Innocent Spouse Tax Relief … Relief from the Wrongs of an Ex-Spouse
Innocent spouse tax relief is a necessity, sadly, because many divorcing wives find themselves in an untenable tax position – with the IRS demanding that the woman pay the joint and several tax liability relating to the ex-spouse’s income. The IRS collection division can be ruthless and levy the wife’s bank accounts, garnish the wife’s wages, seize the wife’s home, and file an IRS Notice of Federal Tax Lien – even if the divorce decree states that the soon-to-be husband is responsible for paying the tax liability..
How can this be?
Many divorcing wives unwisely chose to file a joint tax return for prior tax years because of “benefits” this filing status afforded them but discounted the detriments. These detriments can become glaring during the divorce proceedings.
Unfortunately, when filing jointly, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, and penalties that arise from the joint return even if they later divorce. 26 U.S.C. § 6013(d)(3); 26 C.F.R. § 1.6015-1(a); Haag v. Comm. of Internal Revenue, 683 F.3d 26, 29 (1st Cir. 2012); Rubel v. Comm. of Internal Revenue, 856 F.3d 301, 303 (3rd Cir. 2017); Pullins v. Comm. of Internal Revenue, 136 T.C. 432, 437 (2011). Joint and several liability means that each taxpayer is legally responsible for the entire liability shown or that should have been shown on their joint return. Manella v. Comm. of Internal Revenue, 631 F.3d 115, 117 (3rd Cir. 2011). Thus, both spouses on a married, filing jointly return are generally held responsible for all the tax due even if the ex-husband earned all the income or claimed improper deductions or credits.
The wife remains liable even if a subsequent divorce decree states that a ex-husband will be responsible for any amounts due on previously filed joint returns.
Innocent Spouse Relief to the Rescue
Thankfully, Congress has provided Innocent Spouse Relief from joint and several liability for income taxes (including additions to tax, penalties, and interest) in certain circumstances. See 26 U.S.C. § 6015; 26 C.F.R. § 1.6015-2(a). Tax Code § 6015 provides several types of relief from joint and several liability of a joint return. 26 U.S.C. § 6015; Christensen v. Comm. of Internal Revenue, 523 F.3d 957, 960 (9th Cir. 2008) (relief not available to taxpayer who filed individual return). The Tax Code authorizes the Secretary of the Treasury to prescribe rules and regulations to implement § 6015 of the Tax Code. See 26 U.S.C. § 6015(h) and 26 U.S.C. § 7805(a); Haag v. Comm. of Internal Revenue, 683 F.3d 26, 29 (1st Cir. 2012).
Section 6015’s three avenues of Innocent Spouse Relief are (1) Equitable Relief, (2) Separation of Liability Relief, and (3) Innocent Spouse Relief. Each type of relief is briefly discussed below. Each discussion below links to a separate page that more fully explains your options. Understandably, you may find this area a tax law complicated. This website provides only a general understanding. Questions will most certainly arise. That’s why a FREE Q&A consultation is offered.
Equitable Relief from IRS Tax Liability
Equitable Relief provides the ex-wife (or soon-to-be ex-wife) relief from tax liability when the ex-wife (or soon-to-be ex-wife) establishes that it would be unfair to hold the ex-wife (or soon-to-be ex-wife) liable for any unpaid tax or any deficiency caused by an understatement – but only when Innocent Spouse Relief and Separation of Liability Relief are unavailable. 26 U.S.C. § 6015(f).Therefore, Equitable Relief is available only to an ex-wife (or soon-to-be ex-wife) who fails to qualify for relief under Innocent Spouse Relief and Separation of Liability Relief. 26 C.F.R. § 1.6015-1(a)(2); Cheshire v. Comm. of Internal Revenue, 282 F.3d 326, 332 (5th Cir. 2002). Unlike Innocent Spouse Relief and Separation of Liability Relief, Equitable Relief is the only relief offered by 26 U.S.C. § 6015 that could eliminate tax liability shown on a taxpayer’s IRS Form 1040.
Separation of Liability from IRS Tax Liability
Separation of Liability Relief provides for the separate allocation of any tax “deficiency” owed between the ex-wife (or soon-to-be ex-wife) and the Non-Requesting Spouse when an item was not reported properly on a joint return. 26 U.S.C. § 6015(c). The Tax Code defines “deficiency,” generally, as the amount by which the tax imposed by IRS Subtitle A (income taxes) exceeds the tax amount shown on the taxpayer’s IRS Form 1040 return. 26 U.S.C. § 6211(a).
If relief is granted, the ex-wife (or soon-to-be ex-wife) would be responsible only for the amount of deficiency tax allocated to the ex-wife (or soon-to-be ex-wife) and not liable for the deficiency tax allocated or attributed to the ex-husband (or soon-to-be ex-husband). 26 U.S.C. § 6015(c). An allocation attributes an item or portions of an item to a particular spouse for the purpose of computing his/her share of an understatement of tax liability. IRM § 220.127.116.11.2.1 (07-11-2016). Attribution establishes or designates a particular spouse as the owner, possessor or party responsible for a specific item giving rise to an understatement. IRM § 18.104.22.168.2.1 (07-11-2016). The IRS does not offer Separation of Liability Relief from unpaid taxes shown on IRS Form 1040, only the portion of tax constituting the deficiency allocated or attributed to the ex-husband (or soon-to-be ex-husband).
Innocent Spouse Relief
Innocent Spouse Relief provides the ex-wife (or soon-to-be ex-wife) full or partial relief from an “understated” tax deficiency attributable to the ex-husband’s (or soon-to-be ex-husband’s) erroneous items on a jointly filed tax return. 26 U.S.C. § 6015(b). The Tax Code defines “understatement” as “the excess of (i) the amount of the tax required to be shown on the return for the taxable year, over (ii) the amount of the tax imposed which is shown on the return, reduced by any rebate.” 26 U.S.C. § 6662(d)(2)(A).
The ex-wife (or soon-to-be ex-wife) may be eligible for Innocent Spouse Relief if the ex-husband (or soon-to-be ex-husband) failed to report income, reported income improperly, or claimed improper deductions or credits. 26 U.S.C. § 6015(b). Through the “Innocent Spouse Relief” program, the ex-wife (or soon-to-be ex-wife) can be relieved of responsibility for paying any additions to tax, interest, and penalties if the ex-husband (or soon-to-be ex-husband) improperly reported items or omitted items on the joint tax return. The IRS does not offer Innocent Spouse Relief from unpaid taxes shown on IRS Form 1040, only the portion of tax that was understated.
Complicated? You bet.
You should have a tax attorney on your side. Don’t battle the IRS without the guidance and support of a qualified tax lawyer. Tap into Attorney Schaller’s 35+ years of legal experience. He wrote the book on erasing or reducing IRS back-taxes and IRS Form 8857.
Contacting the Schaller Law Firm is free. IRS Tax problems can seem daunting and overwhelming. Getting a free Q&A consultation is the perfect place to start. Book an appointment with the convenient online booking system.
Attorney Robert Schaller provides legal services to clients who are struggling with IRS back taxes. He offers services that include Offer in Compromise, Installment Agreements, and Innocent Spouse tax relief. Robert strives to offer clients a fresh start in life debt-free of IRS taxes. Zoom conferencing available. Call for a free consultation: 630-655-1233.