Innocent Spouse Relief – How Much Relief Do I Get?
In my previous post, I discussed the three types of innocent spouse relief. Now, I want to talk a bit about how tax debts are allocated if you obtain relief. In some cases, it may be a better idea to use other tax resolution tools to obtain more complete relief (for example, settling your tax debt with the IRS).
Innocent Spouse Relief (6015(b))
You can only be relieved under this section for a tax debt related to an understatement of tax related to erroneous item attributable to your spouse. I linked to a previous blog post which explains what an erroneous item is.
A simple example is that you were unaware your spouse omitted income from his or her business, resulting in a $15,000 deficiency. Assuming all other requirements are met, you would be relieved of liability for the $15,000. This includes any interest and penalties due on this amount.
Separation of Liability(6015(c))
Under separation of liability, you can be relieved some or all of a tax debt related to an erroneous item or items. The allocation is hard to describe simply. The best way to say it is that you will be treated as filing married filing separately so that items of income and deductions can be allocated to each spouse. From there, the IRS will allocate the deficiency to each spouse based on their responsibility for the item giving rise to the deficiency.
For example, you and your former spouse are later audited by the IRS, resulting in a $150k tax deficiency. Of that $150k total, $100k resulted from your spouse’s sale of stock (unreported). The remaining $50k deficiency resulted from a denied casualty loss related to property you own. In this example, you would be relieved of $100k of the tax deficiency as your spouse would be responsible for that unreported income on his or her tax return if filing separately.
Equitable Relief (6015(f))
Similar to innocent spouse relief, under equitable relief you can be relieved from a tax debt related to an erroneous item of your spouse or former spouse. You can also be relieved from a tax debt related to an underpayment of taxes – meaning a balance due on a filed return, not caused by any erroneous item. This can be hugely beneficial if you properly paid your taxes, but your spouse failed to do so (whether by not having enough withheld or failing to pay estimated taxes).
Finally, you might be able to be relieved of a tax debt that is attributable to you. For example, if your spouse stole or dissipated your income or assets then you might be able to obtain relief. This happens only where:
- Nominal ownership – e.g., your name was on an investment account but your spouse had sole control over it.
- Misappropriation by other spouse – e.g., your spouse emptied your joint bank account and gambled the money away
- Abuse – e.g., your spouse physically or mentally abused you (this can also include financial domination)
Equitable relief provides one of the broadest types of relief. If you are seeking relief from an underpayment of tax (as opposed to taxes due on erroneous items) or you are seeking relief for taxes due from an erroneous item attributable to you, then you would attempt relief under this section.
As you may have guessed, each type of relief comes with a different way to allocate any joint tax debts. Which one should you pick? It really depends on your situation and often it turns on your financial situation. If you think you may qualify then please give us a call. Our contact details are listed below.
If you find yourself wanting more detail then you can always go to: https://www.irs.gov/businesses/small-businesses-self-employed/three-types-of-relief The IRS does a good job discussing the basics and it is worth a read if you are considering innocent spouse relief.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.