| REG-106446-98 |
May 08, 2001 |
Relief from Joint and Several Liability
DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-106446-98] RIN 1545-AW64
TITLE: Relief From Joint and Several Liability
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations relating to
relief from joint and several liability under section 6015 of the
Internal Revenue Code. The regulations reflect changes in the law
made by the IRS Restructuring and Reform Act of 1998. The
regulations provide guidance to married individuals filing joint
returns who may seek relief from joint and several liability. This
document also provides notice of a public hearing on these proposed
regulations.
DATES: Written or electronically generated comments and requests to
speak (with outlines of oral comments) at the public hearing
scheduled for May 30, 2001, must be received by April 27, 2000.
ADDRESSES: Send submissions to: CC:M&SP:RU (REG-106446-98), room
5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 a.m. and 5 p.m. to:
CC:M&SP:RU (REG-106446-98), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed
regulations, Bridget E. Finkenaur, 202-622-4940; concerning
submissions of comments, the hearing and/or to be placed on the
building access list to attend the hearing, Guy Traynor, 202-622-
7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507). Comments on the collection of information should
be sent to the Office of Management and Budget, Attn: Desk Officer
for the DEPARTMENT OF THE TREASURY, Office of Information and
Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer,
W:CAR:MP:FP:S:O, Washington, DC 20224. Comments on the collection of
information should be received by March 19, 2001. Comments are
specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information (see below); How the quality, utility, and
clarity of the information to be collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.The collection of information in this proposed
regulation is in §1.6015-5. Individuals may request relief from
joint and several liability by timely filing Form 8857, This
collection of information is required in order for an individual to
request relief from joint and several liability. This information
will be used to carry out the internal revenue laws. The likely
respondents are individuals.
The reporting burden contained in §1.6015-5 is reflected in the
burden of Form 8857. The estimated burden is: learning about the law
or the form, 17 min.; preparing the form, 17 min.; and copying,
assembling, and sending the form to the IRS, 20 min. The reporting
burden contained in §1.6015-5 for the statement signed under
penalties of perjury is estimated as: learning about the law, 20
min.; preparing the statement signed under penalties of perjury, 30
min.; and copying, assembling, and sending the statement to the IRS,
20 min.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
valid control number assigned by the Office of Management and
Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
U.S.C. 6103.
Background
Section 6013(d)(3) provides that spouses who file a joint Federal
income tax return are jointly and severally liable for liabilities
with respect to tax arising from that return. The term tax includes
additions to tax, penalties, and interest. See sections 6665(a)(2)
and 6601(e)(1). Joint and several liability allows the IRS to
collect the entire liability from either spouse signing the joint
return, without regard to whom the items of income, deduction,
credit, or basis that gave rise to the liability are attributable.
Before the enactment of the Internal Revenue Service Restructuring
and Reform Act of 1998, Public Law 105-206 (112 Stat. 685) (1998)
(RRA), section 6013(e) provided the only relief from joint and
several liability, and it only applied in very limited
circumstances.
Section 3201 of the RRA repealed section 6013(e) and replaced it
with section 6015. Section 6015 applies to liabilities that arise
after July 22, 1998, and liabilities that arose prior to July 22,
1998, which remained unpaid as of that date. The provisions of
section 6015 expand the relief available to spouses or former
spouses who wish to be relieved from all or a portion of the joint
and several liability arising from a joint individual Federal income
tax return. Section 6015 makes the requirements for relief from
joint and several liability, formerly in section 6013(e), less
restrictive (section 6015(b)), and adds two other relief provisions.
One provision, section 6015(c), permits the allocation of a
deficiency between certain estranged spouses or former spouses in
proportion to their respective erroneous items or in accordance with
other allocation rules. The other provision, section 6015(f), gives
the Secretary equitable discretion to grant relief from joint and
several liability. The three relief provisions have different
eligibility requirements and provide different types of relief. This
document contains proposed amendments to the Income Tax Regulations
(26 CFR part 1) that are necessary to carry out the provisions of
section 6015. The proposed regulations provide detailed guidance on
the three types of relief from joint and several liability under
section 6015.
Explanation of Provisions
In General
To qualify for relief from joint and several liability, a requesting
spouse (as defined in the regulations) must elect the application of
section 6015(b) or 6015(c), or request equitable relief under
section 6015(f), within 2 years of the first collection activity
after July 22, 1998, with respect to the requesting spouse. Relief
under section 6015 is only available for income taxes required under
Subtitle A (including self- employment taxes). Relief is not
available for other taxes reported on a taxpayer's income tax return
(e.g., domestic services employment taxes under section 3510).
The proposed regulations define several terms, some of which are
unique to specific provisions, and others of which are generally
applicable to section 6015. One generally applicable term is an
item. An item is generally defined as that which is required to be
separately reported on an individual income tax return. However,
amounts received from investments that are required to be separately
reported on an individual income tax return and that are from the
same source are aggregated and treated as one item. For example,
assume an individual receives $700 in dividends and $1,000 in
interest from X Co. Although dividends and interest are required to
be separately reported on the individual's income tax return, they
are considered one item for purposes of section 6015 because the
dividends and interest are both from X Co. Items include, but are
not limited to, gross income, deductions, credits, and basis. An
erroneous item is defined as any item resulting in an understatement
or deficiency in tax to the extent such item is omitted from, or
improperly reported (including improperly characterized) on, an
individual income tax return.
Innocent Spouse Relief Under Section 6015(b)
In enacting section 6015, Congress focused, in part, on the
limitations of section 6013(e). H.R. Conf. Rep. No. 599, 105 th
Cong., 2d Sess. 249 (1998). Thus, certain limitations under section
6013(e) have been eliminated in section 6015. For example, section
6013(e) required that there be a substantial understatement
attributable to a grossly erroneous item, whereas section 6015(b)
only requires that there be an understatement of an erroneous item.
Another difference is that, unlike section 6013(e), section 6015(b)
expressly provides for partial relief if a requesting spouse did not
know, and had no reason to know, of only a portion of the
understatement. One procedural difference is that a requesting
spouse must now elect the application of section 6015(b).
Otherwise, section 6015(b) provides the same type of relief as was
available under section 6013(e). In addition, as with section
6013(e), if a requesting spouse qualifies for relief under section
6015(b), refunds are available for amounts that the requesting
spouse paid toward the liability for which relief was granted. Much
of the language in section 6015(b) is identical to that of section
6013(e). Accordingly, the case law interpreting this language under
section 6013(e) will be applied in interpreting the same language
under section 6015(b).
The proposed regulations define understatement by reference to
section 6662(d)(2)(A). Consistent with the interpretation of section
6013(e), the proposed regulations also clarify that "knowledge or
reason to know" of an understatement exists only when either the
requesting spouse actually knew of the erroneous item giving rise to
the understatement, or a reasonable person in similar circumstances
would have known of the item.
Allocation of Deficiency Under Section 6015(c)
Section 6015(c) is one of the new relief provisions added by section
3201 of the RRA. Section 6015(c) basically provides relief for an
estranged or former spouse by allowing the requesting spouse to
elect to limit the requesting spouse's liability for a deficiency to
the portion of the deficiency allocated to the requesting spouse. As
with section 6015(b), the relief under section 6015(c) must be
elected. Unlike section 6015(b), refunds are not available under
section 6015(c). Of the three relief provisions in section 6015,
section 6015(c) comes closest to being a mechanical test. Unlike the
other two relief provisions, section 6015(c) does not require a
determination that it would be inequitable to hold the requesting
spouse liable in order for the requesting spouse to obtain relief.
