Relief from Joint & Several Liability: Innocent Spouse Relief
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Relief from Joint and Several Liability Innocent Spouse Relief Presented by Sidney Goldin, CPA
description
Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows. In filing jointly, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise as a result of the joint return even if they later divorce.Joint and several liability means that each taxpayer is legally responsible for the entire liability. Thus, both spouses are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits. This is also true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. In some cases, however, a spouse can get relief from joint and several liability.
Transcript of Relief from Joint & Several Liability: Innocent Spouse Relief
Relief from Joint and Several Liability
Innocent Spouse Relief
Presented by
Sidney Goldin, CPA
History
A. Pre-1998 Act Law Requirements
1. Understatement of Tax Liability
a.)Applied only if understatement exceeded a certain percentage of innocent spouse income
2. No specific provision or guidelines for equitable treatment for innocent spouses for underpayments of tax liability
IRS Restructuring andReform Act of 1998
A. Expansion of Spousal Relief
B. Liberalization of Requirements
C. Filed on Form 8857
IRS Restructuring andReform Act of 1998
D. Code Section 6015(b)
1. Understatements of Tax Liabilitya.) Amended Tax Returns
b.) Deficiencies (below)
2. No relief if innocent spouse knew or should have known of understatement
3. No relief if requesting spouse received significant benefit
IRS Restructuring andReform Act of 1998
E. Code Section 6015(c)
1. Election to Allocate as Separate Liability
a.) Tax Return Filing
b.) Audits with resulting deficiencies
c.) Liability allocated in proportion to items attributable to deficiency of particular spouse
IRS Restructuring andReform Act of 1998
F. Equitable Relief for Understatements and Underpayments (code Section 6015(f))
1. Cannot qualify under 6015(b) or 6015(c)
2. Form 8857 must be filed
3. All relevant factors considered
IRS Restructuring andReform Act of 1998
G. Revenue Procedure 2003 – 61, Section 4.02 –Safe Harbor Provisions
1. Requesting spouse no longer married at time of filing for relief; joint return filed during marriage
2. Requesting spouse must have had reasonable belief that tax liability would be paid
3. Requesting spouse would suffer economic hardship if not granted relief
Service will ordinarily grant relief if all
provisions are satisfied
IRS Restructuring andReform Act of 1998
H. General Prerequisites to Equitable Relief (Rev. Proc. 2003-61, Section 4.01, 2003-2, CB
296)
1. Joint return filed
2. No relief available under 6015(b) or (c)
3. No transfer of assets between spouses in fraudulent scheme
4. No transfer of disqualified assets among
spouses (tax avoidance)
5. No failure to file or fraudulent filing by
requesting spouse
6. Underpayment of liability is attributable to
non-requesting spouse
IRS Restructuring andReform Act of 1998
I. Revenue Procedure 2003-61, Section 4.03(2), 2003-2, CB 2961. Referred to as eight “balancing factors”
considered by Tax Court Cases, Thomassen and Gail Prescott Drayer
a.) No longer married
b.) Knowledge
c.) Economic Hardship
IRS Restructuring andReform Act of 1998
IRS Restructuring andReform Act of 1998
d) Significant Benefit
e) Compliance with Federal Income Tax Laws
f) Abuse
g) Mental or Physical Health
h) Non-requesting Spouse’s legal obligation
to pay the taxes pursuant to divorce
decree
Joint Husband Wife
Liability $100,000 Split Liability $100,000 $100,000
Transferred <$100,000> Relief $0 <$100,000>
Due $0 Due $100,000 $0
No Payments
$50,000 Paid InJoint Husband Wife
Liability $100,000 Split Liability $50,000 $50,000
Paid In <$50,000> Relief $0 $50,000
Transferred <$50,000> Due $50,000 $0
Due $0
Wife Granted Full Relief
IRS Restructuring andReform Act of 1998
J. Non-requesting spouse must be notified of filing by requesting spouse from the IRS
1. Must be given opportunity to contest
2. Must be allowed to participate in all proceedings
IRS Restructuring andReform Act of 1998
K. “Injured” Spouse Relief1. Not the same as innocent spouse claim
2. Joint return filed and refund used to pay past taxes of liable spouse
3. Non-liable spouse qualifies for refund
4. Filed on Form 8379
IRS Restructuring andReform Act of 1998
L. Code Section 6015(e)1. Denial of relief by IRS reviewable by U.S. Tax
Court
2. Case heard on a “De Novo” or fresh basis (non abuse standard)
3. No IRS collection or enforcement action during pendency of all legal proceedings
For Additional Information Contact Sidney Goldin, CPAGoldin Peiser & Peiser, LLP
www.GPPcpa.com
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on
any matter contained in this presentation.
