There are many benefits of marriage, but liability for the tax owed on income earned by a spouse isn’t one of them. According to the law, married taxpayers who file joint income tax returns are “jointly and severally liable” with their spouses. In addition, married taxpayers living in community property states who file separate returns may also be liable for taxes on income earned by their spouses.
However, Secs. 6015(f) and 66(c) authorize the IRS to grant equitable relief from joint liability in certain circumstances. And similar relief is available under Sec. 66(c) to a spouse who is liable for tax on his or her spouse’s income due to the operation of community property law.
As AICPA’s Tax Adviser publication recently explained, a spouse who files a joint return can file a request for relief from joint tax liability in certain circumstances, which takes one of three forms under Sec. 6015: innocent spouse relief, separation-of-liability relief, or equitable relief. For spouses who have not filed a joint return but may have tax liability resulting from the operation of community property laws, relief can be sought under Sec. 66. Secs. 6015(f)1 and 66(c)2.
In 2013, the IRS issued Rev. Proc. 2013-34, which revised the revised the rules for both situations, and gave more detailed guidance on the circumstances where relief would be granted.
Factors Affecting Relief
Rev. Proc. 2013-34 outlines several factors that the IRS takes into consideration when determining whether or not to grant relief to a requesting spouse:
- Marital status — If the couple is divorced, the IRS is more likely to grant relief.
- Economic hardship — If the requesting spouse would be unable to pay basic living expenses after paying the owed tax, the IRS is more likely to grant relief.
- Knowledge or reason to know — If the requesting spouse didn’t know that the tax was due, the IRS is more likely to grant relief.
- Legal obligation — If the requesting spouse has no legal obligation for the debts of the other, the IRS is more likely to grant relief.
- Significant benefit — If the requesting spouse did not benefit from the unpaid tax, the IRS is more likely to grant relief.
- Compliance with income tax laws —If the requesting spouse made a good-faith effort to comply with tax laws, the IRS is more likely to grant relief.
- Mental or physical health — If the requesting spouse was in physical or mental distress when the return was filed, the IRS is more likely to grant relief.
Significant Changes Made by Rev. Proc. 2013-34
Rev. Proc. 2013-34 made significant changes to the earlier rules. One is that greater weight is given to the presence of abuse or financial control in a marriage and how it affects other factors. The IRS specifically recognized that abuse can come in many forms: physical, psychological, sexual, or emotional, and can include efforts to control, isolate, humiliate, and intimidate the requesting spouse, or to undermine the requesting spouse’s ability to reason independently and be able to do what is required under the tax laws.
A second major change in Rev. Proc. 2013-34 is the time frame allowed when the requesting spouse must file a request for equitable relief. Earlier rules required a claim for equitable relief to be filed no later than two years after the date of the IRS’s first collection activity after July 22, 1998. Under Rev. Proc. 2013-34, a request for equitable relief is timely made if it is filed (a) before the expiration of the limitation period for collections under Sec. 6502 if the requesting spouse is seeking relief from an outstanding liability, or (b) before the expiration of the limitation period for credit or refund claims under Sec. 6511 if the requesting spouse is seeking a refund of taxes paid.
Proving eligibility for relief can be difficult, and the requesting spouse must meet threshold conditions in order to apply. If you find yourself in a situation needing relief, it’s recommended that you talk with a tax professional.