Several objective tests apply to determine whether a requesting
spouse qualifies for relief. Among the requirements for relief under
section 6015(c) is the requirement that the requesting spouse be
divorced, widowed, or legally separated, or not have been a member
of the same household as the nonrequesting spouse at any time during
the 12-month period ending on the date an election for relief is
filed. The proposed regulations provide rules for determining
whether spouses are members of the same household in particular
situations.
Relief under section 6015(c) is not available for the portion of a
deficiency attributable to an erroneous item of the nonrequesting
spouse if the Secretary demonstrates that the requesting spouse had
actual knowledge of that item at the time the requesting spouse
signed the joint return. If the requesting spouse had actual
knowledge of only a portion of the erroneous item, partial relief
may be available for the amount of the deficiency attributable to
the portion of the item of which the requesting spouse did not have
actual knowledge. Reason to know of an erroneous item or a portion
thereof is not sufficient to disqualify a requesting spouse from
relief under section 6015(c). Hence, it may be easier to qualify for
relief under this provision than under section 6015(b).
Knowledge of an item means knowledge of the receipt or expenditure.
It does not mean knowledge of the proper tax treatment of the item
or how (or whether) it was actually reported on the return. This
knowledge standard is consistent with the knowledge standard adopted
by the United States Tax Court and other courts. See Cheshire v.
Commissioner, 115 T.C. No. 15 (August 30, 2000) (knowledge
requirement under section 6015(c) does not require requesting spouse
to possess knowledge of the tax consequences arising from the
erroneous item or that the item reported on the return is incorrect;
rather the statute requires only a showing that the requesting
spouse actually knew of the erroneous item); Wiksell v.
Commissioner, 215 F.3d 1335 (9 Cir. 2000) (knowledge inquiry in
section 6015(c) focuses on th whether the taxpayer had knowledge of
the erroneous item, not the tax consequences of that item). Also,
under the proposed regulations, a requesting spouse could have
actual knowledge of an erroneous item without necessarily knowing
its source. Thus, if W knew that H received $1,000 of interest
income, W would have actual knowledge of that item even if W thought
that the interest was tax-exempt, or even if W did not know from
whom the interest was received. Similarly, W would have actual
knowledge of the item even if W had thought (incorrectly) that H had
included the interest income on the return. A requesting spouse's
failure to review a completed joint return will not negate a
demonstration by the Secretary that the requesting spouse had actual
knowledge of an item.
To demonstrate that a requesting spouse had actual knowledge of an
erroneous item, the Secretary may rely upon all of the facts and
circumstances. One relevant factor is whether the requesting spouse
made an effort to be shielded from liability by deliberately
avoiding learning about an item. Another relevant factor is whether
the requesting spouse had an ownership interest in the property that
gave rise to the item. The proposed regulations provide that joint
ownership is a factor supporting a finding that the requesting
spouse had actual knowledge of an erroneous item.
The proposed regulations also provide that the portion of the
deficiency for which the requesting spouse remains liable is
increased (up to the entire amount of the deficiency) by the value
of any disqualified assets transferred to the requesting spouse by
the nonrequesting spouse. Disqualified assets are defined as those
assets transferred for the principal purpose of avoidance of tax or
payment of tax. Any assets transferred during the period beginning
12 months before the mailing date of the first letter of proposed
deficiency and continuing to the present are presumed to be
disqualified assets. However, the requesting spouse can rebut the
presumption by showing that the principal purpose of the transfer
was not the avoidance of tax or payment of tax. In addition, the
presumption does not apply to transfers of assets pursuant to a
divorce or separate maintenance or child support agreement. The IRS
and Treasury Department are particularly interested in receiving
comments on whether there should be a de minimis exception to the
presumption, and if so, the appropriate amount for such an
exception.
If a requesting spouse qualifies to elect the application of section
6015(c), section 6015(d) generally provides that erroneous items are
allocated between the spouses as if they had filed separate returns.
In addition, section 6015(g) directs the Secretary to establish
alternative methods of allocating erroneous items, other than the
method in section 6015(d). Under the proposed regulations, erroneous
income items are generally allocated to the spouse who earned the
income or who owned the investment or business producing the income.
If both spouses had an ownership interest in an investment or
business, an erroneous income item from that investment or business
is allocated between them in proportion to their respective
ownership interests. Erroneous business or investment deductions are
generally allocated to the spouse who owned the business or
investment. If both spouses had an ownership in the business or
investment, an erroneous deduction related to that business or
investment is allocated between them in proportion to their
respective ownership interests. Personal deductions are generally
allocated 50% to each spouse, unless the evidence shows that a
different allocation is appropriate.
Section 6015(d) also provides rules for allocating a deficiency.
Under the proposed regulations, a portion of the deficiency is
allocated under the "proportionate allocation method," that is, in
proportion to each spouse's share of erroneous items. The proposed
regulations provide additional rules regarding the allocation of
other portions of the deficiency. First, any portion of the
deficiency attributable to certain disallowed credits and taxes
(other than income tax and alternative minimum tax) is allocated
entirely to one spouse or the other. Second, any portion of the
deficiency attributable to the liability of the child of the
requesting or nonrequesting spouse is allocated under special rules.
Third, any portion of the deficiency attributable to the alternative
minimum tax under section 55 is allocated between the spouses in
proportion to their individual shares of the total alternative
minimum taxable income as defined under section 55(b)(2). Fourth,
any portion of the deficiency attributable to accuracy-related
penalties under section 6662 and fraud penalties under section 6663
is allocated to the spouse to whom the item giving rise to the
penalty is allocable.
The proposed regulations provide one alternative allocation method,
which must be used in place of the general allocation method when
there are erroneous items taxed at different rates. This method
ensures that the allocation of the liability is not skewed, for
example, when the deficiency items consist of ordinary income items
and capital gains.
Equitable Relief Under Section 6015(f)
Section 6015(f) is the other new relief provision that was added by
section 3201 of the RRA. Section 6015(f) authorizes the Secretary to
grant equitable relief from joint and several liability to
requesting spouses who do not qualify for relief under section
6015(b) or 6015(c). The proposed regulations provide that the
Secretary has the discretion to grant equitable relief and that the
discretion may be exercised if it would be inequitable to hold the
requesting spouse jointly and severally liable. Equitable relief is
only available to requesting spouses who fail to qualify for relief
under sections 6015(b) and 6015(c). However, section 6015(f) may not
be used to circumvent the "no refund" rule of section 6015(c).
Therefore, equitable relief under section 6015(f) is not available
to refund liabilities already paid, for which the requesting spouse
would otherwise qualify for relief under section 6015(c). Section
6015(f) directs the Secretary to prescribe procedures regarding when
equitable relief may be granted. These proposed regulations provide
general information on section 6015(f) and refer individuals seeking
more detailed guidance to the relevant revenue rulings, revenue
procedures, or other published guidance issued on this topic. The
detailed guidance on section 6015(f) is currently provided in
Revenue Procedure 2000-15 (2000-5 I.R.B. 447).
Other Considerations
In addition to the three types of relief from joint and several
liability, section 6015 has many provisions that are relevant when a
requesting spouse elects relief under section 6015(b) or 6015(c), or
requests relief under section 6015(f). The proposed regulations
provide detailed guidance on these other provisions:
1. Types of Relief Considered.
There are certain statutory consequences to electing the application
of section 6015(b) or section 6015(c) (e.g., suspension of the
statute of limitations on collection). Therefore, the IRS will not
automatically consider such relief unless the requesting spouse
affirmatively elects the application of at least one of those
sections. If a spouse requests relief under section 6015(f) alone,
relief will only be considered under that section. However, if a
requesting spouse elects the application of either section 6015(b)
or 6015(c), the IRS will automatically consider whether the
requesting spouse qualifies for relief under the other relief
provisions of section 6015.
