IRS Equitable Relief: Requirements for Qualification (Section 6015f)

equitable reliefEquitable relief is the final form of relief under the innocent spouse rule. If you do not qualify for innocent spouse relief or relief by separation of liability it is still possible that you can be relieved of some of your tax liability through equitable relief. This form of innocent spouse relief is the only one that allows you to get relief from an underpayment of tax. Equitable relief is the most broad form of innocent spouse relief and it can be interpreted in many ways by the IRS. Basically with equitable relief the IRS looks to see if it would be unfair to hold you liable for the taxes even if you don’t qualify for the other two forms of relief.

Conditions to Qualify for Equitable Relief

The IRS has set forth conditions in which you “may” qualify for equitable relief. In order to be considered for equitable relief you must meet all of the following conditions:

  1. You do not meet the requirements for innocent spouse relief, relief by separation of liability, or relief from liability arising from community property law
  2. You and your spouse/ex-spouse did not transfer assets to deceive the IRS or other third party
  3. Your spouse/ex-spouse didn’t transfer property for the purpose of avoiding tax or the payment of tax
  4. The tax return must not have been filed with the intent to commit fraud
  5. You did not pay the tax owed. Below are some exceptions to this requirement and in some cases you may be entitled to a refund:
    • If you are granted relief from an understatement of tax you will be eligible for a refund on certain payments made through an IRS installment agreement as long as you have not defaulted on that installment agreement. Only installment agreement payments made after the date you filed for innocent spouse relief are eligible for a refund. It also must be established that you paid those funds for which you seek relief.
    • If you are granted relief for an underpayment of tax, you are eligible for a refund of separate payments that you have made if you can establish that you provided the funds used to make the payment for the amounts you seek a refund. You won’t be eligible for a refund if payments were made with the joint return, joint payments, or payments that your spouse/ex-spouse made.
    • If you request relief within 3 years after filing your return, the refund can’t be more than the part of the tax paid within the 3 years before you filed for innocent spouse relief. If you request relief after the 3 year period, but within 2 years from the time you paid the tax, the refund cannot be more than the tax you paid within the 2 years immediately before you filed for innocent spouse relief
  6. It can be established or proven that once all factors are taken into account, it would be unfair to hold you liable for the understatement or underpayment of taxes. Some of these factors that can be taken into account are the following:
    • If you are separated or divorced from your spouse
    • If you would suffer economic hardship if innocent spouse relief is not granted
    • If there is a legal obligation under the divorce decree or agreement to pay the tax
    • If you received significant benefit from the unpaid tax or item causing the understatement of tax
    • If you made an effort to comply with income tax laws for the tax year that you are requesting relief
    • If you knew or had reason to know about the items causing the understatement or that the tax would not be paid
    • If you were abused by your spouse/ex-spouse
    • If you were in poor mental or physical health on the date you signed the return or at the time you requested innocent spouse relief
  7. The tax liability that you are seeking relief from is attributable to an item from your spouse/ex-spouse. There are four exceptions to this rule which are the following:
    • The item is attributable or partially attributable to you mainly because of operation of community property law
    • The item is attributed to you because it is in your name but you can provide support that it is not actually yours
    • You did not know that funds meant for payment of tax were misappropriated by your spouse/ex-spouse for their benefit
    • You can prove that you were a victim of abuse before signing the tax return. You must also show that you didn’t challenge any items on the tax return because of fear of your spouse

Equitable relief is a great form of relief that allows deserving taxpayers that filed a joint return to get relief from their taxes if they don’t fall under any other category of innocent spouse relief. Under this form of relief the IRS does take into account many different factors, some positive and some negative to make a determination. If you meet the requirements it is likely that you will qualify, but not guaranteed that you will qualify. It is best to work with a tax professional to take the right approach on filing for this form of relief.