Innocent Spouse Tax Relief

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Introduction to Innocent Spouse

Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows. Both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.

In some cases, a spouse will be relieved of the tax, interest, and penalties on a joint tax return. Three types of relief are available.

1. Innocent spouse relief.
2. Separation of liability.
3. Equitable relief.

This publication explains these types of relief, who may qualify for them, and how to get them. Each type of relief has different requirements. They are explained separately in different parts of this publication. Read each part to see if you qualify for that type of relief.

Table 1 compares the rules for these three types of relief. You may also want to see Questions & Answers, near the end of this publication for a list of questions and answers about these types of relief.

You are not required to figure the tax, interest, and penalties that qualify for relief. The IRS will figure these amounts after you file Form 8857, Request for Innocent Spouse Relief.

Three Types of Relief At A Glance

You can only qualify for equitable relief if you do not qualify for innocent spouse relief or relief by separation of liability.

Married persons who file separate returns in community property states may also qualify for relief. See Community Property Laws, later.

What this publication does not cover. This publication does not discuss filing an injured spouse claim. You are an injured spouse if your share of the overpayment shown on your joint return was, or is expected to be, applied against your spouse’s past-due federal debts, state taxes, or child or spousal support payments. If you are an injured spouse, you may be entitled to receive a refund of your share of the overpayment. For more information, get Form 8379, Injured Spouse Claim and Allocation.

Explore if you are an Eligible Innocent Spouse

Unfortunately, in marriage and life, everything is not always “Happily Ever After”. If that is the case, now what????

If you filed

• a joint return

or

• a married filing separately return while living in a community property state and your situation is not “Happily Ever After”; the IRS wants to help!

Many married taxpayers file a joint tax return because of certain benefits this filing status allows. If you did so, you may be held responsible for monies due, even if your spouse earned all of the income – And this is true even if a divorce decree states that your spouse will be responsible for any amounts due on previously filed joint returns.

In order to qualify for Spousal Relief, you must meet certain conditions. Please continue if you are interested in exploring whether you might qualify for relief.

Did you file a joint Federal tax return AND did the IRS take your refund to satisfy your SPOUSE’S OR FORMER SPOUSE’S past due Federal tax, child support, or Federal non-tax debt, such as a student loan?

Innocent Spouse Relief

By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. The IRS can collect these amounts from either you or your spouse (or former spouse).

The IRS will figure the tax you are responsible for after you file Form 8857. You are not required to figure this amount. But if you wish, you can figure it yourself. See How To Allocate the Understatement of Tax, within the Publication 971.

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

1. You filed a joint return which has an understatement of tax due to erroneous items (defined below) of your spouse (or former spouse).
2. 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 (See Actual Knowledge or Reason To Know, defined below).
3. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax. (See Indications of Unfairness for Innocent Spouse Relief, later).
4. A request for innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner.

Erroneous Items

Erroneous items are either of the following.

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

The following are examples of erroneous items.

1. The expense for which the deduction is taken was never paid or incurred. For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising.
2. The expense does not qualify as a deductible expense. For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. Fines are not deductible.
3. No factual argument can be made to support the deductibility of the expense. For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family’s two dogs.

Actual Knowledge or Reason To Know

You knew or had reason to know of an understatement if:

• You actually knew of the understatement, or
• A reasonable person in similar circumstances would have known of the understatement.

Actual knowledge. If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understatement of tax due to that item. You and your spouse (or former spouse) remain jointly liable for that part of the understatement. For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Relief by Separation of Liability.

Reason to know. If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understatement of tax due to that item. You and your spouse (or former spouse) remain jointly liable for that part of the understatement.

The IRS will consider all facts and circumstances in determining whether you had reason to know of an understatement of tax due to an erroneous item. The facts and circumstances include:

• The nature of the erroneous item and the amount of the erroneous item relative to other items.
• The financial situation of you and your spouse (or former spouse).
• Your educational background and business experience.
• The extent of your participation in the activity that resulted in the erroneous item.
• Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question.
• Whether the erroneous item represented a departure from a recurring pattern reflected in prior years’ returns (for example, omitted income from an investment regularly reported on prior years’ returns).

