IRS Equitable Relief: Requirements for Qualification (Section 6015f)
IRS Equitable relief is the most general type of relief under the innocent spouse relief program. This program can give you relief from joint and several liability from taxes on a married filing jointly return, but it is subject to a lot of interpretation.
The IRS automatically considers this option for people who don't qualify for innocent spouse relief or separation of liability relief. You can also apply directly to this program if you know that you don't qualify for the other types of relief.
This is a complicated program, and for best results, you should work with a tax pro who has extensive knowledge of the income tax laws in relation to a joint return. This is one of the 10 most litigated tax issues. In other words, innocent spouse and equitable relief claims are more likely to go to tax court than most other tax issues.
What Is IRS Equitable Relief?
Equitable relief is when the IRS decides that it's unfair to hold you responsible for your spouse or former spouse's tax debt on your joint return. This form of innocent spouse relief is the only one that allows you to get relief from an underpayment of tax when your spouse doesn't pay the tax. It can also apply to an understatement of tax on your joint return. Here are some concepts that you should understand before you ask the IRS to grant equitable relief to you.
What Is Underpayment Vs Understatement of Tax?
The other types of innocent spouse relief primarily focus on the understatement of a tax liability. This happens when someone doesn't report all of their income or when they claim excess credits to reduce the amount of their income tax liability on their tax return. As the requesting spouse, you can ask for relief if your spouse or former spouse understated the tax.
An underpayment of tax is a situation where the amount shown on the return is correct but the taxpayer fails to pay the full amount. For example, imagine that you (the requesting spouse) gave your former spouse $5,000 for your tax debt, but your former spouse spent the money on gambling. In this type of situation, you can ask for relief on the unpaid income tax liability. IRS equitable relief is the only spousal relief program that lets you request help with unpaid tax caused by your spouse or former spouse.
Who Is the Requesting Spouse?
The requesting spouse is the one who applies for innocent spouse relief. When you are a requesting spouse, you have to establish why you deserve this type of relief. The other spouse or former spouse is called the non-requesting spouse. Both of you filed a joint return together.
What If My Spouse Doesn't Pay Tax?
As explained above, this is the only type of spouse relief that can help you if your spouse doesn't pay the tax debt that you owe from your joint return. Generally, the other types of spousal relief focus on separation of liability relief.
Separation of liability relief is when the IRS breaks down the income reported in your return to figure out which part of the tax debt is owed by you (the requesting spouse) versus your spouse or former spouse. Then, you're only responsible for your portion of the bill plus anything stipulated in your divorce decree. If you live in a community property state, the community property law as well as your divorce decree can affect how this plays out.
However, separation of liability relief doesn't have to come into play in this program. With this program, even if part of the tax bill was yours, you may be able to get relief if your spouse didn't pay the bill.
What Does the IRS Consider When You Apply for Equitable Relief?
Whether you're applying for equitable relief because your spouse understated the tax or didn't pay the tax, the IRS will start by considering the following seven factors:
The marital status of the requesting spouse. Unlike innocent spouse relief focused on liability seperation, you don't have to be divorced to get equitable relief, but it can help your case. However, if you want streamlined approval, you must be divorced or no longer married.
If you will experience economic hardship if the relief isn't granted.
If you know about the situation that caused the understatement or underpayment of the tax. You don't necessarily need actual knowledge.
If you or the non-requesting spouse had a legal obligation to pay the tax debt. For instance, if your divorce decree stipulates that one of you should pay it.
If you received a significant benefit. Even if you didn't have actual knowledge about the issue, the IRS may not grant equitable relief if you received a significant benefit.
If you are generally compliant with tax reporting and payment requirements.
Your mental and physical health.
These are not the only elements the IRS considers. Remember, this is a subjective part of the law, and the IRS looks at multiple elements to assess fairness. The following sections cover more about the requirements for equitable relief.
Conditions to Qualify for Equitable Relief
In order to qualify for equitable relief, you must meet all of the following conditions:
You Do Not Meet the Requirements for the Other Types of Innocent Spouse Relief.
In other words, you do not qualify for innocent spouse relief or separation of liability relief. Again, if you request relief from these programs and get denied, the IRS will automatically see if you qualify for relief under this program.