2. Time and Manner of Requesting Relief.
Relief under section 6015 must be elected or requested within two
years from the first collection activity (as defined in the proposed
regulations) after July 22, 1998, against the requesting spouse with
respect to the joint and several liability. In addition, relief may
be elected or requested before the commencement of collection
activity. However, the election may not be made, nor may relief be
requested, before the taxpayer receives a notification of an audit
or a letter or notice from the Secretary indicating that there may
be an outstanding liability with regard to the joint return. The
proposed regulations provide that the Secretary will not consider
premature claims.
3. Determinations.
The proposed regulations provide that a requesting spouse generally
only receives one final determination of relief under section 6015.
However, a second election under section 6015(c) may be considered,
and a final determination may be rendered on that election, if, at
the time of the second election, but not at the time of the first
election, the requesting spouse is divorced, legally separated,
widowed, or has not been a member of the same household as the
nonrequesting spouse at any time during the 12-month period ending
on the date the election was filed.
4. Community Property.
Under section 6015 and the proposed regulations, the operation of
community property law is not considered in determining to which
spouse an erroneous item is allocable.
5. Duress.
The proposed regulations amend §1.6013-4 to clarify that if a
spouse asserts and establishes that he or she signed a joint return
under duress, then the return is not a joint return, and he or she
is not jointly and severally liable for the liability arising from
that return. Therefore, in such a case, relief from joint and
several liability under section 6015 is not necessary and
inapplicable.
Highlighted Issues
These proposed regulations contain detailed guidance on the three
types of relief available under section 6015, as well as the other
provisions contained in section 6015. Although public comment is
sought on all of the issues in the proposed regulations, the IRS and
Treasury Department are particularly interested in receiving
comments on the issues highlighted below. These issues present the
most challenge in administering section 6015(c).
1. Knowledge: The contrasting standards of the relief provisions are
most evident in the respective knowledge limitations. Under section
6015(b), relief is not available unless the requesting spouse
demonstrates that he or she had no knowledge or reason to know of
the item giving rise to the understatement at the time the joint
return was signed. In contrast, section 6015(c) provides that,
assuming all of the qualifications are met, relief is available
unless the Secretary demonstrates that the requesting spouse had
actual knowledge of the item giving rise to the deficiency. Actual
knowledge cannot be inferred from the requesting spouse's reason to
know of the erroneous item. The Secretary bears the burden of proof
with respect to the knowledge limitation of section 6015(c). In
contrast, the requesting spouse bears the burden of proof with
respect to the knowledge and reason to know limitations of section
6015(b). The IRS and Treasury Department are specifically seeking
comments on the definition of item, because it is knowledge of an
item that will disqualify a requesting spouse from receiving relief
under sections 6015(b) and 6015(c).
2. Alternative Allocation Methods: Section 6015(g)(1) directs the
Secretary to prescribe regulations providing alternative allocation
methods, and the proposed regulations provide one that is discussed
above. The proposed regulations also provide that additional
alternative allocation methods may be provided in subsequent
guidance. The IRS and Treasury Department are specifically
interested in receiving comments about the alternative allocation
method provided in the proposed regulations, and any other
allocation methods that should be considered.
3. Interests of the Nonrequesting Spouse: It is anticipated that
relief under section 6015 will be granted more frequently than it
was under section 6013(e). Accordingly, section 6015 provides
safeguards to protect nonrequesting spouses from erroneous
determinations granting relief to their respective requesting
spouses. The proposed regulations provide that the Secretary must
give a nonrequesting spouse notice that the requesting spouse filed
a claim for relief and an opportunity to participate in the
determination of whether relief is appropriate.
In fashioning these safeguards, the IRS and Treasury Department are
attempting to balance the rights and interests of both the
requesting spouse and the nonrequesting spouse. A spouse who signs a
joint return is jointly and severally liable for the entire
liability, and the Secretary may collect the entire liability from
either spouse. Therefore, a determination that one spouse is
relieved of joint and several liability may have no legal effect on
the amount of the other spouse's liability. However, a nonrequesting
spouse does have a practical interest in the outcome of an innocent
spouse determination because if the requesting spouse is relieved of
liability, the IRS's only recourse is to collect that liability from
the nonrequesting spouse. The IRS and Treasury Department recognize
that Congress intended that the IRS take into account the
nonrequesting spouse's views when it makes a determination of
relief. See H.R. Conf. Rep. No. 599, 105 Cong., 2d Sess. 251, th 255
(1998). In addition, information provided by a nonrequesting spouse
is helpful in many cases to determine the appropriate amount of
relief, if any.
Under the proposed regulations, a nonrequesting spouse will have an
opportunity to participate in any administrative or judicial
determination of relief. At the administrative level, the
nonrequesting spouse may submit information relevant to the
determination to the IRS employee making the determination. In
addition, if the requesting spouse files a petition with the Tax
Court, the nonrequesting spouse will be notified, and have an
opportunity to become a party to the proceeding. See Interim Tax
Court Rule 325.
Nonetheless, the IRS and Treasury Department recognize that some
spouses may be reluctant to apply for relief from joint and several
liability, or submit information regarding the other spouse's
request for relief, due to privacy concerns or for fear of the other
spouse's reprisal. To address this concern, the proposed regulations
provide that, at the request of one spouse, the Secretary will omit
from shared documents any information (e.g., new name, address,
employer) that would reasonably identify that spouse's location.
Special Analyses
It has been determined that these regulations are not a significant
regulatory action as defined in Executive Order 12866. Therefore, a
regulatory assessment is not required. It has also been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to the regulations, and because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f), this notice of proposed
rulemaking will be submitted to the Chief Counsel for Advocacy of
the Small
Business
Administration for comment on its impact on small businesses.
Comments and Public Hearing
Before the regulations are adopted as final regulations,
consideration will be given to any written and electronic comments
that are submitted timely to the IRS. The IRS and Treasury
Department specifically request comments on the clarity of the
proposed regulations, on how the proposed regulations can be made
easier to understand, and on the highlighted issues. All comments
will be available for public inspection and copying. A public
hearing has been scheduled for May 30, 2001, at 10 a.m., in the IRS
Auditorium (7 Floor), Internal Revenue th Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the 10 th Street entrance,
located between Constitution and Pennsylvania Avenues, NW. In
addition, all visitors will not be admitted beyond the immediate
entrance area more than 15 minutes before the hearing starts. For
information about having your name placed on the building access
list to attend the hearing, see the "FOR FURTHER INFORMATION
CONTACT" section of this preamble. The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to present oral comments at
the hearing must submit written comments and an outline of the
topics to be discussed at the time to be devoted to each topic
(signed original and eight (8) copies) by April 27, 2001.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal author of the regulations is Bridget E. Finkenaur of
the Office of Associate Chief Counsel, Procedure and Administration
(Administrative Provisions and Judicial Practice Division). However,
other personnel from the IRS and Treasury Department participated in
the development of the regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements. Proposed
Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
the following entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
§1.6015-1 also issued under 26 U.S.C. 6015(g).
§1.6015-2 also issued under 26 U.S.C. 6015(g).
§1.6015-3 also issued under 26 U.S.C. 6015(g).
§1.6015-4 also issued under 26 U.S.C. 6015(g).
§1.6015-5 also issued under 26 U.S.C. 6015(g).
§1.6015-6 also issued under 26 U.S.C. 6015(g).
§1.6015-7 also issued under 26 U.S.C. 6015(g).
§1.6015-8 also issued under 26 U.S.C. 6015(g).
