Joint Filing Taxpayers Could Get Relief from Joint Tax Liability
When spouses file a joint income tax return, both spouses are responsible for the entire tax liability. This is termed 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 Internal Revenue Service could collect the tax due from either spouse, even if they later divorce and the divorce order stipulates that one of the former spouses will be solely responsible for the tax.
In some cases, however, a spouse or former spouse could be relieved of the tax, interest, and penalties on a joint tax return.
The tax law provides three types of relief from joint and several liability:
- Innocent spouse relief,
- Separation of liability relief, and
- Equitable relief.
The spouse seeking relief 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 for innocent spouse relief and separation of liability relief.
1. Innocent Spouse Relief relieves the spouse of responsibility for paying tax, interest, and penalties if the other spouse or former spouse improperly reported items or omitted items on the joint tax return. To qualify for innocent spouse relief:
- Petitioner must have filed a joint return with his or her spouse 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 the spouse or former spouse.
- Petitioner must be able to show that when he or she signed the joint return, 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.
2. Separation of liability relief could be claimed by taxpayers who are no longer married, widowed, or legally separated and have not been members of the same household for a 12-month period. The tax, plus interest and penalties, that is understated on the joint return is allocated between spouses or former spouse. Generally, the tax allocated is the amount the taxpayer is responsible to pay. This relief is available only for unpaid liabilities resulting from the understated tax. Refund is not allowed.
3. Equitable relief is for a properly stated but underpaid tax. When a taxpayer is not qualified for other forms of relief, he or she may still be relieved of responsibility for tax, interest, and penalties. You may qualify for equitable relief if 1) you filed a joint return for the tax year for which you seek relief; 2) relief is not available under any other relief provision; 3) you and your spouse did not transfer assets to one another as a part of a fraudulent scheme; 4) your spouse did not transfer certain disqualified assets to you; 5) you did not knowingly participate in the filing of a fraudulent joint return; and 6) the income tax liability from which you seek relief is attributable to an item of the spouse with whom you filed the joint return, or an underpayment resulting from that spouse’s income, with certain exceptions.
Tax court cases have constantly shown that the probability of success is very low in a claim for relief from joint and several liability unless the petitioner has acted as a reasonable prudent person.
1. In Anthony J. Todisco, Jr., and April J. Gonzales v. Commissioner of Internal Revenue Service (T.C.Summary Opinion 2021-35), the tax court grants innocent spouse relief to petitioner, April J. Gonzales.
Ms. Gonzales signed the joint return for 2015. She went to the Certified Public Accountant’s office (C.P.A.) and signed the return because she believed that, if she questioned Mr. Todisco about anything, he would get really upset and would get violent toward her and the children. Ms. Gonzales was not involved in preparing the joint return for 2015, and had no knowledge of any of the correct, incorrect, or missing information. She did not know the details and had no knowledge about Mr. Todisco’s income after they separated in May 2015.
Mr. Todisco physically and verbally abused Ms. Gonzales and their children. The physical abuse began in December 2009, she and her children feared Mr. Todisco, and she could not ask him for household items, let alone tax information. Former wife is entitled to innocent spouse relief because it would be inequitable to hold her liable for the tax deficiencies resulting from the understatements of tax for 2010 and 2015 because she did not know and had no reason to know of the items giving rise to the understatements.
2. In Vikki L. Rogers, petitioner, and Brian D. Rogers, intervenor v. Commissioner of the Internal Revenue Service (T.C. Memo. 2021-20), the tax Court ruled that petitioner is not entitled to relief from joint and several liability under section 6015(b), (c), or (f) of the code for the tax years at issue because in applying the reasonable prudent person standard the court found that former spouse, petitioner, knew or had reason to know of the items giving rise to the understatement, and failed to make a good-faith effort to comply with her Federal income tax return filing obligations.
Petitioner and former husband jointly owned one business. Petitioner solely owned 2 businesses. The facts show that petitioner was very involved in making major decisions for the joint business. In fact, she managed the business. After audit by the IRS, she filed for innocent spouse relief. Her claim was denied by the IRS. She claimed that she had no knowledge when the joint return Form 1040 was filed. She also claimed that she was a victim of domestic abuse. However, there is no evidence of a police report and she never sought help from a local domestic violence program.
After weighing all the facts and circumstances, the court is not persuaded that petitioner is entitled to relief under section 6015(f).
The Court applies a reasonable prudent person standard to evaluate the requesting spouse’s knowledge in cases involving both erroneous deductions and unreported income. In applying the reasonable prudent person standard, the court considers four factors:
1. The spouse’s level of education,
2. His or her involvement in the financial and business activities of the family,
3. The presence of unusual or lavish expenses beyond the family’s norm, and
4. The non-requesting spouse’s evasiveness or deceitfulness about the family’s finances.
IRS Publication 971,
IRC section 6015.Resser v. Commissioner, 74 F.3d at 1536.Rogers v. Commissioner,
T.C. Memo. 2018-53, at 103
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