Posted by: Garcia & Cuadra, PA | November 27, 2012

Current Innocent Spouse Provisions (Part VI)

Congress provided for the possibility of granting relief from joint and several tax liability when no relief is available under §6015 (b) and (c) for an underpayment of tax reported on a joint return.   Thus, if eligibility requirements are met, the requesting spouse may be granted relief under §6015 (f) on grounds of equitable relief, if the facts and circumstances establish that it is inequitable to hold the requesting spouse liable for any part of an unpaid deficiency.  The IRS will ordinarily grant equitable relief only if three requirements are met:  (1) The requesting spouse is no longer married to, or is legally separated from, the non requesting spouse; (2) The requesting spouse had no knowledge or reason to know that the non requesting spouse would not pay the income tax liability; and (3) it is established that the requesting spouse will suffer economic hardship if relief is not granted.

A requesting spouse may submit a request for equitable relief only if she (he) meets all of the following six threshold requirements: (1) She (he) filed a joint return for the taxable year in question; (2) relief is not available under §6015 (b) or (c);  (3) the spouses transferred no assets to each other as part of a fraudulent scheme; (4) the non requesting spouse transferred no disqualified assets to the other spouse; (5) she (he) did not file or fail to file the return with fraudulent intent; and (6) the income tax liability in question is attributable to an item of the non requesting spouse, unless one of the following exceptions apply:  (a) The item is attributable to the requesting spouse in whole or part solely by operation of the community property law; (b) the requesting spouse rebuts the presumption that an item to which she (he) holds the title is not attributable to her (him); (c) the requesting spouse did not know and had no reason to know that funds intended for payment were misappropriated by the non requesting spouse for his (her) benefit; and (d) the requesting spouse establishes that she was a victim of abuse prior to the time of signing the return, which although it did not amount to duress, caused the requesting spouse not to challenge treatment of any items on the return for fear of the non requesting spouse’s retaliation.

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