Innocent spouse relief allows one spouse or ex-spouse to be relieved of liability for an income tax incurred during the marriage. This relief can provide a much-needed lifeline to taxpayers who are divorced or contemplating divorce.
Injured Spouse Relief is not Innocent Spouse Relief
Before considering the innocent spouse rules, it is helpful to consider the difference between injured spouse relief and innocent spouse relief. The two sound the same, but are completely different.
Injured spouse refers to the ability to recoup refunds held by the IRS to pay the other spouse’s tax liability. Injured spouse relief usually applies when one spouse (1) owes back taxes to the IRS before getting married and does not pay them off prior to marriage or (2) incurs a tax or penalty during the marriage that only applies to that spouse (such as a trust fund recovery penalty for failing to withhold and pay over employment taxes to the IRS).
The injury arises when the IRS takes the non-liable spouse’s property to satisfy the other spouse’s tax debt. This typically involves a couple who files a joint tax return and is entitled to a tax refund, but the IRS keeps the refund to pay one spouse’s tax debt. The non-liable spouse may be able to seek injured spouse relief to recoup the portion of the taxes or property from the IRS.
We previously covered injured spouse here if you want to read more about this topic.
The Innocent Spouse Relief Rules
Unlike injured spouse relief, innocent spouse relief deals with liability for a jointly-filed tax return. This means that the tax liability had to arise during the marriage (you can only file a joint tax return if you are married on the last day of the tax year). Innocent spouse relief allows one spouse to avoid liability for the taxes reported on a joint tax return. There are three types of innocent spouse relief:
1. Sec. 6015(b) Equitable Relief
Sec. 6015(b) can relieve one spouse from liability for taxes if each of the following requirements are met:
- A joint return was filed for the tax year.
- There is an understatement of tax attributable to erroneous items of one individual filing the joint return.
- The other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement.
- Taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement.
- The other individual elects this relief within two years after the date the IRS began its collection activities with respect to the individual making the election.
If each of these requirements are met, then the liability for the understatement is apportioned to the other spouse to the extent the innocent spouse did not know of the understatement or have reason to know about it.
To summarize these rules, this type of innocent spouse relief focuses on equity, it is only available if timely requested, and it only deals with the liability for–not the collection of–a tax debt.
2. Sec. 6015(c) Liability Relief
Sec. 6015(c) is similar to Sec. 6015(b), but it can relieve one spouse from liability for taxes if the couple is not married to, is legally separated from, or does not live with the liable spouse at the time the request is filed. It also does not focus on equity, i.e., there is no requirement to show that it is inequitable to hold the other individual liable for the deficiency in tax.
3. Sec. 6015(f) Relief
Sec. 6015(f) is similar to Sec. 6015(b) in that it focuses on equity, i.e., there is a requirement to show that it is inequitable to hold the other individual liable for the deficiency in tax. Sec. 6015(f) can provide relief where both spouses are liable for the tax, but it is inequitable to collect the debt from one spouse. It can also apply if the two year time period for pursuing the other two types of innocent spouse relief has expired.
The IRS has issued administrative guidance for applying Sec. 6015(f). The latest version is found in Rev. Proc. 2013-34, 2013-43 I.R.B. 397. This Revenue Procedure sets out very specific detailed criteria that have to be met to qualify for this type of relief. The courts have generally followed this guidance in considering whether this type of relief should be granted, so taxpayers who are considering innocent spouse relief should read this revenue procedure to see if they qualify.