If you do not qualify for classic innocent spouse relief or separation of liability, its still possible to be relieved of responsibility for tax, interest, and penalties through equitable relief. If you request classic innocent spouse relief or separation of liability, and the IRS determines you do not qualify for them, they will then consider whether equitable relief is appropriate in your case.
Equitable relief under section 6015(f) may be available if you don’t qualify for Innocent Spouse or Separation-of-Liability relief and be relieved of liability for understated or unpaid tax. To qualify for this relief, an individual must have an unpaid amount of understated or underpaid tax, must not be eligible for relief under either of the two previously mentioned sections, and
Note that innocent spouse relief and separation-of-liability relief apply only to an understatement of tax, but equitable relief also applies to any underpayment of tax. Also note that although innocent spouse and equitable relief under sections 6015(b) and (f) can result in a refund, separation-of-liability relief under section 6015(c) does not result in a refund (see section 6015(g)(3)).
Taxpayers in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) should know that a determination under any of the provisions of section 6015 is made without regard to community property laws. Relief is also available under section 66 for taxpayers in community property states who have a similar problem: They are married but living apart from each other and filing separately, and they omit from gross income their share of community earned income. Like section 6015, section 66 has both “traditional” and equitable relief provisions (sections 66(a) and (c), respectively). Form 8857 is also used for this type of innocent spouse relief.
Both sections 6015(b) and (c) require requesting relief by filing Form 8857 within two years of the initiation of an IRS “collection activity” with respect to the innocent spouse. Treas. Reg. § 1.6015-5(b)(2) provides that collection activities include notice of an intent to levy (a section 6330 notice) offsetting one spouse’s separate overpayment against a joint liability, and certain other legal actions taken by the IRS. Although the equitable relief provisions of section 6015(f) contain no mention of a time limit for filing, in Treas. Reg. § 1.6015-5(b)(1) the IRS applied the same two-year limit to equitable relief under section 6015(f). The Tax Court has ruled in favor of several plaintiffs who argued that the omission of any stated time limit in the statute means Congress intended for there to be none, and that the regulation is invalid.
The IRS maintains that the same time limit found in sections 6015(b) and (c) nonetheless applies to section 6015(f), and the Seventh Circuit held the regulation to be valid. Similarly, although section 66(c) doesn’t mention a time limit for community property equitable relief claims, the IRS applies a two-year limit for them as well (Revenue Procedure 2003-61, section 4.01).
Don't delay, call tax attorney Dale O'Neal at 817-877-5995 now or request a consultation online to get started today.