Partial relief when portion of erroneous item is unknown. You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. You will be relieved of the understatement due to that portion of the item if all other requirements are met for that portion.

Example:

If at the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. The IRS examined your tax return several months after you filed it and determined that your spouse’s unreported gambling winnings were actually $25,000. You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. The understatement of tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. The understatement of tax due to the $5,000 of gambling winnings will not qualify for relief.

Indications of Unfairness for Innocent Spouse Relief

The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understatement.

The following are examples of factors the IRS will consider.

• Whether you received a significant benefit (defined next), either directly or indirectly, from the understatement.
• Whether your spouse (or former spouse) deserted you.
• Whether you and your spouse have been divorced or separated.
• Whether you received a benefit on the return from the understatement.

For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief.

Significant benefit. A significant benefit is any benefit in excess of normal support. Normal support depends on your particular circumstances. Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understatement.

Example

You receive money from your spouse that is beyond normal support. The money can be traced to your spouse’s lottery winnings that were not reported on your joint return. You will be considered to have received a significant benefit from that income. This is true even if your spouse gives you the money several years after he or she received it.

Relief by Separation of Liability

Under this type of relief, you allocate (separate) the understatement of tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). The understatement of tax allocated to you is generally the amount for which you are responsible. See How To Allocate the Understatement of Tax, within Publiciation 971.

This type of relief is available only for unpaid liabilities resulting from understatements of tax. Refunds are not allowed.

To request relief by separation of liability, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857.

• You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. (Under this rule, you are no longer married if you are widowed.)
• You were not a member of the same household (explained next) as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857.

Members of the same household. You and your spouse are not members of the same household if you are living apart and are estranged. However, you and your spouse are considered members of the same household if any of the following conditions are met.

1. You and your spouse reside in the same dwelling.
2. You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other’s household as explained in (3) below.
3. Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse’s return. Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education.

Burden of proof. You must be able to prove that you meet all of the requirements for separation of liability (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). You must also establish the basis for allocating the erroneous items.

Limitations on Relief

Even if you meet the requirements discussed previously, a request for relief by separation of liability will not be granted in the following situations.

1. The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner.
2. The IRS proves that at the time you signed your joint return, you had actual knowledge (explained next) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). For the definition of erroneous items, see Erroneous Items under Innocent Spouse Relief.
3. Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. See Transfers of Property To Avoid Tax, later.

Actual Knowledge

The relief discussed here does not apply to any part of the understatement of tax due to your spouse’s erroneous items of which you had actual knowledge. You and your spouse remain jointly and severally liable for this part of the understatement.

If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item.

You had actual knowledge of an erroneous item if:

• You knew that an item of unreported income was received. (This rule applies whether or not there was a receipt of cash.)
• You knew of the facts that made an incorrect deduction or credit unallowable.
• For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return.

Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself.

Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. Likewise, neither is your actual knowledge of how the erroneous item was treated on the tax return relevant for purposes of demonstrating actual knowledge. For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable.

Example:

Bill and Karen Green filed a joint return showing Karen’s wages of $50,000 and Bill’s self-employment income of $10,000. The IRS audited their return and found that Bill did not report $20,000 of self-employment income. The additional income resulted in a $6,000 understatement of tax, plus interest and penalties. After obtaining a legal separation from Bill, Karen filed Form 8857 to request relief by separation of liability. The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. Bill is liable for all of the understatement of tax, interest, and penalties because all of it was due to his unreported income. Karen is also liable for the understatement of tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. The IRS can collect the entire deficiency from either Karen or Bill because they are jointly and individually liable for it.

Factors supporting actual knowledge. The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. The following are examples of factors the IRS may use.

• Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability.
• Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item.

Domestic abuse exception. Even if you had actual knowledge, you may still qualify for relief if you establish that:

• You were the victim of domestic abuse before signing the return, and
• Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you.

If you establish that you signed your joint return under duress, then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. However, you may be required to file a separate return for that tax year.

