What If My Spouse Incurred CA State Tax Debt Without My Knowledge?
The Franchise Tax Board 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 California taxes owed. The FTB offers the following types of innocent spouse relief.
Key takeaways
- Innocent spouse relief - provides you with relief from California state taxes incurred by your spouse or domestic partner.
- Requirements - you were unaware of the income and holding your responsible for the tax would be unfair.
- Additional considerations - depending on the type of relief you get, you may also need to prove that you didn't know about the tax and had no reason to know.
- IRS relief - the IRS also offers innocent spouse relief, and if you get approved, the FTB may offer you similar relief.
- Help from a pro - use TaxCure to find a California-based tax pro who has experience with this FTB relief option.
Requirements for Innocent Spouse Relief in California
Under the FTB's innocent spouse relief program, you may qualify for relief from assessed additional tax, penalties, and interest if you 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
If you meet these requirements, you may be able to get relief in a few different ways. The FTB offers innocent spouse relief based on separation of allocation, equitable relief, IRS relief, or relief from community income. Each of these options has slightly different requirements and benefits. Keep reading for more details.
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
Equitable Relief
A taxpayer who filed a joint tax return, and does not otherwise qualify for 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
IRS 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.
Requesting Relief
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.
FAQs About Innocent Spouse Relief
Will the FTB notify my spouse or former spouse if I apply for relief?
Yes, the FTB will notify your spouse or former spouse if you apply for relief. However, you can indicate that you don't want them to receive any of your contact details.
Can I claim innocent spouse relief on a tax liability due to my late spouse?
If your spouse has died and left you with tax debt, you may qualify for innocent spouse relief if you meet the conditions required for relief in California. For example, if your late spouse incurred the tax liability and they were abusive, you may qualify for equitable relief. If you filed separately and your late spouse did not report income on their return, you may be able to get relief if you did not know about the income. You may also qualify if you get approved for IRS innocent spouse relief.
Why did the FTB increase my tax due on a separately filed tax return?
California is a community property state, meaning that income earned by your spouse is considered to be income earned by you. If you don't report some of your spouse's income, the FTB may adjust your tax return if you are selected for an audit.
What if my ex-spouse was court-ordered to pay our tax debt?
The FTB may give you innocent spouse relief and absolve you of the liability if you provide a court order that specifically references the CA tax bill, the amount due, the tax year, and how much each of you is required to pay. The IRS generally does not recognize court orders for income tax due on a jointly filed tax return, but depending on the specifics, you may qualify for innocent spouse relief in this situation as well.
Why do I still owe a tax bill after getting innocent spouse relief?
The innocent spouse program only gives you relief from the taxes incurred due to your spouse. You will still owe the tax liability related to the income you earned. Additionally, depending on the circumstances, you may not qualify for relief on all of your spouse or former spouse's tax, and thus, you may still owe a tax liability due to that.
What if the FTB takes my tax refund for my spouse's debt?
Unfortunately, you cannot get relief if the FTB takes your tax refund for your spouse's tax debt. Because California is a community property state, both you and your spouse own the refunds on returned filed separately and jointly, and thus, the FTB or any other CA state agency may seize the refund. The only exception is if you have a notarized pre-nuptial agreement that lists your separate property - the agreement must specifically list the debt as belonging exclusively to one spouse.
In contrast, the IRS offers injured spouse relief. This program provides you with relief if the IRS seizes your refund for your spouse's tax debt. If you qualify, you can reclaim the portion of the refund that was related to your portion of the income.
What if I don't qualify for innocent spouse relief and I cannot afford to pay my CA tax bill?
If you get stuck with a state tax bill that you cannot afford to pay, look into CA installment plans or state offer in compromises (settlements). You may also want to request penalty abatement to make sure your liability is as low as possible. Additionally, if you have been recently rejected for relief, consider contacting a tax professional and asking if they can help you appeal.
How to Get Help Applying for Innocent Spouse Relief
For a list of tax professionals experienced with California Franchise Tax Board issues, visit the link. You can also find a list of tax pros at the following links:
Alternatively, if desired, check out our directory page. When you scroll down to the California section, you will also see links to tax pros based on their city. TaxCure's algorithm lets you filter search results by the problem(s) you are having or the solution you want. Start your search on any page of the site, or go to one of the directory pages linked above. Then, use the filters on the left side of the page to narrow down your results to find the pro you need. For example, if you want to apply for innocent spouse relief in California, expand the tab labeled "California FTB Solution Experience" and then scroll to the bottom and select innocent spouse relief. Check out the guide for more tips on how to search for tax pros using TaxCure.
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.