§1.6015-9 also issued under 26 U.S.C. 6015(g).
Par. 2. In §1.6013-4, paragraph (d) is added to read as
follows:
§1.6013-4 Applicable rules.
* * * * *
(d) Return signed under duress. If an individual asserts and
establishes that he or she signed a return under legal duress, the
return is not a joint return. The individual who signed such return
under duress is not jointly and severally liable for the tax shown
on the return or any deficiency in tax with respect to the return.
The return is adjusted to reflect only the tax liability of the
individual who voluntarily signed the return, and the liability is
determined at the applicable rates in section 1(d). Section 6212
applies to the assessment of any deficiency in tax on such return.
Par. 3. Sections 1.6015-0 through 1.6015-9 are added to read as
follows:
§1.6015-0 Table of contents.
This section lists captions contained in §§1.6015-1
through 1.6015-9.
§1.6015-1 Relief from joint and several liability on a joint
return.
(a) In general.
(b) Duress.
(c) Prior closing agreement or offer in compromise.
(d) Fraudulent scheme.
(e) Res judicata and collateral estoppel.
(f) Community property laws.
(1) In general.
(2) Example.
(g) Definitions.
(1) Requesting spouse.
(2) Nonrequesting spouse.
(3) Item.
(4) Erroneous item.
(5) Election or request.
(h) Transferee liability.
(1) In general.
(2) Example.
§1.6015-2 Relief from liability applicable to all qualifying
joint filers.
(a) In general.
(b) Understatement.
(c) Knowledge or reason to know.
(d) Inequity.
(e) Partial relief.
(1) In general.
(2) Example.
§1.6015-3 Allocation of liability for individuals who are no
longer married, are legally separated, or are not members of the
same household.
(a) Election to allocate liability.
(b) Definitions.
(1) Divorced.
(2) Legally separated.
(3) Not members of the same household.
(i) Temporary absences.
(ii) Separate dwellings.
(c) Limitations.
(1) No refunds.
(2) Actual knowledge.
(3) Disqualified asset transfers.
(i) In general.
(ii) Disqualified asset defined.
(iii) Presumption.
(4) Examples.
(d) Allocation.
(1) In general.
(2) Allocation of erroneous items.
(i) Benefit on the return.
(ii) Fraud.
(iii) Erroneous items of income.
(iv) Erroneous deduction items.
(3) Burden of proof.
(4) General allocation method.
(i) Proportionate allocation.
(ii) Separate treatment items.
(iii) Child's liability.
(iv) Allocation of certain items.
(a) Alternative minimum tax.
(b) Accuracy-related and fraud penalties.
(5) Examples.
(6) Alternative allocation methods.
(i) Allocation based on applicable tax rates.
(ii) Allocation methods provided in subsequent published guidance.
(iii) Example.
§1.6015-4 Equitable relief.
§1.6015-5 Time and manner for requesting relief.
(a) Requesting relief.
(b) Time period for filing a request for relief.
(1) In general.
(2) Definitions.
(i) Collection activity.
(ii) Date of levy or seizure.
(3) Requests for relief made before commencement of collection
activity.
(4) Examples.
(5) Premature requests for relief.
(c) Effect of a final administrative determination.
§1.6015-6 Nonrequesting spouse's notice and opportunity to
participate in administrative proceedings.
(a) In general.
(b) Information submitted.
(c) Effect of opportunity to participate.
§1.6015-7 Tax Court review.
(a) In general.
(b) Time period for petitioning the Tax Court.
(c) Restrictions on collection and suspension of the running of the
period of limitations.
(1) Restrictions on collection under §1.6015-2 or 1.6015-3.
(2) Suspension of the running of the period of limitations.
(i) Relief under §1.6015-2 or 1.6015-3.
(ii) Relief under §1.6015-4.
(3) Definitions.
(i) Levy.
(ii) Proceedings in court.
(iii) Assessment to which the election relates.
§1.6015-8 Applicable liabilities.
(a) In general.
(b) Liabilities paid on or before July 22, 1998.
(c) Examples.
§1.6015-9 Effective date.
§1.6015-1 Relief from joint and several liability on a joint
return.
(a) In general.
(1) An individual who qualifies and elects under section 6013 to
file a joint Federal income tax return with another individual is
jointly and severally liable for the joint Federal income tax
liabilities for that year. However, a spouse or former spouse may be
relieved of joint and several liability for any Federal income tax,
self-employment tax, penalties, additions to tax, and interest for
that year under the following three relief provisions:
(i) Innocent spouse relief under §1.6015-2.
(ii) Allocation of deficiency under §1.6015-3.
(iii) Equitable relief under §1.6015-4.
(2) A requesting spouse may submit a single claim electing relief
under both or either §§1.6015-2 and 1.6015-3, and
requesting relief under §1.6015-4. However, equitable relief
under §1.6015-4 is available only to a requesting spouse who
fails to qualify for relief under §§1.6015-2 and 1.6015-3.
If a requesting spouse elects the application of either
§1.6015-2 or 1.6015-3, the Secretary may consider whether
relief is appropriate under the other elective provision and, to the
extent relief is unavailable under either, under §1.6015-4. If
a requesting spouse seeks relief only under §1.6015-4, the
Secretary may not grant relief under §1.6015-2 or 1.6015-3. A
requesting spouse must affirmatively elect the application of
§1.6015-2 or 1.6015-3 in order for the Secretary to grant
relief under one of those sections.
(3) Relief is not available for liabilities that are required to be
reported on a joint Federal income tax return but are not income
taxes imposed under Subtitle A of the Internal Revenue Code (e.g.,
domestic service employment taxes under section 3510).
(b) Duress. For rules relating to the treatment of returns signed
under duress, see §1.6013-4(d).
(c) Prior closing agreement or offer in compromise. A requesting
spouse is not entitled to relief from joint and several liability
under §1.6015-2, 1.6015-3, or 1.6015-4 for any tax year for
which the requesting spouse has entered into a closing agreement
(other than an agreement entered into pursuant to section 6224(c)
relating to partnership items) with the Commissioner that disposes
of the same liability that is the subject of the claim for relief.
In addition, a requesting spouse is not entitled to relief from
joint and several liability under §1.6015-2, 1.6015-3, or
1.6015-4 for any tax year for which the requesting spouse has
entered into an offer in compromise with the Commissioner. For rules
relating to the effect of closing agreements and offers in
compromise, see sections 7121 and 7122, and the regulations
thereunder.
(d) Fraudulent scheme. If the Secretary establishes that a spouse
transferred assets to the other spouse as part of a fraudulent
scheme, relief is not available under section 6015, and section
6013(d)(3) applies to the return.
(e) Res judicata and collateral estoppel. A requesting spouse is not
entitled to relief from joint and several liability under
§1.6015-2 or 1.6015-3 for any tax year for which a court of
competent jurisdiction has rendered a final determination on the
requesting spouse's tax liability if the requesting spouse
materially participated in the proceeding. A requesting spouse has
not materially participated in a prior proceeding if, due to the
effective date of section 6015, relief under section 6015 was not
available in that proceeding. However, any final determinations made
by a court of competent jurisdiction regarding issues relevant to
§1.6015-2, 1.6015-3, or 1.6015-4 are conclusive and may not be
reconsidered, provided the requesting spouse materially participated
in the prior court proceeding.
(f) Community property laws--
(1) In general. In determining whether relief is available under
§1.6015-2, 1.6015-3, or 1.6015- 4, items of income, credits,
and deductions are generally allocated to the spouses without regard
to the operation of community property laws. An erroneous item is
attributed to the individual whose activities gave rise to such
item. See §1.6015- 3(d)(2).