Transfers of Property To Avoid Tax

If your spouse transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. The increase may not be more than the entire amount of the liability. A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. This presumption will not apply if the transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement. The presumption will also not apply if you establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax.

If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above.

Equitable Relief

If you do not qualify for innocent spouse relief, relief by separation of liability, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. If you request any of these types of relief, and the IRS determines you do not qualify for any of them, the IRS will consider whether equitable relief is appropriate.

Unlike innocent spouse relief or separation of liability, you can get equitable relief from an understatement of tax (defined below)  or an underpayment of tax. An underpayment of tax is an amount of tax you properly reported on your return but you have not paid. For example, your joint 2009 return shows that you and your spouse owed $5,000. You pay $2,000 with the return. You have an underpayment of $3,000.

Conditions for Getting Equitable Relief

You may qualify for equitable relief if you meet all of the following conditions.

1. You are not eligible for innocent spouse relief, relief by separation of liability, or relief from liability arising from community property law.
2. 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, ex-spouse, or business partner.
3. 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 Relief by Separation of Liability.
4. You did not file or fail to file your return with the intent to commit fraud.
5. You did not pay the tax. However, see Refunds, later, for situations in which you are entitled to a refund of payments you made.
6. You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax. See Factors for Determining Whether To Grant Equitable Relief, later.
7. The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies:
   1. The item is attributable or partially attributable to you solely due to the operation of community property law. If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief.
   2. If the item is titled in your name, the item is presumed to be attributable to you. However, you can rebut this presumption based on the facts and circumstances.
   3. You did not know, and had no reason to know that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. If you meet this exception, the IRS will consider granting equitable relief although the underpayment may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse).
   4. You establish that you were the victim of abuse before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse’s retaliation. If you meet this exception, relief will be considered although the deficiency or underpayment may be attributable in part or in full to your item.

Refunds

In the following situations, you are eligible to receive a refund of certain payments you made.

Understatement of tax. If you are granted relief for an understatement of tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Only installment payments made after the date you filed Form 8857 are eligible for a refund. Additionally, you must establish that you provided the funds for which you seek a refund. You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement.

The amount of the refund is subject to the limit discussed later under Limit on amount of refund.

Underpayment of tax. If you are granted relief for an underpayment of tax, you are eligible for a refund of separate payments that you made after July 22, 1998, if you establish that you provided the funds used to make the payment for which you seek a refund. You are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made.

The amount of the refund is subject to the limit discussed next.

Limit on amount of refund. If you request relief within 3 years after filing your return, the refund cannot be more than the part of the tax paid within the 3 years (plus any extension of time for filing your return) before you filed your request for relief.

If you request relief after the 3-year period, but within 2 years from the time you paid the tax, the refund cannot be more than the tax you paid within the 2 years immediately before you filed your request for relief.

Factors for Determining Whether To Grant Equitable Relief

The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understatement or underpayment of tax. The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. The IRS will consider all factors and weigh them appropriately.

Relevant Factors

The following are examples of factors that may be relevant to whether the IRS will grant equitable relief.

• Whether you are separated (whether legally or not) or divorced from your spouse. A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse’s return.
• Whether you would suffer a significant economic hardship if relief is not granted. (In other words, you would not be able to pay your reasonable basic living expenses.)
• Whether you have a legal obligation under a divorce decree or agreement to pay the tax. This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability.
• Whether you received a significant benefit (beyond normal support) from the unpaid tax or item causing the understatement of tax. (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief on page 6 of Pub 971.) 
• Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years.
• Whether you knew or had reason to know about the items causing the understatement or that the tax would not be paid, as explained next.

Knowledge or reason to know. In the case of an underpayment of tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability.

In the case of an income tax liability that arose from an understatement of tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understatement. Reason to know of the item giving rise to the understatement will not be weighed more heavily than other factors. Actual knowledge of the item giving rise to the understatement, however, is a strong factor weighing against relief. This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling.

Reason to know. In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels.

