If you fail to qualify for Innocent Spouse Relief under Treasury Regulation (“Treas. Reg.”) § 1.6015-2 and Separation of Liability Relief under Treas. Reg. § 1.6015-3, the good news is that you may still be entitled to tax, interest, and penalty assistance through Equitable Relief.
What is Equitable Relief?
General Conditions for Equitable Relief:
According to Revenue Procedure 2000-15, the following threshold conditions must be satisfied before the IRS will consider a claim for Equitable Relief under IRC § 6015(f):
- The requesting spouse is not eligible for Innocent Spouse Relief, Separation of Liability Relief, or relief from liability arising from community property laws;
- The requesting spouse and the other spouse (or former spouse) did not transfer assets to one another as part of a fraudulent scheme. For more information on what a “fraudulent scheme” includes, review our Innocent Spouse Relief article: Surprise! Spouse Leaves IRS Debt You Did Not Know About;
- The other spouse (or former spouse) did not transfer property to the requesting spouse for the main purpose of avoiding tax or the payment of tax;
- The requesting spouse did not file or fail to file the return with the intent to commit fraud;
- The requesting spouse did not pay the tax;
- The requesting spouse can establish that, taking into account all the facts and circumstances, it would be unfair to hold the requesting spouse liable for the understatement or underpayment of tax; and
- The income tax liability from which the requesting spouse seeks relief must be attributable to an item of the other spouse (or former spouse) with whom the requesting spouse filed the joint return unless an exception applies. Some exceptions include:
- The item is at least partially attributable to you because of community property laws.
- You were the victim of abuse before signing the return and, as a result of the abuse, you did not challenge the treatment of any items on the return for fear of your spouse's retaliation.
- You established that your spouse's (or former spouse's) fraud is the reason for the erroneous item causing the understatement of tax.
A requesting spouse that meets the aforementioned criteria may be relieved of all or part of the liability through Equitable Relief depending on a list of factors outlined below.
Factors for Determining Whether to Grant Equitable Relief:
The following is a non-exhaustive list of the factors that the will IRS weigh in favor and against the requesting spouse when determining whether to grant full or partial Equitable Relief under IRC § 6015(f). Each will be considered and weighed appropriately; thus, no single factor is determinative of whether Equitable Relief will be granted.
Factors weighing in favor of relief:
- The requesting spouse is separated or divorced from the other spouse;
- The requesting spouse would suffer economic hardship if equitable relief is denied;
- The requesting spouse was abused by the non-requesting spouse, but such abuse did not amount to duress;
- The requesting spouse did not know or have reason to know of items giving rise to a tax deficiency or that the tax liability would not be paid;
- The non-requesting spouse already has a legal obligation under a divorce decree or separation agreement to pay the tax; and
- The liability for which relief is sought is solely attributable to the non-requesting spouse.
Factors weighing against relief:
- The unpaid liability or items giving rise to the deficiency are attributable to the requesting spouse;
- The requesting spouse knew or had reason to know of the items giving rise to a tax deficiency or that the tax liability would not be paid;
- The requesting spouse has significantly benefitted (beyond normal support) from the unpaid liability or items giving rise to the deficiency;
- The requesting spouse will not experience economic hardship if equitable relief is denied;
- The requesting spouse has not made a good faith effort to comply with federal income tax requirements in the tax years following the tax year(s) for which the equitable relief request relates; and
- The requesting spouse already has a legal obligation under a divorce decree or separation agreement to pay the tax.
At The Wilson Firm, our attorneys have years of experience handling Equitable Relief claims with the IRS. When exploring different relief options, contact us today to ensure you are choosing the option that is right for you.