(2) Example. The following example illustrates the rule of this
paragraph (f):
Example.
(i) H and W are married and have lived in State A (a community
property state) since 1987. On April 15, 2003, H and W file a joint
Federal income tax return for the 2002 taxable year. In August 2005,
the Internal Revenue Service proposes a $17,000 deficiency with
respect to the 2002 joint return. A portion of the deficiency is
attributable to $20,000 of H's unreported interest income from his
individual bank account, the remainder of the deficiency is
attributable to $30,000 of W's disallowed business expense
deductions. Under the laws of State A, H and W each own ½ of
all income earned and property acquired during the marriage.
(ii) In November 2005, H and W divorce and W timely elects to
allocate the deficiency. Even though the laws of State A provide
that ½ of the interest income is W's, for purposes of relief
under this section, the $20,000 unreported interest income is
allocable to H, and the $30,000 disallowed deduction is allocable to
W. The community property laws of State A are not considered in
allocating items for this purpose.
(g) Definitions--
(1) Requesting spouse. A requesting spouse is an individual who
filed a joint return and elects relief from Federal income tax
liability arising from that return under §1.6015-2 or 1.6015-3,
or requests relief from Federal income tax liability arising from
that return under §1.6015-4.
(2) Nonrequesting spouse. A nonrequesting spouse is the individual
with whom the requesting spouse filed the joint return for the year
for which relief from liability is sought.
(3) Item. An item is that which is required to be separately listed
on an individual income tax return or any required attachments,
subject to one exception: Amounts received from investments that are
required to be separately reported on an individual income tax
return and that are from the same source are aggregated and treated
as a single item. Items include, but are not limited to, gross
income, deductions, credits, and basis.
(4) Erroneous item. An erroneous item is any item resulting in an
understatement or deficiency in tax to the extent that such item is
omitted from, or improperly reported (including improperly
characterized) on an individual income tax return. For example,
unreported income from an investment asset resulting in an
understatement or deficiency in tax is an erroneous item. Similarly,
ordinary income that is improperly reported as capital gain
resulting in an understatement or deficiency in tax is also an
erroneous item. An erroneous item is also an improperly reported
item that affects the liability on other returns (e.g., an improper
net operating loss that is carried back to a prior year's return).
(5) Election or request. A qualifying election under §1.6015-2
or 1.6015-3, or request under §1.6015-4, is the first timely
claim for relief from joint and several liability for the tax year
for which relief is sought. A qualifying election also includes a
requesting spouse's second election to seek relief from joint and
several liability for the same tax year under §1.6015-3 when
the additional qualifications of paragraph (g)(5)(i) and (ii) of
this section are met--
(i) The requesting spouse did not qualify for relief under
§1.6015-3 when the Internal Revenue Service considered the
first election because the qualifications of §1.6015-3(a) were
not satisfied; and
(ii) At the time of the second election, the qualifications for
relief under §1.6015-3(a) are satisfied.
(h) Transferee liability--
(1) In general. The relief provisions of section 6015 do not negate
liability that arises under the operation of other laws. Therefore,
a requesting spouse who is relieved of joint and several liability
under §1.6015-2, 1.6015-3, or 1.6015-4 may nevertheless remain
liable for the unpaid tax (including additions to tax, penalties,
and interest) to the extent provided by Federal or state transferee
liability or property laws. For the rules regarding the liability of
transferees, see sections 6901 through 6904 and the regulations
thereunder. In addition, the requesting spouse's property may be
subject to collection under Federal or state property laws.
(2) Example. The following example illustrates the rule of this
paragraph (h):
Example. H and W timely file their 1998 joint income tax return on
April 15, 1999. H dies in March 2000, and the executor of H's estate
transfers all of the estate's assets to W. In July 2001, the
Internal Revenue Service assesses a deficiency for the 1998 return.
The items giving rise to the deficiency are attributable to H. W is
relieved of the liability under § 6015, and H's estate remains
solely liable. The Internal Revenue Service may seek to collect the
deficiency from W to the extent permitted under Federal or state
transferee liability or property laws. §1.6015-2 Relief from
liability applicable to all qualifying joint filers.
(a) In general. A requesting spouse may be relieved of joint and
several liability for tax (including additions to tax, penalties,
and interest) from an understatement for a taxable year under this
section if the requesting spouse elects the application of this
section in accordance with §§1.6015-1(g)(5) and 1.6015-5,
and --
(1) A joint return was filed for the taxable year;
(2) On the return there is an understatement attributable to
erroneous items of the nonrequesting spouse;
(3) The requesting spouse establishes that in signing the return he
or she did not know and had no reason to know of the item giving
rise to the understatement; and
(4) It is inequitable to hold the requesting spouse liable for the
deficiency attributable to the understatement.
(b) Understatement. The term understatement has the meaning given to
such term by section 6662(d)(2)(A) and the regulations thereunder.
(c) Knowledge or reason to know. A requesting spouse has knowledge
or reason to know of an erroneous item if he or she either actually
knew of the item giving rise to the understatement, or if a
reasonable person in similar circumstances would have known of the
item giving rise to the understatement. For rules relating to a
requesting spouse's actual knowledge, see §1.6015-3(c)(2). All
of the facts and circumstances are considered in determining whether
a requesting spouse had reason to know of an erroneous item. The
facts and circumstances that are considered include, but are not
limited to, the nature of the item and the amount of the item
relative to other items; the couple's financial situation; the
requesting spouse's educational background and business experience;
the extent of the requesting spouse's participation in the activity
that resulted in the erroneous item; whether the requesting spouse
failed to inquire, at or before the time the return was signed,
about items on the return or omitted from the return that a
reasonable person would question; and whether the erroneous item
represented a departure from a recurring pattern reflected in prior
years' returns (e.g., omitted income from an investment regularly
reported on prior years' returns).
(d) Inequity. All of the facts and circumstances are considered in
determining whether it is inequitable to hold a requesting spouse
jointly and severally liable for an understatement. One relevant
factor for this purpose is whether the requesting spouse
significantly benefitted, directly or indirectly, from the
understatement. A significant benefit is any benefit in excess of
normal support. Evidence of direct or indirect benefit may consist
of transfers of property or rights to property, including transfers
that may be received several years after the year of the
understatement. Thus, for example, if a requesting spouse receives
property (including life insurance proceeds) from the nonrequesting
spouse that is traceable to items omitted from gross income that are
attributable to the nonrequesting spouse, the requesting spouse will
be considered to have received significant benefit from those items.
Other factors that may also be taken into account include the fact
that the nonrequesting spouse has not fulfilled support obligations
to the requesting spouse or the fact that the spouses have been
divorced, legally separated, or not been members of the same
household for at least the 12 months directly preceding the
election. For more information on factors relevant to determining
whether it is inequitable to hold a requesting spouse liable, see
Rev. Proc. 2000-15 (2000-5 I.R.B. 447), or guidance subsequently
published by the Secretary as described in §1.6015-4(c).
(e) Partial relief--
(1) In general. If a requesting spouse had no knowledge or reason to
know of only a portion of an erroneous item, the requesting spouse
may be relieved of the liability attributable to that portion of
that item, if all other requirements are met with respect to that
portion.
(2) Example. The following example illustrates the rules of this
paragraph (e):
Example. H and W are married and file their 2004 joint income tax
return in March 2005. In April 2006, H is convicted of embezzling $2
million from his employer during 2004. H kept all of his
embezzlement income in an individual bank account, and he used most
of the funds to support his gambling habit. However, each month
during 2004, H transferred $10,000 from the individual account to H
and W's joint bank account. W paid the household expenses using this
joint account, and regularly received the bank statements relating
to the account. W had no knowledge or reason to know of H's
embezzling activities.