Example

You and your spouse filed a joint 2009 return. That return showed you owed $10,000. You had $5,000 of your own money and you took out a loan to pay the other $5,000. You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Without telling you, your spouse took the $5,000 loan and spent it on himself. You and your spouse were divorced in 2010. In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpayment. The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpayment.

Factors Weighing in Favor of Equitable Relief

The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief.

• Whether your spouse (or former spouse) abused you.
• Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief.

Applying for Innocent Spouse Relief

To apply for Innocent Spouse relief

• File Form 8857, Request for Innocent Spouse Relief and
• Attach a statement explaining why you qualify for relief.

Here are some helpful links to the request form and complete instructions:

• Form 8857 and Instructions
• Form 8857-SP y Las Instrucciones

Where to File:

If you are meeting with an IRS employee for an examination, examination appeal, or collection matter for the year you want relief, file the Form 8857 and the statement with that IRS employee.

If you are not working with an IRS employee, send the Form 8857 and the statement to the following address:

IRS – Stop 840-F
Innocent Spouse
PO Box 120053
Covington, KY 41012

Where to Mail Completed Form 8857

Processing of Forms 8857, Request for Innocent Spouse Relief, is centralized at the Cincinnati Centralized Innocent Spouse Operation (CCISO), located in Covington, Kentucky. Mail your completed Form 8857, Request for Innocent Spouse Relief, directly to:

Internal Revenue Service
Stop 840F
P.O. Box 120053
Covington, KY 41012

The length of time to process your request could increase if you mail your completed Form 8857 to any other office.

Innocent Spouse Questions & Answers

1. How do I request relief?

   File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. You need not file multiple forms. One form can cover multiple years.

2. Should I include a letter when filing Form 8857?

   You may include a letter and any other information you would like IRS to consider.

3. When should I file Form 8857?

   A claim must be filed within two years of the first collection activity against you. See the answer to question 35, “What constitutes a collection activity for purposes of starting the two-year statute of limitations the cover the filing of Form 8857?” below.

4. Where should I file my Innocent Spouse claim?

   Please mail the Form 8857, Request for Innocent Spouse Relief, to:
   Internal Revenue Service
   Stop 840F
   P.O. Box 120053
   Covington, KY 41012
   Note: Please do not file the Form 8857 with your tax return or Tax Court.

5. Is there a toll free number to call if I have questions regarding an Innocent Spouse Claim or how to complete the Form 8857 Request for Innocent Spouse Relief?

   If you need additional information on your Innocent Spouse Claim or on the Form 8857, Request for Innocent Spouse Relief, the toll free number is 1-866-897-4270.

6. What type of documents do I need to submit with the Form 8857, Request for Innocent Spouse Relief?

   You should carefully review the Form 8857, Request for Innocent Spouse Relief, and it will guide you on what documents to submit. For comprehensive information on Innocent Spouse, Publication 971, Innocent Spouse Relief, explains each type of relief, who may qualify, and how to request relief.

7. I want to file, but I am afraid of what my ex-spouse will do, should I still file?

   By law, the IRS must contact your spouse or former spouse. There are no exceptions, even for victims of spousal abuse or domestic violence. Therefore, you should consider all options including an Offer in Compromise Doubt as to Liability.

8. How long will the process take?
   When a Form 8857, Request for Innocent Spouse Relief, is filed with the IRS, it may take up to 6 months before a determination is made. During the processing time, the Service is requesting your tax information and contacting the non-requesting spouse. By law, the IRS must contact your spouse or former spouse. There are no exceptions, even for victims of spousal abuse or domestic violence.
9. Should I wait to file my current year tax return pending the outcome of my claim?
   No, you should file your current return and we will not hold any refund you are due.
10. I filed a joint tax return with my spouse and the entire refund was applied to my spouse’s back child support, should I file a Form 8857, Request for Innocent Spouse Relief, to receive my portion of the refund?

    This issue is generally not related to Innocent Spouse Relief. You may be eligible for injured spouse provisions, if you file a joint tax return and all or part of your portion of the overpayment was applied or offset to your spouse’s legally enforceable past-due federal tax, state income tax, child or spousal support, or a federal nontax debt such as a student loan. You should review the information on Injured Spouse and Form 8379 Injured Spouse Allocation.

