This Tax Tip Spotify Podcast and/or WordPress Blog Post is in response to inquiries regarding your Personal Tax Liability for:
- Income tax,
- Interest, and
- Penalties resulting from an understatement of tax on a joint return you filed with your Spouse and/or former Spouse.
When spouses file a joint income tax return, both spouses are responsible for the entire tax liability. This is known as Joint and Several Liability. Joint and several liability applies to the tax liability shown on the joint return, as well as to any additional tax liability the IRS determines to be due. The IRS can collect these taxes from either spouse even if they later divorce and the divorce decree states that one of the former spouses will be solely responsible for the tax. In some cases, however, a spouse (or former spouse) will be relieved of the tax, interest, and penalties on a joint tax return.
The tax law provides three types of relief from joint and Joint and Several Liability:
- Innocent spouse relief,
- Separation of liability relief, and
- Equitable relief.
You must file Form 8857 Request for Innocent Spouse Relief, to request any of these types of relief. Form 8857 must be filed no later than two years after the date on which the IRS first attempted to collect the tax.
Generally, Innocent Spouse Relief relieves you of responsibility for paying tax, interest, and penalties if your Spouse and/or former Spouse improperly reported items or omitted items on your joint tax return.
To qualify for Innocent Spouse Relief:
- You must have filed a joint return with your Spouse and/or former Spouse;
- There must be an understated tax on the joint return that is due to erroneous items (Unreported Income or improper deduction, credit, or property basis) of your Spouse and/or former Spouse;
- You must be able to show that when you signed the joint return, you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed); and
- Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax.
Under Separation of Liability Relief, you may elect to allocate a tax deficiency if certain requirements are met. Thus, the understated tax (plus interest and penalties) on a joint return is allocated between you and your Spouse and/or former Spouse. The understated tax allocated to each spouse is generally the amount that spouse is responsible for. This type of relief is available only for unpaid liabilities resulting from the understated tax. Refunds are not allowed. To request separation of liability relief, you must have filed a joint return with your Spouse and/or former Spouse and at the time you file Form 8857, you either:
- Are no longer married to, or are legally separated from, the spouse with whom you filed the joint return; or
- Were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857.
Even if you do not qualify for Innocent Spouse Relief or Separation of Liability Relief, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. The IRS has the discretion to grant you equitable relief from joint and several liability when, considering all of the facts and circumstances, it would be inequitable to hold you jointly and severally liable.
Unlike Innocent Spouse Relief or Separation of Liability Relief, you can get equitable relief from an understated tax or an underpaid tax. You may qualify for Equitable Relief if:
- You filed a joint return for the tax year for which you seek relief;
- Relief is not available under any other relief provision;
- You and your spouse did not transfer assets to one another as a part of a fraudulent scheme;
- Your spouse did not transfer certain disqualified assets to you or, if such a transfer did occur, relief is only available to the extent that the income tax liability exceeds the value of the disqualified assets;
- You did not file or fail to file the return with Fraudulent Intent; and
- The income tax liability from which you seek relief is attributable to an item of the spouse with whom you filed the joint return, with certain exceptions.
Please call me at your convenience so that we can discuss the rules regarding relief from Joint and Several Liability as they apply to your particular situation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or Tax Preparer. Thank you in advance.
(Updated 05312021-1 320-603)