Getting an unexpected tax bill after a divorce or separation can feel like getting kicked when you’re already down. One day, you’re figuring out your routine finances as a newly single person. The next day, you’re struggling with a huge tax bill that you had little to no part in generating. If other forms of spouse relief aren’t available to you, equitable relief could be your path forward. It’s designed for taxpayers who are unfairly burdened by a tax debt that isn’t fully theirs.
Learn more about how equitable relief works, who qualifies, and how to apply. When you’re ready to take tax relief into your own hands, call Wiggam Law at (404) 233-9800.
Key Takeaways
- Equitable relief is a form of relief available when other innocent spouse programs aren’t applicable.
- Eligibility hinges on a wide range of factors, including filing status, economic hardship, and spouse misconduct.
- Applicants must submit Form 8857 and supporting documentation to apply for equitable relief.
- The IRS review process can take six months or longer.
Understanding Equitable Relief
Equitable relief is a type of tax relief that the IRS offers to taxpayers who may not qualify for other forms of tax relief, such as innocent spouse relief. Equitable relief strives to keep one spouse from being unfairly responsible for a tax liability that they didn’t create or shouldn’t have to pay. The IRS may grant equitable relief in cases where holding them responsible would be unjust and inequitable due to their circumstances.
There are a number of scenarios where equitable relief may apply:
- Divorce or separation: Because most marital tax debt is joint and several, one spouse may unintentionally assume tax debt after a divorce or legal separation, despite a divorce decree stating otherwise. The IRS may grant equitable relief when one spouse fails to report income or otherwise puts the other spouse on the hook for their errors.
- Financial hardship: In deciding to grant equitable relief, the IRS will consider the financial hardship it would place on the taxpayer if they were forced to pay it.
- Spouse misconduct: If a spouse mismanaged finances, concealed income, or committed fraud, the other spouse may be entitled to relief.
- Lack of knowledge: When one spouse genuinely had no idea there even was a tax issue, equitable relief could be an option.
The bottom line is that the IRS uses equitable relief to help taxpayers who shouldn’t be punished for circumstances that are beyond their control.
Eligibility for Equitable Relief
The IRS uses a range of factors to determine whether equitable relief is a fair solution for a taxpayer. Some of these factors are:
- Marital status.
- Economic hardship that you may suffer without equitable relief.
- Whether you had any reason to know about your spouse’s understated or unpaid tax.
- If you have a legal obligation to pay the tax.
- Whether you benefited from the tax error.
- If you complied in good faith with the tax law after finding out about the errors.
- The state of your physical and mental health.
- You don’t qualify for separation of liability relief or innocent spouse relief.
There are certain circumstances in which the IRS won’t grant equitable relief. Some of these include:
- You knew your spouse (or former spouse) wouldn’t pay your joint tax liability.
- You knew (or had reason to know) that your spouse’s erroneous tax claim would lead to a tax understatement.
- You signed an offer in compromise.
- You signed a closing agreement with the IRS dealing with the same taxes.
- The court made a final decision to deny you relief for the tax debt.
- You were a party to a related court proceeding, but didn’t request the relief despite having an opportunity to do so.
- You qualify for innocent spouse relief or separation of liability relief. Equitable relief is essentially a “catch-all” that allows the IRS to grant relief in cases that don’t fit into other categories but still warrant financial relief.
One of the key eligibility criteria is whether you knew, or had reason to know, about your spouse’s tax decisions that led to the tax debt. In making this determination, the IRS will consider:
- Your level of education.
- The amount of deceitfulness or evasiveness of your spouse.
- Your level of involvement in the action or decision that led to the tax balance owed.
- Your level of involvement in the financial decisions of your business and/or household.
- Your level of financial expertise or business acumen.
- Any notable changes in how you spend money?
For example, if you have a close working relationship with your family CPA and you handle tax documents multiple times per year, the IRS may question whether you really had no reason to believe that there were issues with your spouse’s tax matters.
Similarly, if you had a sudden increase in your spending habits or standard of living after the change in your tax situation, the IRS may have reason to believe that you benefited personally from the tax errors, and that would make them less likely to grant equitable relief.