11. I received an Automated Underreporter Notice or CP 2000 Notice and the unreported income belongs to my former spouse. What should I do?

    If you filed a joint tax return, you are jointly and individually responsible for the tax and any interest and penalty due on the joint return. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on a previously filed joint return.

    In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint tax return. You can ask for relief no matter how small the liability.

    Three types of relief are available:

    • Innocent Spouse Relief
    • Separation of Liability
    • Equitable Relief
    • You must file Form 8857, Request for Innocent Spouse Relief, to request any of the methods of relief. Publication 971, Innocent Spouse Relief, explains each type of relief, who may qualify, and how to request relief.
12. My Innocent Spouse Claim was previously denied and I now have new additional information, can I file a claim again?

    Yes, you can file a second claim, provide the new additional information and it will be reconsidered. However, you will not have tax court rights on this reconsideration.

13. What is the effective date of the new innocent spouse rules under Internal Revenue Code 6015?

    Internal Revenue Code 6015 innocent spouse rules are effective for:

    • Unpaid balances as of July 22, 1998; and
    • Liabilities arising after July 22, 1998
14. What is joint and several liability?

    Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows. Both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. One spouse may be held responsible for all the tax due.

15. How can I get relief from joint and several liability?

    Relief now falls into three categories: Innocent Spouse Relief; Separation of Liability; and Equitable Relief. Each of these kinds of relief has different requirements. They are explained separately below.

16. Can both spouses request relief?

    Yes, each spouse can file a Form 8857 to request relief from liability from tax, interest and penalties.

17. Does the non-requesting spouse have any appeal rights?

    Per Rev. Proc. 2003-19, the nonrequesting spouse has the right to appeal the preliminary determination to grant partial or full relief to the requesting spouse when the preliminary determination letter is issued April 1, 2003 or later. However, the nonrequesting spouse may not petition the Tax Court from the final determination letter. If relief is denied in part or in full, and the requesting spouse petitions the U.S. Tax Court, the non-requesting spouse, by law, will be given the opportunity to become a party in that proceeding.

    For claims where a preliminary determination was issued prior to April 1, 2003, the nonrequesting spouse had no appeal rights when the preliminary determination letter granted relief in part or in full to the requesting spouse. If relief was denied and the requesting spouse petitioned the U.S. Tax Court, the nonrequesting spouse, by law, was given the opportunity to be a party in that proceeding.

18. Will the other spouse be notified that I filed a claim for innocent spouse relief?

    The IRS is required to notify the nonrequesting spouse to allow them to participate. They will also be notified of the determination on your election and have the opportunity to appeal IRS’s preliminary determination to grant you full or partial relief.

19. What are the rules for Innocent Spouse Relief?

    To qualify for innocent spouse relief, you must meet all of the following conditions:

    • You must have filed a joint return which has an understatement of tax;
    • The understatement of tax must be due to erroneous items of your spouse;
    • You must 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;
    • Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understatement of tax; and
    • You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998
20. What are erroneous items?

    Erroneous items are any deductions, credits, or bases incorrectly stated on the return, and any income not reported on the return.

21. What is an understatement of tax?
    An understatement of tax is generally the difference between the total amount of tax that should have been shown on your return and the amount of tax that was actually shown on your return. For example, you reported total tax on your 2004 return of $2,500. IRS determined in an audit of your 2004 return that the total tax should be $3,000. You have a $500 understatement of tax.
22. Will I qualify for innocent spouse relief in any situation where there is an understatement of tax?

    No. There are many situations in which you may owe tax that is related to your spouse, but not be eligible for innocent spouse relief. For example, you and your spouse file a joint return that reports $10,000 of income and deductions, but you knew or had reason to know that your spouse was not reporting $5,000 of dividends. You are not eligible for innocent spouse relief when you have knowledge or reason to know of the understatement.