However, W did have knowledge and reason to know of $120,000 of the
$2 million of H's embezzlement income at the time she signed the
joint return because that amount passed through the couple's joint
bank account. Therefore, W may be relieved of the liability arising
from $1,880,000 of the unreported embezzlement income, but she may
not be relieved of the liability for the deficiency arising from
$120,000 of the unreported embezzlement income of which she knew and
had reason to know. §1.6015-3 Allocation of deficiency for
individuals who are no longer married, are legally separated, or are
not members of the same household.
(a) Election to allocate deficiency. A requesting spouse may elect
to allocate a deficiency if, as defined in paragraph
(b) of this section, the requesting spouse is divorced, widowed, or
legally separated, or has not been a member of the same household as
the nonrequesting spouse at any time during the 12- month period
ending on the date an election for relief is filed. Subject to the
restrictions of paragraph (c) of this section, an eligible
requesting spouse who elects the application of this section in
accordance with §§1.6015-1(g)(5) and 1.6015-5 generally
may be relieved of joint and several liability for the portion of
any deficiency that is allocated to the nonrequesting spouse
pursuant to the allocation methods set forth in paragraph (d) of
this section. Relief may be available to both spouses filing the
joint return if each spouse is eligible for and elects the
application of this section.
(b) Definitions--
(1) Divorced. A requesting spouse is divorced if the requesting
spouse has a divorce decree that is recognized in the jurisdiction
in which the requesting spouse resides.
(2) Legally separated. A requesting spouse is legally separated if
the separation is recognized under the laws of the jurisdiction in
which the requesting spouse resides.
(3) Not members of the same household--
(i) Temporary absences. A requesting spouse and a nonrequesting
spouse are considered members of the same household during either
spouse's temporary absences from the household if 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 such return. Examples of temporary absences may
include, but are not limited to, absence due to incarceration,
hospitalization, business travel, vacation travel, military service,
or education away from home.
(ii) Separate dwellings. A husband and wife who reside in the same
dwelling are considered members of the same household. However, a
husband and wife who reside in two separate dwellings, whether or
not part of the same structure, are not considered members of the
same household unless one is temporarily absent from the other's
household within the meaning of paragraph (b)(3)(i) of this section.
(c) Limitations--
(1) No refunds. Relief under this section is only available for
unpaid liabilities resulting from understatements of liability.
Refunds are not authorized under this section.
(2) Actual knowledge.
(i) If the Secretary demonstrates that the requesting spouse had
actual knowledge at the time the return was signed of an erroneous
item that is allocable to the nonrequesting spouse, the election to
allocate the deficiency attributable to that item is invalid, and
the requesting spouse remains liable for the portion of the
deficiency attributable to that item. For example, assume W received
$5,000 of dividend income from her investment in X Co. but did not
report it on the joint return. H knew that W received $5,000 of
dividend income from X Co. that year. H had actual knowledge of the
erroneous item (i.e., $5,000 of unreported dividend income from X
Co.), and no relief is available under this section for the
deficiency attributable to the dividend income from X Co. If a
requesting spouse had actual knowledge of only a portion of an
erroneous item, then relief is not available for that portion of the
erroneous item. For example, if H knew that W received $1,000 of
dividend income and did not know that W received an additional
$4,000 of dividend income, relief would not be available for the
portion of the deficiency attributable to the $1,000 of dividend
income of which H had actual knowledge. A requesting spouse's actual
knowledge of the proper tax treatment of an item is not relevant for
purposes of demonstrating that the requesting spouse had actual
knowledge of an erroneous item. For example, assume H did not know
W's dividend income from X Co. was taxable, but knew that W received
the dividend income. Relief is not available under this provision.
In addition, a requesting spouse's knowledge of how an erroneous
item was treated on the tax return is not relevant to a
determination of whether the requesting spouse had actual knowledge
of the item. For example, assume that H knew of W's dividend income,
but H failed to review the completed return and did not know that W
omitted the dividend income from the return. Relief is not available
under this provision.
(ii) Knowledge of the source of an erroneous item is not sufficient
to establish actual knowledge. For example, assume H knew that W
owned X Co. stock, but H did not know that X Co. paid dividends to W
that year. H's knowledge of W's ownership in X Co. is not sufficient
to establish that H had actual knowledge of the dividend income from
X Co. In addition, a requesting spouse's actual knowledge may not be
inferred when the requesting spouse merely had reason to know of the
erroneous item. Even if H's knowledge of W's ownership interest in X
Co. indicates a reason to know of the dividend income, actual
knowledge of such dividend income cannot be inferred from H's reason
to know.
(iii) To demonstrate that a requesting spouse had actual knowledge
of an erroneous item at the time the return was signed, the
Secretary may rely upon all of the facts and circumstances. One
factor that may be relied upon in demonstrating that a requesting
spouse had actual knowledge of an erroneous item is whether the
requesting spouse made a deliberate effort to avoid learning about
the item in order to be shielded from liability.
This factor, together with all other facts and circumstances, may
demonstrate that the requesting spouse had actual knowledge of the
item. Another factor that may be relied upon in demonstrating that a
requesting spouse had actual knowledge of an erroneous item is
whether the requesting spouse and the nonrequesting spouse jointly
owned the property that resulted in the erroneous item. Joint
ownership is a factor supporting a finding that the requesting
spouse had actual knowledge of an erroneous item. For purposes of
this paragraph, a requesting spouse will not be considered to have
had an ownership interest in an item based solely on the operation
of community property law. Rather, a requesting spouse who resided
in a community property state at the time the return was signed will
be considered to have had an ownership interest in an item only if
the requesting spouse's name appeared on the ownership documents, or
there otherwise is an indication that the requesting spouse had a
direct interest in the item. For example, assume H and W live in
State A, a community property state. After their marriage, H opens a
bank account in his name. Under the operation of the community
property laws of state A, W owns ½ of the bank account.
However, W does not have an ownership interest in the account for
purposes of this paragraph (c)(2)(iii) because the account is not
held in her name and there is no other indication that she has a
direct interest in the item.
(3) Disqualified asset transfers--
(i) In general. The portion of the deficiency for which a requesting
spouse is liable is increased (up to the entire amount of the
deficiency) by the value of any disqualified asset that was
transferred to the requesting spouse. For purposes of this paragraph
(c)(3), the value of a disqualified asset is the fair market value
of the asset on the date of the transfer.
(ii) Disqualified asset defined. A disqualified asset is any
property or right to property that was transferred from the
nonrequesting spouse to the requesting spouse if the principal
purpose of the transfer was the avoidance of tax or payment of tax
(including additions to tax, penalties, and interest).
(iii) Presumption. Any asset transferred from the nonrequesting
spouse to the requesting spouse during the 12-month period before
the mailing date of the first letter of proposed deficiency (e.g., a
30-day letter or, if no 30-day letter is mailed, a notice of
deficiency) is presumed to be a disqualified asset. The presumption
also applies to any asset that is transferred from the nonrequesting
spouse to the requesting spouse after the mailing date of the first
letter of proposed deficiency. However, the presumption does not
apply if the requesting spouse establishes that the asset was
transferred pursuant to a divorce decree or separate maintenance
agreement. In addition, a requesting spouse may rebut the
presumption by establishing that the principal purpose of the
transfer was not the avoidance of tax or payment of tax.
(4) Examples. The following examples illustrate the rules in this
paragraph (c):
Example 1. Actual knowledge of an erroneous item.