What Makes Equitable Relief Different From Other Forms of Relief?
There are other forms of innocent spouse relief, and unless you have previous experience with this type of relief, the differences between them can get confusing. This is especially true because you can’t request equitable relief if you qualify for either of the other options. Here’s a summary of some of the major differences.
| Type of Relief | Who It Helps | Key Features |
|---|---|---|
| Innocent spouse relief | Spouses unaware of errors or omissions on joint tax returns. | Only prevents the innocent spouse from having to pay taxes relating to their spouse’s income. |
| Separation of liability relief | Divorced, legally separated, or widowed spouses. | Only applies to those who aren’t living with their spouse anymore. |
| Equitable relief | Taxpayers who don’t qualify for the other options but face unfair tax liability. | Focuses on fairness, considering the totality of the circumstances, economic circumstances, and spouse misconduct. |
How To Apply for Equitable Relief
The application process is simple and straightforward and revolves around completing IRS Form 8857, Request for Innocent Spouse Relief. It should be noted that the IRS doesn’t have a separate application form for the different types of innocent spouse relief. After they receive your form, the IRS will determine which form of relief you qualify for, if any.
In addition to filling out the form, include any necessary documents that will support your request for relief. Include your name and Social Security number on any additional pages or documents you submit to the IRS.
You can submit your application via fax or mail. The exact fax number and mailing addresses can be found in Form 8857’s instructions.
What To Expect After You Apply
After receiving your request, the IRS will contact your spouse or former spouse to ask if they want to participate in the process. The review process may take up to six months or even longer, depending on the complexity of your case, if there are any responses from your current or former spouse, and the IRS’s workload at the time you apply.
After making a decision, the IRS sends a preliminary determination letter to both parties. If they deny your request for relief, you have 30 days from the date listed on the determination letter to appeal the decision. You’ll submit this appeal to the address indicated on your determination letter.
After reviewing your appeal, the IRS will issue a final determination letter. If you disagree with this decision, you can file another appeal by petitioning the U.S. Tax Court. You’ll have 90 days from the date of the final determination letter to file the petition. You may also file the petition with the U.S. Tax Court if the IRS doesn’t send you a final determination letter within six months of your initial appeal.
When It’s Time to Talk to a Tax Professional
Innocent spouse relief is a complex area of tax law, and it’s normal to feel overwhelmed or confused about what type of relief is best for you. With the help of a tax attorney, you can feel confident that all of your paperwork is filled out correctly and that you’ve included all necessary supporting documentation to make your case stronger.
Your tax lawyer can negotiate on your behalf with the IRS for a fair outcome and help you navigate the appeals process if your request is denied. Looking for professional guidance to help you navigate this process? Call Wiggam Law at (404) 233-9800 or send us a message online to schedule a consultation.
IRS Equitable Relief Frequently Asked Questions
What is equitable relief?
Equitable relief is a type of tax relief for spouses and ex-spouses. The IRS grants equitable relief when it believes it would be unfair to hold you accountable for a tax debt stemming from a jointly filed tax return.
How is the application process different from other forms of innocent spouse relief?
The application process is the same for all forms of innocent spouse relief, and the IRS decides which type of relief (if any) to grant when you apply using Form 8857.
How long does the IRS take to make a decision?
Applicants should expect the process to take up to six months or longer.
What can I do if they deny my request?
You can appeal the decision to the IRS. If you disagree with this appeal decision, you can petition the U.S. Tax Court.
Sources:
https://www.irs.gov/individuals/equitable-relief
https://www.irs.gov/forms-pubs/about-form-8857
https://www.irs.gov/instructions/i8857#en_US_202106_publink10004871
https://www.irs.gov/pub/irs-pdf/f8857.pdf
https://www.irs.gov/individuals/innocent-spouse-relief
https://www.irs.gov/individuals/separation-of-liability-relief
https://www.irs.gov/individuals/tax-relief-for-spouses
https://www.tigta.gov/sites/default/files/reports/2023-10/2024300001fr.pdf
https://www.irs.gov/pub/irs-pdf/p971.pdf
https://www.irs.gov/appeals/innocent-spouse
