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Taxmap/pubs/p971-004.htm#TXMP547ff9c1 Equitable Relief

Equitable Relief

If you do not qualify for innocent spouse relief, relief by separation of liability, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. If you request any of these types of relief, and the IRS determines you do not qualify for any of them, the IRS will consider whether equitable relief is appropriate.

Unlike innocent spouse relief or separation of liability, you can get equitable relief from an understatement of tax (defined earlier under Innocent Spouse Relief) or an 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 2001 return shows that you and your spouse owed $5,000. You pay $2,000 with the return. You have an underpayment of $3,000.

Taxmap/pubs/p971-004.htm#TXMP641689c3 Conditions for Getting Equitable Relief

Conditions for Getting Equitable Relief

You may qualify for equitable relief if you meet all of the following conditions.

1. You are not eligible for innocent spouse relief, relief by separation of liability, or relief from liability arising from community property law.
2. You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner.
3. Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. See Transfers of Property To Avoid Tax, earlier, under Relief by Separation of Liability.
4. You did not file or fail to file your return with the intent to commit fraud.
5. You did not pay the tax. However, see Refunds, later, for situations in which you are entitled to a refund of payments you made.
6. You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax. See Factors for Determining Whether To Grant Equitable Relief, later.
7. The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies:
   1. The item is attributable or partially attributable to you solely due to the operation of community property law. If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief.
   2. If the item is titled in your name, the item is presumed to be attributable to you. However, you can rebut this presumption based on the facts and circumstances.
   3. You did not know, and had no reason to know that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. If you meet this exception, the IRS will consider granting equitable relief although the underpayment may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse).
   4. You establish that you were the victim of abuse before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's retaliation. If you meet this exception, relief will be considered although the deficiency or underpayment may be attributable in part or in full to your item.

Taxmap/pubs/p971-004.htm#TXMP39591c1c Refunds

Refund

In the following situations, you are eligible to receive a refund of certain payments you made.

Taxmap/pubs/p971-004.htm#TXMP28ceaa95 Understatement of tax.

If you are granted relief for an understatement of tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Only installment payments made after the date you filed Form 8857 are eligible for a refund. Additionally, you must establish that you provided the funds for which you seek a refund. You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement.

The amount of the refund is subject to the limit discussed later under Limit on amount of refund.

Taxmap/pubs/p971-004.htm#TXMP59daa1b4 Underpayment of tax.

If you are granted relief for an underpayment of tax, you are eligible for a refund of separate payments that you made after July 22, 1998, if you establish that you provided the funds used to make the payment for which you seek a refund. You are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made.

The amount of the refund is subject to the limit discussed next.

Taxmap/pubs/p971-004.htm#TXMP4fb96237 Limit on amount of refund.

If you request relief within 3 years after filing your return, the refund cannot be more than the part of the tax paid within the 3 years (plus any extension of time for filing your return) before you filed your request for 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 your request for relief.

Taxmap/pubs/p971-004.htm#TXMP09fb4906 Factors for Determining Whether To Grant Equitable Relief

Factors for Determining Whether To Grant Equitable Relief

The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understatement or underpayment of tax. The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. The IRS will consider all factors and weigh them appropriately.

Taxmap/pubs/p971-004.htm#TXMP4291a21b Relevant Factors

The following are examples of factors that may be relevant to whether the IRS will grant equitable relief.

• Whether you are separated (whether legally or not) or divorced from your spouse. A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return.
• Whether you would suffer a significant economic hardship if relief is not granted. (In other words, you would not be able to pay your reasonable basic living expenses.)
• Whether you have a legal obligation under a divorce decree or agreement to pay the tax. This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability.
• Whether you received a significant benefit (beyond normal support) from the unpaid tax or item causing the understatement of tax. (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief on page 5.)
• Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years.
• Whether you knew or had reason to know about the items causing the understatement or that the tax would not be paid, as explained next.

Taxmap/pubs/p971-004.htm#TXMP4921883d Knowledge or reason to know.

In the case of an underpayment of tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability.

In the case of an income tax liability that arose from an understatement of tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understatement. Reason to know of the item giving rise to the understatement will not be weighed more heavily than other factors. Actual knowledge of the item giving rise to the understatement, however, is a strong factor weighing against relief. This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling.

Taxmap/pubs/p971-004.htm#TXMP29867c65 Reason to know.

In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels.

Taxmap/pubs/p971-004.htm#TXMP175fe661
Example.

You and your spouse filed a joint 2001 return. That return showed you owed $10,000. You had $5,000 of your own money and you took out a loan to pay the other $5,000. You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Without telling you, your spouse took the $5,000 loan and spent it on himself. You and your spouse were divorced in 2002. In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpayment. The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpayment.

Taxmap/pubs/p971-004.htm#TXMP27236226 Factors Weighing in Favor of Equitable Relief

Factors Weighing in Favor of Equitable Relief

The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief.

• Whether your spouse (or former spouse) abused you.
• Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief.

Previous Page:  Publication 971 - Innocent Spouse Relief - Relief by Separation of Liability Next Page:  Publication 971 - Innocent Spouse Relief - How To Allocate the Understatement of Tax Use     to find additional instances of index items.