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Appendix E: Innocent spouse rules.

Married taxpayers typically choose to file a joint tax return because this filing status provides certain benefits. If married taxpayers file a joint tax return, both are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce. (1) 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 the other spouse earned all the income.

However, in some cases a spouse will be relieved of the tax, interest, and penalties on a joint tax return. (2) Three types of relief are available are as follows:

* Innocent spouse relief for additional tax owed by a spouse because his or her spouse (or former spouse) failed to report income or claimed improper deductions or credits;

* Separation of liability relief provides for the allocation of additional tax owed between a spouse and his or her spouse (or former spouse) because something was not reported properly on their joint return. The additional tax allocated to the spouse is generally the amount he or she is responsible for; and

* Equitable Relief may apply when a spouse does not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return. A spouse may also qualify for equitable relief if the correct amount of tax was reported on a joint return, but the tax remains unpaid.

A spouse must meet all of the following conditions to qualify for innocent spouse relief:

* The spouse must have filed a joint return that has an understatement of tax directly related to his or her spouse's erroneous items. Any income omitted from the joint return is an erroneous item. Deductions, credits, and property bases are erroneous items if they are incorrectly reported on the joint return.

* The spouse establishes that at the time he or she signed the joint return, he or she did not know, and had no reason to know, that there was an understatement of tax.

* Taking into account all the facts and circumstances, it would be unfair to hold the spouse liable for the understatement of tax; and

* The spouse requests relief no later than two years after the date the IRS first attempted to collect the tax from him or her. (3)

To qualify under separation of liability, the individual must have filed a joint return and must meet one of the following requirements at the time he or she requests relief:

* The individual is divorced or legally separated from the spouse with whom he or she filed the joint return for which he or she is requesting relief;

* The individual is widowed; or

* The individual has not been a member of the same household as the spouse with whom he or she filed the joint return at any time during the 12-month period ending on the date he or she filed Form 8857 (Request for Innocent Spouse Relief). In addition, the individual must request relief no later than two years after the date the IRS first attempted to collect the tax from him or her. (4)

A spouse may qualify for equitable relief if he or she does not qualify for innocent spouse relief or separation of liability for additional tax owed because (1) of a reporting error, or (2) the spouse properly reported the tax on his or her return but did not pay it. To qualify for equitable relief the requesting spouse must establish that it would be unfair to hold him or her liable for the tax on the joint return, and must also satisfy certain other requirements. The spouse must request equitable relief no later than two years after the date the IRS first attempted to collect the tax from him or her. (5)

In order to request innocent spouse relief, separation of liability relief, or equitable relief, the spouse must:

* File Form 8857 (Request for Innocent Spouse Relief) or a written statement containing the same information required on Form 8857, and

* Sign Form 8857, or the written statement, under penalties of perjury. (6)

If a spouse requests relief from joint liability, the IRS is required to notify the spouse with whom the requesting individual filed the joint return of the request, and allow the other spouse to provide information for consideration. (7)

A spouse who lived in a community property state and filed as married filing separate rather than married filing jointly might still qualify for relief. (8) (Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.)

ENDNOTES

(1.) IRC Sec. 6013(d)(3).

(2.) IRC Sec. 6015.

(3.) IRC Sec. 6015(b); Treas. Reg. [section] 1.6015-2.

(4.) IRC Secs. 6015(c)(1), 6015(c)(3); Treas. Reg. [section] 1.6015-3.

(5.) IRC Sec. 6015(f); Treas. Reg. [section] 1.6015-4; Rev. Proc. 2003-61, 2003-32 IRB 296.

(6.) Treas. Reg. [section] 1.6015-5.

(7.) Treas. Reg. [section] 1.6015-6.

(8.) IRC Sec. 66(c); Treas. Reg. [section] 1.66-4; Rev. Proc. 2003-61, 2003-32 IRB 296.
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Publication:Tools & Techniques of Income Tax Planning, 3rd ed.
Date:Jan 1, 2009
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Previous Article:Appendix D: Income tax rate schedules.

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