available.
You must use this relief for underpayments.
It is not equitable to hold an individual liable for any unpaid tax liability.

Under the latest Revenue Procedure 2013-34, the following general threshold conditions must be met to qualify for relief:

The requesting spouse had filed a joint tax return for the year in which the taxpayer is seeking relief.
Relief under 6015(b) or 6015(c) is not available.
You must file the election for relief before the collections statute expires. This occurs 10 years from the time of tax assessment.
There was no transfer of assets between the spouses in a fraudulent scheme to shield assets.
The non-requesting spouse did not shift assets to the requesting spouse for the sole purpose of avoiding taxes.
The spouse who made the request did not consciously participate in submitting the deceitful joint returns.
The tax debt is the result of non-requesting spouse reporting an erroneous item or underpayment because of wrong income.

Streamlined determination resulting in granting relief is made when the above requirements are met in addition to all the following:

Marital status where the requesting spouse is no longer married to the non-requesting spouse.
If they do not grant relief, economic hardship will result.
The requesting spouse had no knowledge or reason for knowing about the error. They were also unaware that the other spouse was unable or unwilling to pay the outstanding tax debt.

If the streamlined determination conditions are not met, then the following factors will weigh in the decision to grant or not grant equitable relief to those taxpayers who meet the general threshold conditions.

Marital status – not married is a plus for relief.
Economic hardship – if economic hardship will not occur, it is neutral and does not weigh against relief.
Knowledge or reason to know – If the spouse making the request was aware or should have been aware of issues related to the tax obligation, this element will count against the possibility of relief.
Legal obligation – if requesting spouse has sole legal obligation to pay tax liability, this factor will weigh against relief.
Significant benefit – if the requesting spouse received a significant benefit, such as living a lavish lifestyle, this will weigh against relief. However, if the non-requesting spouse was abusive or over controlling of finances, and the requesting spouse enjoyed a lap of luxury lifestyle, this will be considered as neutral. If the non-requesting spouse received significant benefits while the requesting spouse has little benefit, this will weigh in favor of relief.
Compliance with income tax laws – Usually, if the spouse following tax rules asks for relief, it helps their case. If the requesting spouse doesn’t follow the rules, it goes against their request for relief. If the requesting spouse makes good-faith effort to comply, but doesn’t fully comply, this will weigh as neutral.

Some things to consider could be:

Was the return signed by the innocent spouse or was it e-filed without their awareness? Is there proof that the requesting spouse had authorized the return?
The losses may have come from the non-requesting spouse’s business. The innocent spouse didn’t have knowledge about the business finances. They also didn’t handle any bookkeeping or business tasks. Additionally, the innocent spouse has a different area of expertise.
Was there any mistreatment, and what was the spouse’s physical, mental, and emotional health condition during this period?
It may be necessary to find individuals who can testify about the business or the relationship.
Was there a fear of danger for not signing return?

Decision to request for innocent spouse relief:

Complete the innocent spouse relief form, IRS Form 8857, thoroughly and provide all necessary information. Please include any supporting documents that prove you are not responsible for the tax, interest, and penalty. It is available to mail or fax the request with supporting documents.

If the IRS gives you relief, you can use their Final Determination in a request for innocent spouse relief in California.

If you have any questions regarding Innocent Spouse Relief, contact Dan Ohara @ (408) 684-8505 or email at dan@oharataxresolution.com.