Evergreen Tax Law

Joint and Several Liability

 

     When you and your spouse sign and submit a Joint Return, you become responsible for both your personal taxes and those of your spouse, including any interest or penalties. This is called Joint and Several Liability, and it means that the IRS can collect any unpaid taxes, penalties or interest owed by either spouse FROM either spouse – even if the couple has since divorced or if only one spouse earned all the income.

 

     There are three forms of relief from Joint and Several Liability available:

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• Innocent Spouse Relief 

 

• Separation of Liability

 

• Equitable Relief 

 

     *All three forms of relief require that you file IRS Form 8857.

 

     If a claim for Innocent Spouse Relief or Separation of Liability is denied, the IRS may consider Equitable Relief.

 

     Only Equitable Relief can be used to address both Understatements of Tax and Underpayments of Tax. Neither Innocent Spouse Relief nor Separation of Liability can be used to address Underpayments of Tax issues.

 

 

The Difference Between Understatements of Tax and Underpayments of Tax

 

     Understatement of Tax: An understatement of tax is generally the difference between the total amount of tax that should have been shown on your return and the amount of tax that was actually shown on your return.

 

     Underpayment of Tax: An underpayment of tax is an amount of tax you properly reported on your return but you have not paid. For example, your joint 2009 return shows that you and your spouse owed $5,000. You pay $2,000 with the return. You have an underpayment of $3,000.

 

 

Innocent Spouse Relief

 

     If you filed a joint return with your spouse (or former spouse) and the IRS is now coming after you, you must file your claim for “Innocent Spouse Relief” within 2 years from the date the IRS begins its collection activity against you. (Use IRS Form 8857)

 

     Again, this is only available to married couples (or once married couples) who filed a joint return, and the joint return must have had an understatement of tax due to “erroneous items” (unreported income, or improper deductions, credits, or property bases) claimed by the other spouse on the return.

 

     When seeking Innocent Spouse Relief, you must establish that, at the time the tax return was signed, you did not know, and had no reason to know, there was an understatement of taxes owed.

 

     Also, when seeking Innocent Spouse Relief, you must prove to the IRS that, under all the facts and circumstances, it would be unfair to hold you responsible for the understatement of tax.

 

     When you request Innocent Spouse Relief, the IRS will attempt to contact your spouse (or former spouse) as well, to advise them of the request and allow them a chance to have a voice in the IRS’s determination of how much each person will end up owing.

 

 

Relief by Separation of Liability

 

     In addition to Innocent Spouse Relief, you may also request Relief by Separation of Liability. This type of relief is very similar to Innocent Spouse Relief, and results in the IRS determining how much of the tax debt each spouse (or former spouse) is personally responsible for, rather than holding both responsible for the entire amount.

 

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Similarities between Separation of Liability and Innocent Spouse Relief

 

     Like Innocent Spouse Relief, you must have filed a joint return with your spouse, and you must file your claim for Relief by Separation of Liability within 2 years from the date the IRS begins its collection activity against you (Use IRS Form 8857).

 

     Also, Separation of Liability can only be used for Understatements of Tax.

 

     When Separation of Liability is applied for, the IRS will attempt to contact your spouse (or former spouse) as well, to advise them of the request and allow them a chance to have a voice in the IRS’s determination of how much each person will end up owing.

 

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Differences Between Innocent Spouse Relief and Relief by Separation of Liability

 

     The main difference between the two claims for relief is that in order to request Relief by Separation of Liability, you must meet either of the following requirements at the time you file your claim for relief:

 

• You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. (Under this rule, you are no longer married if you are widowed.)

 

• You 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 your claim for relief.

 

 

Equitable Relief

 

     If you fail to meet the requirements for both Innocent Spouse Relief and Relief by Separation of Liability, you may still have a chance to avoid Joint and Several Liability if you qualify for Equitable Relief.

 

     In law, the term “equitable” refers to matters based on fairness. When someone applies for Equitable Relief, the IRS will consider all of the facts and circumstances and decide whether it would be unfair to hold that person responsible for the taxes owed.

 

     Unlike Innocent Spouse Relief and Separation of Liability Relief, you may seek Equitable Relief from both Understatements of Tax and Underpayments of Tax.

 

     Also, unlike Innocent Spouse Relief and Separation of Liability, there is no 2-year rule for applying for Equitable Relief.

 

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The Requirements for Equitable Relief

 

     In order to qualify for Equitable Relief, you must meet all of the following:

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• You are not eligible for Innocent Spouse Relief or Relief by Separation of Liability,

 

• ​You and your spouse did not transfer assets to one another as a part of a fraudulent scheme,

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• Your spouse did not transfer assets to you for the main purpose of avoiding tax or the payment of tax,

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• You did not file the return with the intent to commit fraud,

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• You did not pay the tax (with some exceptions),

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• The income tax liability from which you seek relief must be attributable to an item of your spouse (or former spouse) with whom you filed the joint return (with some exceptions), and

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• You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the tax.

 

     Again, in order to apply for Equitable Relief, you must use IRS Form 8857.