(i) H and W file their 2001 joint Federal income tax return on April
15, 2002. On the return, H and W report W's self-employment income,
but they do not report W's self-employment tax on that income. In
August 2003, H and W receive a 30-day letter from the Internal
Revenue Service proposing a deficiency with respect to W's
unreported self-employment tax on the 2001 return. On November 4,
2003, H, who otherwise qualifies under paragraph (a) of this
section, files an election to allocate the deficiency to W. The
erroneous item is the self-employment income, and it is allocable to
W. H knows that W earned income in 2001 as a self- employed
musician, but he does not know that self-employment tax must be
reported on and paid with a joint return.
(ii) H's election to allocate the deficiency to W is invalid
because, at the time H signed the joint return, H had actual
knowledge of W's self-employment income. The fact that H was unaware
of the tax consequences of that income (i.e., that an individual is
required to pay self-employment tax on that income) is not relevant.
Example 2. Actual knowledge not inferred from a requesting spouse's
reason to know.
(i) H has long been an avid gambler. H supports his gambling habit
and keeps all of his gambling winnings in an individual bank
account, held solely in his name. W knows about H's gambling habit
and that he keeps a separate bank account, but she does not know
whether he has any winnings because H does not tell her, and she
does not otherwise know of H's bank account transactions. H and W
file their 2001 joint Federal income tax return on April 15, 2002.
On October 31, 2003, H and W receive a 30-day letter proposing a
$100,000 deficiency relating to H's unreported gambling income. In
February 2003, H and W divorce, and in March 2004, W files an
election under section 6015(c) to allocate the $100,000 deficiency
to H.
(ii) While W may have had reason to know of the gambling income
because she knew of H's gambling habit and separate account, W did
not have actual knowledge of the erroneous item (i.e., the gambling
winnings). The Internal Revenue Service may not infer actual
knowledge from W's reason to know of the income. Therefore, W's
election to allocate the $100,000 deficiency to H is valid.
Example 3. Actual knowledge of return reporting position.
(i) H and W are legally separated. In February 1999, W signs a blank
joint Federal income tax return for 1998 and gives it to H to fill
out. The return was timely filed on April 15, 1999. In September
2001, H and W receive a 30-day letter proposing a deficiency
relating to $100,000 of unreported dividend income received by H
with respect to stock of ABC Co. owned by H. W knew that H received
the $100,000 dividend payment in August 1998, but she did not know
whether H reported that payment on the joint return.
(ii) On January 30, 2002, W files an election to allocate the
deficiency from the 1998 return to H. W claims she did not review
the completed joint return, and therefore, she had no actual
knowledge that there was an understatement of the dividend income.
W's election to allocate the deficiency to H is invalid because she
had actual knowledge of the erroneous item (dividend income from ABC
Co.) at the time she signed the return. The fact that W signed a
blank return is irrelevant. The result would be the same if W had
not reviewed the completed return or if W had reviewed the completed
return and had not noticed that the item was omitted.
(iii) Assume the same facts as in paragraph (i) of this Example 3
except that, instead of receiving $100,000 of unreported dividend
income, H received $50,000 of interest income from ABC Co. during
the year (properly reported on the return) and $25,000 of dividend
income from ABC Co. (omitted from the return). W knew that H
received both dividend and interest income from ABC Co. but did not
know the total was greater than $50,000. W's election to allocate to
H the deficiency attributable to the omitted dividend income is
valid. Although interest and dividend income are required to be
separately stated on a joint Federal income tax return, they are one
item in this case because the dividend and interest income are
investment income received from the same source (ABC Co.). The
erroneous item is the total dividend and interest income from ABC
Co. W did not have actual knowledge of the erroneous item (combined
dividend and interest income from ABC Co. greater than $50,000).
Therefore, her election to allocate to H the deficiency attributable
to the erroneous item is valid.
Example 4. Actual knowledge of an erroneous item of income.
(i) H and W are legally separated. In June 2004, a deficiency is
proposed with respect to H and W's 2002 joint Federal income tax
return that is attributable to $30,000 of unreported income from H's
plumbing business that should have been reported on a Schedule C. No
Schedule C was attached to the return. At the time W signed the
return, W knew that H had a plumbing business but did not know
whether H received any income from the business. W's election to
allocate to H the deficiency attributable to the $30,000 of
unreported plumbing income is valid.
(ii) Assume the same facts as in paragraph (i) of this Example 4
except that, at the time W signed the return, W knew that H received
$20,000 of plumbing income. W's election to allocate to H the
deficiency attributable to the $20,000 of unreported plumbing income
(of which W had actual knowledge) is invalid. W's election to
allocate to H the deficiency attributable to the $10,000 of
unreported plumbing income (of which W did not have actual
knowledge) is valid.
(iii) Assume the same facts as in paragraph (i) of this Example 4
except that, at the time W signed the return, W did not know the
exact amount of H's plumbing income. W did know, however, that H
received at least $8,000 of plumbing income. W's election to
allocate to H the deficiency attributable to $8,000 of unreported
plumbing income (of which W had actual knowledge) is invalid. W's
election to allocate to H the deficiency attributable to the
remaining $22,000 of unreported plumbing income (of which W did not
have actual knowledge) is valid.
(iv) Assume the same facts as in paragraph (i) of this Example 4
except that H reported $26,000 of plumbing income on the return and
omitted $4,000 of plumbing income from the return. At the time W
signed the return, W knew that H was a plumber, but she did not know
that H earned more than $26,000 that year. W's election to allocate
to H the deficiency attributable to the $4,000 of unreported
plumbing income is valid because she did not have actual knowledge
that H received plumbing income in excess of $26,000.
(v) Assume the same facts as in paragraph (i) of this Example 4
except that H reported only $20,000 of plumbing income on the return
and omitted $10,000 of plumbing income from the return. At the time
W signed the return, W knew that H earned at least $26,000 that year
as a plumber. However, W did not know that, in reality, H earned
$30,000 that year as a plumber. W's election to allocate to H the
deficiency attributable to the $6,000 of unreported plumbing income
(of which W had actual knowledge) is invalid. W's election to
allocate to H the deficiency attributable to the $4,000 of
unreported plumbing income (of which W did not have actual
knowledge) is valid.
Example 5. Actual knowledge of a deduction that is an erroneous
item.
(i) H and W are legally separated. In February 2005, a deficiency is
asserted with respect to their 2002 joint Federal income tax return.
The deficiency is attributable to a disallowed $1,000 deduction for
medical expenses H claimed he incurred. At the time W signed the
return, W knew that H had not incurred any medical expenses. W's
election to allocate to H the deficiency attributable to the
disallowed medical expense deduction is invalid because W had actual
knowledge that H had not incurred any medical expenses.
(ii) Assume the same facts as in paragraph (i) of this Example 5
except that, at the time W signed the return, W did not know whether
H had incurred any medical expenses. W's election to allocate to H
the deficiency attributable to the disallowed medical expense
deduction is valid because she did not have actual knowledge that H
had not incurred any medical expenses.
(iii) Assume the same facts as in paragraph (i) of this Example 5
except that the Internal Revenue Service disallowed $400 of the
$1,000 medical expense deduction. At the time W signed the return, W
knew that H had incurred some medical expenses but did not know the
exact amount. W's election to allocate to H the deficiency
attributable to the disallowed medical expense deduction is valid
because she did not have actual knowledge that H had not incurred
medical expenses (in excess of the floor amount under section
213(a)) of more than $600.
