Separation of Liability Relief
Under separation of liability relief, the IRS separates the tax liability between you and your spouse or ex-spouse. This includes interest and penalties. You are no longer jointly responsible for the debt. Instead, the IRS allocates the debt based on your individual liability. The IRS will generally allocate the understatement of tax based on the amount of income and deductions attributable to your earnings and assets.
You can’t get a refund under this type of relief. If you’ve already paid the tax debt, there is no way to get it back.
Eligibility Requirements for Separate Liability Relief (Section 6015)
To qualify for separation of liability, you must meet the following criteria:
Your Filing Status Was Married Filing Jointly
You must have filed a joint tax return for the year that you are looking to divide the understatement of tax with your former spouse.
Understatement of Tax Exists Due to Errors on the Return
The understatement of tax on the joint tax return resulted in unpaid taxes.
At the time you file Form 8857, you must meet one of the two following conditions:
You are Divorced, Legally Separated, or Widowed
Under this rule, if you are widowed, then you are technically no longer married.
Not a Member of Household for the Last 12 Months
What this means is that you cannot be in the same household as the spouse with whom you filed a joint tax return at any time during the last 12 months starting on the day you filed for relief (Form 8857 filed). The IRS considers you part of the same household if:
- You reside with your spouse in the same dwelling
- You or your spouse are only temporarily absent from the household and it is reasonable to assume they will return. For example, if the household is maintained in anticipation of you or your spouse’s return. Examples of temporary absences include things like prison time, sickness, military service, education, vacation or business.
Reasons the IRS Denies Separation of Liability Requests
Meeting the above requirements does not mean that you automatically get relief. The IRS will not grant separation of liability relief in any of the following situations:
- Your spouse or ex-spouse transferred the property to you to avoid taxes.
- You and your spouse or ex-spouse transferred assets to each other as part of a fraudulent scheme. The fraud doesn’t have to relate to the IRS. It can also be to defraud a creditor, a business partner, or another party.
- The IRS believes that you knew about the errors on the return when you signed the return. If you had actual knowledge of only part of an erroneous item, the IRS will not grant SOL relief for that portion of the item.
Factors the IRS Looks At to Support Actual Knowledge
The IRS will look at different factors as to whether you knew about the error on the joint tax return when you signed it. This includes:
- If you refused or avoided learning about the item to shield yourself from the liability.
- If you or your spouse (or former spouse) owned the property that resulted in the erroneous item
When in doubt, it is always a good idea to consult with a licensed tax professional. If you are looking for a free consultation regarding your tax situation, use the number at the top of the page.