Innocent Spouse Relief should be sought by any divorced woman who is suffering from unpaid IRS back taxes because of an ex-husband’s bad acts. These bad acts include the ex-husband’s failure to include self-employment income or gambling earnings on an IRS 1040. Sometimes an ex-husband improperly claims business deductions from his self-employment gross revenues. Frequently, these tax problems are unknown to the ex-wife until revealed by an IRS audit during or after the divorce proceedings.
IRS Joint Tax Liability
Many ex-wives need Innocent Spouse Relief from IRS back taxes because they filed joint tax returns with their respective husband before divorcing. Married taxpayers choose to file a joint tax return because of benefits this filing status affords them, but ignore the pitfalls. 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 one spouse earned all the income or claimed improper deductions or credits. This is true even if a subsequent divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns.
Innocent Spouse Relief Cancels Income Taxes
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). A taxpayer seeks relief by filing Form 8857, Request for Innocent Spouse Relief.
Section 6015’s three avenues of relief are “Innocent Spouse Relief,” “Separation of Liability Relief,” and “Equitable Relief.”
Innocent Spouse Relief
Innocent Spouse Relief provides an ex-wife full or partial relief from an “understated” tax deficiency attributable to the 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).
An ex-wife may be eligible for Innocent Spouse Relief if the 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, an ex-wife can be relieved of responsibility for paying any additions to tax, interest, and penalties if the 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.
Separation of Liability Relief from IRS Back Taxes
Separation of Liability Relief provides for the separate allocation of any tax “deficiency” owed between an ex-wife and the ex-husband 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, an ex-wife would be responsible only for the amount of deficiency tax allocated to the ex-wife and not liable for the deficiency tax allocated or attributed to the ex-husband. 26 U.S.C. § 6015(c). An allocation attributes an item or portions of an item to an ex-wife for the purpose of computing her share of an understatement of tax liability. IRM § 25.15.18.5.2.1 (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 § 25.15.18.5.2.1 (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.
Equitable Relief from IRS Back Taxes
Equitable Relief provides an ex-wife relief from tax liability when an ex-wife establishes that it would be unfair to hold the 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 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.
Method of Seeking Innocent Spouse Relief
An ex-wife seeks relief by filing Form 8857, Request for Innocent Spouse Relief. An ex-wife may submit a single claim (a) electing relief under Innocent Spouse Relief and/or Separation of Liability Relief, and (b) requesting Equitable Relief. 26 C.F.R. § 1.6015-1(a)(2). When an ex-wife elects Innocent Spouse Relief only, the IRS must also consider whether the ex-wife is entitled to Separation of Liability Relief and, if relief is unavailable as to either of these forms of relief, then the IRS must consider whether Equitable Relief is appropriate. See 26 C.F.R. § 1.6015-1(a)(2); IRM § 25.15.8.6.1(1) (08-17-2010); Aranda v. Comm. of Internal Revenue, 432 F.3d 1140, 1144 (10th Cir. 2005). The IRS processes claims thru a 33-stage tracking system. See IRM § 25.15.14.4 (04-20-2018).
Refund Eligibility
An ex-wife could be eligible for a refund if relief is granted and the ex-wife can prove that the ex-wife actually paid any tax that is subject to relief. 26 U.S.C. § 6015(g). For example, the ex-wife paid $5,000 of tax liability for which the ex-wife was subsequently granted Innocent Spouse Relief. The ex-wife is only eligible for a refund if granted Innocent Spouse Relief or Equitable Relief. The ex-wife is not eligible for a refund if granted Separation of Liability Relief. 26 U.S.C. § 6015(g)(3); 26 C.F.R. § 1.6015-3(c)(1).
