Equitable Tax Relief From Community Property Law
When traditional community property tax relief is not available, the IRS may relieve a taxpayer of liability for any unpaid tax or any deficiency (or any portion of either) attributable to an item of community income if taking into account all the facts and circumstances, it's inequitable to hold the taxpayer liable. The equitable relief applies to any deficiency, or underpayments of tax, including those arising from disallowed deductions or credits.
This equitable relief provision (under Code Sec. 66(c)) is similar to the equitable relief provision in Code Sec. 6015(f) – relief from joint and several liability – which relieves a spouse from liability for any deficiency or unpaid tax reported on a joint return.
The following threshold conditions must be met before the IRS will consider a request for equitable relief under Code Sec. 66(c):
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The spouse requesting relief must apply for relief timely., A claim is timely filed under the following circumstances:
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If applying for relief from a liability or a portion of a liability that remains unpaid, the request for relief must be made on or before the Collection Statute Expiration Date (CSED). Generally, that period expires 10 years after the assessment of tax, but other provisions of the Code may extend it.
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Claims for credit or refund of amounts paid must be made before the expiration of the period of limitation on credit or refund. Generally, that period expires three years from the time the return was filed or two years from the time the tax was paid, whichever is later.
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No assets were transferred between the spouses filing the joint return as part of a fraudulent scheme by the spouses;
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No disqualified assets were transferred to the requesting spouse by the non-requesting spouse; and
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The requesting spouse didn't knowingly participate in the filing of a fraudulent joint return.
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The income tax liability from which the requesting spouse seeks relief is attributable (either in full or in part) to an item of the non-requesting spouse with whom the requesting spouse filed the joint return.