With All Circumstances and Facts Considered, the IRS Determines It Is Unfair to Hold You Liable
It would be unfair to hold you liable for the understatement or underpayment of taxes. To establish this fact, the IRS may take into account the following factors. These are essentially a repeat of the elements listed above:
Your marital status
If you knew or had reason to know when signing the return about the items causing the understatement. With an underpayment situation, whether the requesting spouse had reason to believe his or her spouse or former spouse would pay the taxes. You may be able to get partial relief if you only knew about some of the issue.
Whether you would suffer economic hardship without relief. Hardship refers to an inability to pay reasonable basic living expenses.
If there is a legal obligation under the divorce decree or agreement to pay the tax from your joint income tax return.
Whether you received significant benefit from the unpaid tax or understatement of tax.
Your mental and physical state when you signed the return or at the time you requested relief.
To whom the tax interest and penalties are attributed. Normally, you have joint and several liability with a joint return, but again, when you request relief, the IRS looks past the usual law to see what's fair.
If you made an effort to comply with income tax laws following the taxable year or years to which the request relates.
If your spouse or ex-spouse abused you. If you are in an abusive situation, consider calling National Domestic Violence Hotline at 1-800-799-7233.
You and Your Spouse/Ex-spouse Did Not Transfer Assets to Deceive the IRS or Another Third Party
In other words, your spouse/expose and you didn't transfer assets to each other to avoid taxes or to deceive someone other than the IRS. However, if you only own the property due to a community property law in your state, this doesn't apply. Similarly, you can get an exemption from this rule if your ex-spouse was abusive or if you weren't aware that the property was transferred to you.
You Didn't File or Fail to File a Tax Return With the Intent to Defraud
If you filed an incorrect tax return (signed it) or failed to file a tax return at all, you must not have had the intention to commit fraud. A fraudulent scheme is when you intend to cheat on your taxes. A mistake is not the same as a fraudulent scheme.
The Taxes That You Want Relief From Relates to an Item Attributed to Your Spouse.
There are a few exceptions to this rule:
You did not know that funds meant for payment of tax were misappropriated by your spouse/ex-spouse.
The item is yours only due to common property laws.
You can prove that you were a victim of abuse before signing the tax return. You must also show that you didn't challenge any items on the tax return because of fear of your spouse.
Item(s) is in your name but you can prove that it is not actually yours.
You establish your spouse or former spouse's fraudulent activities are the reason for the errors on the tax return causing the tax understatement.
Your Request Must Be Within Respective Statutory Time Periods
If A Balance Is Due, You Have to File Within Time Frame IRS Has to Collect – If you have a balance due, the IRS generally has 10 years from the date of assessment to collect. Therefore, if you have a balance due you need to file Form 8857 within the time period the IRS can legally collect.
Generally, 3 Year Time Limit for a Credit or Refund – If you are requesting a refund or credit for taxes paid, you must file the request within 3 years after the date the tax return is filed or 2 years following the payment of tax, whichever is later. However, exceptions exist for those in a federally declared disaster area or those mentally unable to manage their finances.
If You Have a Balance Due and a Credit or Refund – The time periods discussed above apply for any credit or refund for any payments made. Moreover, the collection time period (generally 10 years) will apply for a balance due to unpaid taxes.
Refund Limits with IRS Equitable Relief
There are a few exceptions and cases where you may be able to get a refund.
If the IRS grants you relief related to an understatement of tax, the IRS may grant a refund on payments made through a payment plan. You must have made the payments after you applied for innocent spouse relief. Moreover, you cannot have defaulted on your payment agreement. The payments must be related to the tax or penalty for which you are seeking relief.
If you receive relief for underpayment of tax, you can receive a refund on payments you have made. You must have made the payment on your own and not with your spouse. There are time restrictions on these payments and their eligibility for a refund.
Can You Reapply for Equitable Relief IRS After a Denial?
In most cases, the only reason to reapply for equitable relief after a denial is if your situation has changed. For instance, if you are no longer married, you may want to reapply. For best results, you should contact a tax pro who has experience with the IRS's equitable relief program. They will be able to let you know if equitable relief is the right option for your situation. If not, they should be able to help you explore other options for dealing with unpaid taxes or the income tax liability of your spouse or former spouse.
Equitable relief is a great form of relief, but it can be challenging to get this type of innocent spouse relief. Even if a taxpayer meets the eligibility requirements there is no guarantee that the IRS will approve the relief request. It is best to work with a tax professional when filing for this type of relief. Here you can find a list of tax professionals who have experience with innocent spouse cases. Or you can start your search below using the applicable filters.