23. What are the rules for Separation of Liability?

    Under this type of relief, you divide (separate) the understatement of tax (plus interest and penalties) on your joint return between you and your spouse. The understatement of tax allocated to you is generally the amount of income and deductions attributable to your earnings and assets. To qualify for separate liability, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857:

    You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. (Under this rule, you are no longer married if you are widowed.)
    You were not 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 file Form 8857.

24. Why would a request for separate liability be denied?

    Even if you meet the requirements listed above, a request for separate liability will not be granted in the following situations:

    • The IRS proves that you and your spouse transferred assets for the main purpose of avoiding payment of tax.
    • The IRS proves that at the time you signed your joint return, you had actual knowledge that any items giving rise to the deficiency and allocable to your spouse were incorrect.
25. If a husband and wife are still married but separated for 12 months, prior to filing a claim for relief due to an involuntary reason such as incarceration or military duty, can separation of liability relief be granted?

    Separation of liability applies to taxpayers who are (1) no longer married, (2) legally separated, or (3) living apart for the 12 months prior to the filing of a claim. Under this rule, you are no longer married if you are widowed.

    Living apart does not include a spouse who is temporarily absent from the household. A temporary absence exists if it is reasonable to assume that the absent spouse will return to the household, or a substantially equivalent household is maintained in anticipation of such a return. A temporary absence may include absence due to incarceration, illness, business, vacation, military service, or education.

    A claim can be filed if any of the three statutory requirements are met.

26. What are the rules for Equitable Relief?

    Equitable relief is only available if you meet all of the following conditions:

    • You do not qualify for innocent spouse relief or the separation of liability election.
    • The IRS determines that it is unfair to hold you liable for the understatement of tax taking into account all the facts and circumstances.

    Note: unlike innocent spouse relief or separation of liability, if you qualify for equitable relief, you can get relief from an understatement of tax or an underpayment of tax. (An underpayment of tax is an amount properly shown on the return, but not paid.)

27. What Factors are considered in determining whether or not to grant equitable relief?

    The following factors may be considered, but the list is not all-inclusive:

    • Current marital status
    • Abuse experienced during the marriage
    • Reasonable belief of the requesting spouse, at the time he or she signed the return, that the tax was going to be paid; or in the case of an understatement, whether the requesting spouse had knowledge or reason to know of the understatement
    • Current financial hardship/inability to pay basic living expenses
    • Spouses’ legal obligation to pay the tax liability pursuant to a divorce decree or agreement to pay the liability
    • To whom the liability is attributable
    • Significant benefit received by the requesting spouse
    • Mental or physical health of the requesting spouse on the date the requesting spouse signed the return or at the time the requesting spouse requested the relief
    • Compliance with income tax laws following the taxable year or years to which the request for relief relates
28. How do state community property laws affect my ability to qualify for relief?

    Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Generally, community property laws require you to allocate community income and expenses equally between both spouses. However, community property laws are not taken into account in determining whether an item belongs to you or your spouse (or former spouse) for purposes of requesting any relief from liability.

29. If I am denied innocent spouse relief, must I reapply if I believe I might qualify under one of the other two provisions?

    No. The IRS will automatically consider whether any of the other provisions would apply. If you requested innocent spouse relief or separation of liability, IRS will automatically consider equitable relief

    The only time you can reapply for relief is if you were denied relief because you were considered still married at the time the request for relief was filed and you now satisfy the marital status requirements to elect to separate the liability. See the answer to question 25, “If a husband and wife are still married but separated for 12 months, prior to filing a claim for relief due to an involuntary reason such as incarceration or military duty, can separation of liability relief be granted?” above, for more information on satisfying the marital status requirement.

30. Will the IRS deny me relief if I do not provide them with the information they request?

    IRS will base their decision upon all the information available to them. If enough information is not available, it could adversely affect a request for relief.

31. I filed a Form 656, Offer in Compromise, under doubt as to liability. The IRS accepted the Offer in Compromise. Can I still apply for innocent spouse relief?

    No. We cannot consider your claim for any year in which an Offer in Compromise was accepted. Acceptance of an Offer in Compromise conclusively closes the tax year(s) compromised from any re-determination of the tax liability.

