Source: https://www.southerncaliforniabankruptcylawblog.com/2015/12/08/dealing-with-tax-debts-the-innocent-spouse-and-other-relief/
Timestamp: 2017-11-18 19:16:39
Document Index: 186995044

Matched Legal Cases: ['§ 6015', '§ 6015', '§ 6015', '§ 6015', '§ 6015', '§ 6015', '§ 6015', '§ 6015', '§ 6015', '§ 6015', '§ 6015']

Dealing With Tax Debts – The Innocent Spouse (And Other) Relief | Southern California Bankruptcy Law Blog
Home > Tax debts > Dealing With Tax Debts – The Innocent Spouse (And Other) Relief
There are three separate forms of relief available, though technically only one is called innocent spouse relief. The other two are: “Separation Of Liability Relief” and “Equitable Relief.”
2. Requirements For Innocent Spouse Relief
I have had clients tell me horror stories about their estranged and former spouses. “He’s so evil that he makes Hitler look good.” “She’s a termagant and a harpy, and she ate our children for lunch.” That last one’s a bit of an overstatement. It turns out that she would never actually eat children in the middle of the day ― too rich, makes one feel sluggish ― she ate them for dinner, with a lovely Bordelaise sauce. Okay, perhaps we should leave the Jeffrey Dahmer humor in the rear view mirror for the rest of this post.
Does the inherent nastiness of one’s spouse/estranged spouse/ex-spouse satisfy the requirements for relief? Not quite.
The foundational statute is 26 U.S.C. § 6015. 26 U.S.C. § 6015(b) discusses innocent spouse relief, § 6015(c) discusses separation of liability relief, and § 6015(f) discusses equitable relief. Here is the relevant portion of § 6015(b) (bold in original):
If your eyes just glazed over looking at the statutory language, here’s the IRS’s more perspicuous summary of the innocent spouse relief requirements ― all of which must be satisfied:
• You filed a joint return that has an understatement of tax (deficiency) that is 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 are incorrectly reported on the joint return;
• You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax; and
Topic 205 – Innocent Spouse Relief (Including Separation of Liability and Equitable Relief).
As you may have noticed, 26 U.S.C. § 6015(b)(1)(E) has a chronological requirement as well: You must request innocent spouse relief no later than two years after the date the IRS first attempted to collect the tax from you. As we will see in the discussion below, per 26 U.S.C. § 6015(c)(3)(B) separation of liability relief also has a two-year statute of limitations. However, equitable relief does not have the two-year filing requirement.
3. Requirements For Separation Of Liability Relief
Here’s the relevant portion of § 6015(c):
(ii) Certain taxpayers ineligible to elect.
If the Secretary demonstrates that assets were transferred between individuals filing a joint return as part of a fraudulent scheme by such individuals, an election under this subsection by either individual shall be invalid (and section 6013 (d)(3) shall apply to the joint return).
As with the innocent spouse provision, the IRS’s summary may be helpful (emphasis added):
Separation of Liability Relief provides for the allocation of additional tax owed between you and your former spouse or your current spouse from whom you are separated when an item was not reported properly on a joint return. The tax allocated to you is the amount for which you are responsible. . . . 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 have not 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.
Notice that unlike innocent spouse relief in which you must meet all of the requirements to be eligible, in separation of liability relief you only have to satisfy one of the of the listed requirements.
And as previously noted, there is a two-year statute of limitations for seeking separation of liability relief.
4. Requirements For Equitable Relief
Finally, here is the relevant portion of § 6015(f), which deals with equitable relief:
Now there’s a nice short provision that is as vague as can be. (Notice that unlike the innocent spouse and separation of liability relief, there is no two-year filing requirement for equitable relief.) Here’s the IRS’s take on 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. In addition, you must meet the other requirements listed in Publication 971, Innocent Spouse Relief.
Here’s Publication 971’s list of equitable relief requirements:
• You are not eligible for innocent spouse relief or separation of liability relief.
• You filed a joint return for the tax year(s) at issue.
• You timely filed your claim for relief.
• You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner.
• Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief.
• You did not knowingly participate in the filing of a fraudulent joint return.
• The income tax liability from which you seek relief is attributable (either in full or in part) to an item of your spouse (or former spouse) or an unpaid tax resulting from your spouse’s (or former spouse’s) income. If the liability is partially attributable to you, then relief can only be considered for the part of the liability attributable to your spouse (or former spouse). The IRS will consider granting relief regardless of whether the understated tax, deficiency, or unpaid tax is attributable (in full or in part) to you if any of the following exceptions apply.
Well, that doesn’t sound too complicated, does it? Is it easy to win? Nope, especially if you’re well-educated or given to fits of oniomania:
In evaluating whether a requesting spouse knew or had reason to know her nonrequesting spouse would not pay the tax liability, the IRS considers the level of education attained by the requesting spouse, any evasiveness or deceit by the nonrequesting spouse, how involved the requesting spouse was in the activity generating the income tax liability, the requesting spouse’s involvement in financial matters of the household, her business or financial expertise, and any lavish or unusual expenditures compared to past spending levels.
Pullins v. Commissioner, 136 T.C. 432, 444 (Tax Court 2011) (quoting Rev. Proc. 2003-61, sec. 4.03(2)(a)(iii)(C), 2003-2 C.B. at 298).
You might be tempted to hope that as long as your spouse’s malfeasance is the sole cause of the tax liability, you’re home free. However, the spouse’s wrongdoing is not enough by itself. Every statutory requirement must be satisfied. For example, in Christensen v. CIR, 523 F. 3d 957 (9th Cir. 2008) the Ninth Circuit heard an appeal from the Tax Court by a taxpayer who sought innocent spouse relief under the innocent spouse statute, 26 U.S.C. § 6015, but had not filed a joint return. The taxpayer lost, in part, because the statute starts with the statement: “. . . an individual who has made a joint return may elect to seek relief under the procedures prescribed under subsection (b).” 26 U.S.C. § 6015(a) (emphasis added).
In this post I have only scratched the surface of the three types of relief for spouses. And as you can see from the post, the topic is complicated, and involves detailed planning. Don’t go it alone. Hire a highly skilled bankruptcy and tax debt resolution attorney to get you the relief to which you are entitled.
Image courtesy of Flickr (Licensed) by Ashley Van Haeften