California Franchise Tax Board Innocent Spouse Relief
The FTB has an innocent spouse program that provides tax relief for those taxpayers who otherwise are not responsible for their spouse/RDP’s (registered domestic partnership) delinquent taxes owed. The FTB offers the following types of innocent spouse relief.
Traditional Innocent Joint Filer Relief
A taxpayer may qualify for relief from assessed additional tax, penalties, and interest if they meet all of the following conditions:
- The taxpayer filed a joint tax return
- At the time the taxpayer signed the joint tax return, they were unaware of the items that resulted in an audit assessment of additional tax
- The spouse/RDP created the liability, and
- Taking into account all the facts and circumstances, holding the taxpayer liable for the tax liability would be unfair
Relief by Separate Allocation of Liability
Under this type of tax resolution, the FTB will determine which spouse/RDP is liable for the assessed additional tax, penalties, and interest. They will then assign the liabilities to the responsible spouse/RDP.
A taxpayer may qualify if they filed a joint tax return and met all of the following conditions:
- The taxpayer divorced, legally separated, terminated a registered domestic partnership, or lived apart for 12 months before requesting relief
- The additional tax assessed is attributable in part or in full to the spouse/RDP, and
- The taxpayer did not know the items that created the tax liability when they signed the joint tax return
A taxpayer who filed a joint tax return, and does not otherwise qualify for traditional innocent joint filer relief or relief by “separate allocation of liability,” may be entitled to equitable relief under certain conditions. This is similar to the IRS's equitable relief program.
Regarding a taxpayer’s eligibility for equitable relief, they must show that some or all of the unpaid liability is attributable to the other spouse/RDP (unless they can establish that they were the victim of abuse or financial control by the other spouse/RDP).
The FTB states that they will consider all facts and circumstances when making determinations as to equitable relief. The following are specific factors they will take into consideration:
- The taxpayer’s current marital/RDP status
- Whether the taxpayer experienced abuse from the spouse/RDP during the marriage or registered domestic partnership
- Whether the taxpayer knew when they signed the tax return that it understated their tax liability or that the spouse/RDP would pay the taxes owed when their spouse/RDP filed the tax return
- The taxpayer’s current financial situation and their ability to pay the tax liability
- Whether termination of a registered domestic partnership, a divorce decree or the legally binding agreement identifies the taxpayer or the spouse/RDP as the person legally liable to pay the tax liability
- Whether the taxpayer received a significant benefit from the unpaid income tax liability or tax deficiency, and
- The taxpayer’s compliance with income tax laws for tax years following the tax years for which they requested tax relief
If the IRS granted the taxpayer innocent spouse relief, the FTB may do so from self-assessed unpaid state tax liabilities, or an assessed deficiency of additional taxes, if the taxpayer meets the following conditions:
- The taxpayer filed a valid joint tax return
- Taxpayer submitted a completed FTB 705, Innocent Joint Filer application
- The facts and circumstances underlying the federal unpaid liability and the California unpaid liability are the same
- The IRS granted the taxpayer relief for the same tax years, and
- The taxpayer provides a copy of the IRS Final Determination Letter
Relief from Community Income
If the taxpayer failed to include community income on a separate tax return, and FTB assessed additional tax against the taxpayer based on that omitted community property income, the taxpayer may be entitled to relief from having that community property income included as part of their gross income if the taxpayer meets the following conditions:
- The taxpayer did not file a joint tax return
- Taxpayer did not include an item of community income on a separate tax return for that taxable year
- The taxpayer did not know of, and had no reason to know of, that community income item, and
- The taxpayer can prove that the unreported income was attributable to the spouse/RDP.
Relief by Court Order
The taxpayer may obtain relief if the taxpayer received a divorce decree/termination of registered domestic partnership from their spouse/RDP and the court issued an order relieving the taxpayer of some or all of the unpaid tax due from a joint tax liability. To qualify for a court-ordered revision, it must include the following items:
- A specific reference to the amount of CA state income tax liabilities for each tax year for which relief is granted
- The amount of the total unpaid tax liability each taxpayer is liable for paying
If the taxpayer’s joint gross income exceeds $150,000 or they owe more than $7,500 for the tax years for which they want relief, the taxpayer must send the FTB a letter to request a Tax Revision Clearance Certificate (TRCC) before seeking court-ordered relief. This letter must include the taxpayer’s name, address, telephone number, and social security number. The TRCC is provided to the court. After the court issues its order, the FTB must receive a copy.
The FTB requests that taxpayers who obtain a divorce/registered domestic partnership termination call an Innocent Joint Filer representative at 916.845.7072. They will provide case evaluation and advice on the information that is required to be included in the divorce decree, marital settlement agreement, or registered domestic partnership termination.
The FTB requires the taxpayer to submit the following documents:
- FTB 705, Innocent Joint Filer application (found here: https://www.ftb.ca.gov/forms/misc/705.pdf)
- A statement explaining the grounds for relief and any supporting documentation
- Include the taxpayer’s name, social security number, and the tax years for which the taxpayer wants relief for
- Complete copies of state and federal tax returns for the tax years the taxpayer wants relief for
- If the taxpayer asked for tax relief from the IRS, attach a copy of any IRS correspondence responding to the request
- A complete copy of any divorce decree or marital settlement agreement or termination of registered domestic partnership
Taxpayers should mail these documents to:
State of California
Innocent Joint Filer Program MS A-452
Franchise Tax Board
PO Box 2966
Rancho Cordova, CA 95741-2966.
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Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or a licensed tax professional.