32. I signed a Closing Agreement, can I still apply for innocent spouse relief?

    It depends on the type of closing agreement you signed.

    If you signed Form 866, Agreement as to Final Determination of the Tax Liability, the tax year is closed with finality and you cannot apply for innocent spouse relief.

    If you signed Form 906, Closing Agreement on Final Determination Covering Specific Matters, only those matters covered in the closing agreement are conclusively closed. Innocent spouse relief may be requested for matters not covered in the closing agreement.

    Note: If the closing agreement involved Tax Equity Fiscal Responsibility ACS (TEFRA) issues refer to Treas. Reg. 1.6015-1(c) for exceptions to this rule.

33. I am currently undergoing an examination of my return. How do I request innocent spouse relief?

    File Form 8857 with the employee assigned to examine your return.

34. What if the IRS has levied my account for the tax liability and I decide to request relief?

    Upon receipt of your request for relief all collection activity against you will be suspended unless the liability is in jeopardy or the statute of limitation on collection will expire shortly.

35. What constitutes a collection activity for purposes of starting the two-year statute of limitations that cover the filing of Form 8857?

    The following are examples of collection activity: when the IRS (1) sends a notice under section 6330 of the Service’s intent to levy and of the taxpayer’s right to a collection due process (CDP) hearing, (2) offsets a refund from another tax year and you received a notice advising you of your rights under Section 6015, or (3) files a judicial suit or claim that puts the requesting spouse on notice the IRS intends to collect the joint tax liability from specific property belonging to that spouse. For further information on collection activity, see Treas. Reg. § 1.6015-5(b)(2).

36. I filed a valid joint return with my spouse and have an installment agreement to pay the taxes. Can I still apply for relief?

    The innocent spouse rules may apply in your situation. However, regarding the installment agreement, there are some important considerations:

    If you do not continue to make payments while we consider your request for relief, your installment agreement will default and full payment will be due immediately if your request for relief is denied.

37. My spouse forged my signature to a joint return. Am I eligible for innocent spouse relief? Should I file Form 8857?

    You may be eligible for relief, but relief does not fall under the innocent spouse rules. If you can establish your signature was forged, and there was not tacit (implied) consent, the joint election is invalid and you will only be liable for your separate tax liability.

38. What is the meaning of “economic hardship” for purposes of equitable relief of an underpayment of tax liability shown on a tax return?

    “Economic hardship” means that you are unable to pay your basic living expenses, e.g. food, clothing, housing, utilities, medical expenses (including health insurance), transportation, child care, child support, etc.

39. Will I receive a refund of all amounts I paid, if relief is granted?

    It depends upon the provision under which relief is granted.
    If innocent spouse relief is granted under section 6015(b), refunds are allowable for amounts paid on or after July 22, 1998.

    If separation of liability is granted under section 6015(c), no refunds are allowable.

    If equitable relief is granted under section 6015(f), refunds may be allowed depending on whether it is for an understatement or an underpayment case. The requesting spouse must establish that he or she provided the funds used to make the payment for which he or she seeks a refund.

    Understatements – Refunds are allowed for installment agreement (if not defaulted) payments made after the request for relief is filed.

    Underpayments – Refunds are allowed for payments made after 7-22-98 unless the payments were made jointly with the nonrequesting spouse, payments were made with the return or payments were made by the nonrequesting spouse.

    Note: all refunds are subject to Internal Revenue Code section 6511. This code section only allows refunds for payments made within 2 years after the tax was paid or 3 years after the return was filed whichever is later.

40. Will I be granted innocent relief with respect to unreported income if I feel it is my accountant’s fault that the income was not reported on the return?

    Innocent spouse relief is in no way meant to transfer the liability to an accountant. If the income was yours (rather than your spouse’s), or was your spouse’s but you knew about it, you will probably not be relieved of liability.

41. If an understatement is the result of signing an examination report that lists omissions of income, does this indicate there was knowledge of items giving rise to the deficiency?

    No, innocent spouse provisions clearly state the knowledge has to do with what was known at the time the return was signed.

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