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Innocent Spouse, Separation of Liability and Equitable Relief from Joint and Several Liability

Married taxpayers file a joint tax return because of benefits this filing status allows them, but these benefits come with risk, a significant risk.  When filing jointly, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise from the joint return, even if they later divorce. Joint and several liability means that each taxpayer is legally responsible for the entire liability. Thus, both spouses on a joint return are generally held responsible for all tax due even if one spouse earned all the income or claimed improper deductions or credits. This is also true even if a divorce decree provides that a former spouse will be responsible for any amounts due on previously filed joint returns. In some cases, however, a spouse can get relief from joint and several liability.

These provisions providing for relief from joint and several Federal income tax liability are extremely important, but are likewise very factually and legally complicated.  As such they require skilled legal counsel to properly present to the IRS.  Our Law Offices will ensure your request for Innocent Spouse, Separation of Liability or Equitable Relief from joint and several liability are properly presented so that you gain the relief offdered by these provisions.

There are three important types of relief from joint and several liability of a joint return:

  1. Innocent Spouse Relief provides relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
  2. Separation of Liability Relief provides for the separate allocation of additional tax owed between you and your former spouse or your current spouse you’re legally separated from or not living with, when an item wasn’t reported properly on a joint return. You’re then responsible for the amount of tax allocated to you.
  3. Equitable Relief may apply when you don’t qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. You may also qualify for equitable relief if the amount of tax reported is correct on your joint return but the tax wasn’t paid with the return.

You must request innocent spouse relief or separation of liability relief no later than 2 years after the date the IRS first attempted to collect the tax from you. For equitable relief, you must request relief during the period of time the IRS can collect the tax from you. If you’re looking for a refund of tax you paid, then you must request it within the statutory period for seeking a refund, which is generally three years after the date the return is filed or two years following the payment of the tax, whichever is later.  Refunds aren’t available under separation of liability relief.

Innocent Spouse Relief

You must meet all of the following conditions to qualify for innocent spouse relief:

  • You filed a joint return that has an understatement of tax (deficiency) that’s solely attributable to your spouse’s erroneous item. An erroneous item includes income received by your spouse but omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they’re incorrectly reported on the joint return
  • You establish that at the time you signed the joint return you didn’t know, and had no reason to know, that there was an understatement of tax and
  • Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax

Separation of Liability Relief

To qualify for separation of liability relief, you must have filed a joint return and must meet one of the following requirements at the time you request relief:

  • You’re divorced or legally separated from the spouse with whom you filed the joint return
  • You’re widowed, or
  • You haven’t been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you request relief.

But, if you had actual knowledge of the item that gave rise to the understatement of tax at the time you signed the joint return, you don’t qualify for separation of liability relief.

Equitable Relief

If you don’t qualify for innocent spouse relief or separation of liability relief, you may still qualify for equitable relief. To qualify for equitable relief, you must establish that under all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax and other requirements listed in Publication 971Innocent Spouse Relief.