Sam Brotman, JD, LLM, MBA October 1, 2020 9 min read

What Is Innocent Spouse Relief [Definition & Types]

Traditional

Separation of Liability Relief

Under separation of liability relief, the understated tax allocated to you is generally the amount you are responsible for.

An individual may request relief by asking the Service to partition liability. There must be liability that the other spouse was responsible for. You must have filed a joint return and meet either of the following requirements at the time you file Form 8857.

  1. 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.); or
  2. 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 which ends on the day you file Form 8857.

Members of the same household.

To be considered living in separate households, you and your spouse must be estranged and not living together. The IRS would consider you and your spouse as members of the same household if:

  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.

The key for this final factor is expectancy of return. Even if the spouse is gone for a long period of absence, if there is an expectation that they will return to the home, then they are still considered part of the household.

Time Limitations

The request for relief must be made within two years from the date of the first collection activity with respect to the RS. The two-year time period for making the request is the same as required under IRC 6015(b). See IRM 25.15.3.5.1, Collection Activity, for the definition of collection activity.

Actual Knowledge Invalidates

Allocation If the Service can show that the RS had actual knowledge of the items giving rise to the deficiency at the time the return was signed, those items are not allocated to the non-reporting spouse. The IRS must show that it is more probable than not that the RS had actual knowledge of the items causing the deficiency at the time the return was signed. See IRM 25.15.3.12, Case Development, for additional information.

Both the Knowledge and Partial Knowledge Sections, and the Domestic Abuse section apply to Allocation of Liability as well, please see above under Innocent Spouse Relief.

Items Attributable to RS

The Requesting Spouse may not be relieved of any part of the liability that they were personally responsible for.

Limitations on Relief

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

  • 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, former spouse, or business partner.
  • The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse).
  • Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax.

Equitable Relief

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

  1. You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability for tax attributable to an item of community income.
  2. You have an understated tax or unpaid tax. See Note, later.
  3. You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme.

If you do not qualify for innocent spouse relief or separation of liability relief, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. If you did not file a joint return but did not qualify for relief from liability for tax attributable to an item of community income, you may be eligible for equitable relief.

Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax, or an unpaid tax. An unpaid tax is liability that you properly reported on your tax return, but you have not paid.

Conditions for Getting Equitable Relief

In order to be considered for equitable relief from joint and several liability, you must meet similar factors as discussed in the equitable Section (D) under Innocent Spouse Relief.

Factors for Determining Whether to Grant Equitable Relief

The IRS will consider all facts and circumstances of your case in determining whether it is unfair to hold you liable for all or part of the unpaid income tax liability or deficiency. They will also consider the factors listed under the Equitable Section of the Innocent Spouse Relief, and whether they should grant full or partial relief.

Again, these factors are similar to the Innocent Spouse statute. Other factors relevant to your case also may be considered. Not one factor is determinative, instead the IRS will weigh the totality of the circumstances. Abuse or the exercise of financial control by your spouse (or former spouse) is a factor that may impact the other factors, as described above. Please see the Innocent Spouse Relief Section under Part D to get an idea of the factors considered.

Time Limitation

In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you.

Relief Also Applicable for Taxpayers in Community Property States

Section 66(c) provides relief from income tax liability resulting from the operation of community property law to taxpayers domiciled in a community property state who do not file a joint return. The same factors are considered as discussed above under equitable relief.



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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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