IRS Equitable Relief: Requirements for Qualification (Section 6015f)
IRS Equitable relief is the most general type of relief under the innocent spouse rules. It is subject to a lot of interpretation. The agency decides if it’s unfair to hold you responsible for the tax debt. This form of innocent spouse relief is the only one that allows you to get relief from an underpayment of tax. It can also apply to an understatement of tax. An underpayment of tax is a situation where the amount shown on the return is correct but the taxpayer fails to pay the full amount.
The IRS automatically considers this option for those denied or ineligible for innocent spouse relief or separation of liability relief. Generally, the only time to reapply would be if you received a denial in the past due to the fact that you were still married.
Conditions to Qualify for Equitable Relief
In order to qualify for equitable relief, you must meet all of the following conditions:
You Do Not Meet the Requirements for the Other Types of Innocent Spouse Relief.
In other words, you do not qualify for innocent spouse relief or separation of liability relief. About 6 years ago, the IRS revered the 2-year rule on being able to apply as well.
With All Circumstances and Facts Considered, the IRS Determines It Be Unfair to Hold You Liable
It would be unfair to hold you liable for the understatement or underpayment of taxes. To establish this fact, the IRS may take into account the following factors:
- Your marital status
- If you knew or had reason to know when signing the return about the items causing the understatement. With an underpayment situation, whether the requesting spouse had reason to believe his or her spouse or former spouse would pay the taxes.
- Whether you would suffer economic hardship without relief (inability to pay basic living expenses)
- If there is a legal obligation under the divorce decree or agreement to pay the tax
- Whether you received significant benefit from the unpaid tax or understatement of tax
- Your mental and physical state when you signed the return or at the time you requested relief
- To whom the tax debt is attributed to
- If you made an effort to comply with income tax laws following the taxable year or years to which the request relates
- If your spouse or ex-spouse abused you (consider calling National Domestic Violence Hotline at 1-800-799-7233)
You and Your Spouse/Ex-spouse Did Not Transfer Assets to Deceive the IRS or Another Third Party
In other words, your spouse/expose and you didn’t transfer assets to each other to avoid taxes or to deceive someone other than the IRS.
You Didn’t File or Fail to File a Tax Return With the Intent to Defraud
If you filed an incorrect tax return (signed it) or failed to file a tax return at all, you must not have had the intention to commit fraud.
The Tax Debt That You Want Relief From Relates to an Item Attributed to Your Spouse.
There are a few exceptions to this rule:
- You did not know that funds meant for payment of tax were misappropriated by your spouse/ex-spouse.
- The item is yours only due to common property laws.
- 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.
- Item(s) is in your name but you can prove that it is not actually yours.
- You establish your spouse or former spouse’s fraudulent activities is the reason for the errors on the tax return causing the tax understatement.
Your Request Must Be Within Respective Statutory Time Periods
- If A Balance Is Due, You Have to File Within Time Frame IRS Has to Collect – If you have a balance due, the IRS generally has 10 years from the date of assessment to collect. Therefore, if you have a balance due you need to file Form 8857 within the time period the IRS can legally collect.
- Generally, 3 Year Time Limit for a Credit or Refund – If you are requesting a refund or credit for taxes paid, you must file the request within 3 years after the date the tax return is filed or 2 years following the payment of tax, whichever is later. However, exceptions exist for those in a federally declared disaster area or those mentally unable to manage their finances.
- If You Have a Balance Due and a Credit or Refund – The time periods discussed above apply for any credit or refund for any payments made. Moreover, the collection time period (generally 10 years) will apply for a balance due to unpaid taxes.
Refund Limits with IRS Equitable Relief
There are a few exceptions and cases where you may be able to get a refund.
- If the IRS grants you relief related to an understatement of tax, the IRS may grant a refund on payments made through a payment plan. You must have made the payments after you applied for innocent spouse relief. Moreover, you cannot have defaulted on your payment agreement. The payments must be related to the tax or penalty for which you are seeking relief.
- If you receive relief for underpayment of tax, you can receive a refund on payments you have made. You must have made the payment on your own and not with your spouse. There are time restrictions on these payments and their eligibility for a refund.
Equitable relief is a great form of relief. Even if a taxpayer meets the eligibility requirements there is no guarantee that the IRS will approve the relief request. It is best to work with a tax professional when filing for this type of relief.