(iv) Assume the same facts as in paragraph (i) of this Example 5
except that H claims an medical expense deduction of $10,000 and the
Internal Revenue Service disallows $9,600. At the time W signed the
return, W knew H had incurred some medical expenses but did not know
the exact amount. W also knew that H incurred medical expenses (in
excess of the floor amount under section 213(a)) of no more than
$1,000. W's election to allocate to H the deficiency attributable to
the portion of the overstated deduction of which she had actual
knowledge ($9,000) is invalid. W's election to allocate the
deficiency attributable to the portion of the overstated deduction
of which she had no knowledge ($600) is valid.
Example 6. Disqualified asset presumption.
(i) H and W are divorced. In May 1999, W transfers $20,000 to H, and
in April 2000, H and W receive a 30-day letter proposing a $40,000
deficiency on their 1998 joint Federal income tax return. The
liability remains unpaid, and in October 2000, H elects to allocate
the deficiency under this section. Seventy-five percent of the net
amount of erroneous items are allocable to W, and 25% of the net
amount of erroneous items are allocable to H.
(ii) In accordance with the proportionate allocation method (see
paragraph (d)(4) of this section), H proposes that $30,000 of the
deficiency be allocated to W and $10,000 be allocated to himself. H
submits a signed statement providing that the principal purpose of
the $20,000 transfer was not the avoidance of tax or payment of tax,
but he does not submit any documentation indicating the reason for
the transfer. H has not overcome the presumption that the $20,000
was a disqualified asset. Therefore, the portion of the deficiency
for which H is liable ($10,000) is increased by the value of the
disqualified asset ($20,000). H is relieved of liability for $10,000
of the $30,000 deficiency allocated to W, and remains jointly and
severally liable for the remaining $30,000 of the deficiency
(assuming that H does not qualify for relief under any other
provision).
Example 7. Disqualified asset presumption inapplicable. On May 1,
2001, H and W receive a 30-day letter regarding a proposed
deficiency on their 1999 joint Federal income tax return relating to
unreported capital gain from H's sale of his investment in Z stock.
W had no actual knowledge of the stock sale. The deficiency is
assessed in November 2001, and in December 2001, H and W divorce.
According to the divorce decree, H must transfer ½ of his
interest in mutual fund A to W. The transfer takes place in February
2002. In August 2002, W elects to allocate the deficiency to H.
Although the transfer of ½ of H's interest in mutual fund A
took place after the 30-day letter was mailed, the mutual fund
interest is not presumed to be a disqualified asset because the
transfer of H's interest in the fund was made pursuant to a divorce
decree.
(d) Allocation--
(1) In general.
(i) An election to allocate a deficiency limits the requesting
spouse's liability to that portion of the deficiency allocated to
the requesting spouse pursuant to this section. Unless relieved of
liability under §1.6015-2 or 1.6015-4, the requesting spouse
remains liable for that portion of the deficiency allocated to the
requesting spouse pursuant to this section.
(ii) Only a requesting spouse may receive relief. A nonrequesting
spouse who does not also elect relief under this section remains
liable for the entire amount of the deficiency, unless the
nonrequesting spouse is relieved of liability under §1.6015-2
or 1.6015-4. If both spouses elect to allocate a deficiency under
this section, there may be a portion of the deficiency that is not
allocable, for which both spouses remain jointly and severally
liable.
(2) Allocation of erroneous items. For purposes of allocating a
deficiency under this section, erroneous items are generally
allocated to the spouses as if separate returns were filed, subject
to the following four exceptions:
(i) Benefit on the return. An erroneous item that would otherwise be
allocated to the nonrequesting spouse is allocated to the requesting
spouse to the extent that the requesting spouse received a tax
benefit on the joint return.
(ii) Fraud. The Secretary may allocate any item appropriately
between the spouses if the Secretary establishes that the allocation
is appropriate due to fraud by one or both spouses.
(iii) Erroneous items of income. Erroneous items of income are
allocated to the spouse who was the source of the income. Wage
income is allocated to the spouse who performed the job producing
such wages. Items of business or investment income are allocated to
the spouse who owned the business or investment. If both spouses
owned an interest in the business or investment, the erroneous item
of income is generally allocated between the spouses in proportion
to each spouse's ownership interest in the business or investment,
subject to the limitations of paragraph (c) of this section. In the
absence of clear and convincing evidence supporting a different
allocation, an erroneous income item relating to an asset that the
spouses owned jointly is generally allocated 50% to each spouse,
subject to the limitations in paragraph (c) of this section and the
exceptions in paragraph (d)(4) of this section. For information
regarding the effect of community property laws, see
§1.6015-1(f) and paragraph (c)(2)(iii) of this section.
(iv) Erroneous deduction items. Erroneous deductions related to a
business or investment are allocated to the spouse who owned the
business or investment. If both spouses owned an interest in the
business or investment, an erroneous deduction item is generally
allocated between the spouses in proportion to each spouse's
ownership interest in the business or investment. In the absence of
clear and convincing evidence supporting a different allocation, an
erroneous deduction item relating to an asset that the spouses owned
jointly is generally allocated 50% to each spouse, subject to the
limitations in paragraph (c) of this section and the exceptions in
paragraph (d)(4) of this section. Personal deduction items are also
generally allocated 50% to each spouse, unless the evidence shows
that a different allocation is appropriate.
(3) Burden of proof. Except for establishing actual knowledge under
paragraph (c)(2) of this section, the requesting spouse must prove
that all of the qualifications for making an election under this
section are satisfied and that none of the limitations (including
the limitation relating to transfers of disqualified assets) apply.
The requesting spouse must also establish the proper allocation of
the erroneous items.
(4) General allocation method--
(i) Proportionate allocation.
(a) The portion of a deficiency allocable to a spouse is the amount
that bears the same ratio to the deficiency as the net amount of
erroneous items allocable to the spouse bears to the net amount of
all erroneous items. This calculation may be expressed as follows:
net amount of erroneous items
X = allocable to the spouse
---------- ----------------------------------
deficiency net amount of all erroneous items
where X = the portion of the deficiency allocable to the spouse.
Thus, net amount of erroneous items
allocable to the spouse
X = (deficiency) * ----------------------------------
net amount of all erroneous items
(B) The proportionate allocation applies to any portion of the
deficiency other than--
(1) Any portion of the deficiency attributable to erroneous items
allocable to the nonrequesting spouse of which the requesting spouse
had actual knowledge;
(2) Any portion of the deficiency attributable to separate treatment
items (as defined in paragraph (d)(4)(ii) of this section);
(3) Any portion of the deficiency relating to the liability of a
child (as defined in paragraph (d)(4)(iii) of this section) of the
requesting spouse or nonrequesting spouse;
(4) Any portion of the deficiency attributable to alternative
minimum tax under section 55;
(5) Any portion of the deficiency attributable to accuracy-related
or fraud penalties;
(6) Any portion of the deficiency allocated pursuant to alternative
allocation methods authorized under paragraph 6 of this section.
(ii) Separate treatment items. Any portion of a deficiency that is
attributable to an item allocable solely to one spouse and that
results from the disallowance of a credit, or a tax or an addition
to tax (other than tax imposed by section 1 or section 55) that is
required to be included with a joint return (a separate treatment
item) is allocated separately to that spouse. Once the proportionate
allocation is made, the liability for the requesting spouse's
separate treatment items is added to the requesting spouse's share
of the liability.
(iii) Child's liability. Any portion of a deficiency relating to the
liability of a child of the requesting and nonrequesting spouse is
generally allocated jointly to both spouses. However, if one of the
spouses had sole custody of the child for the entire tax year for
which the election relates, such portion of the deficiency is
allocated solely to that spouse. For purposes of this paragraph, a
child does not include the taxpayer's stepson or stepdaughter,
unless such child was legally adopted by the taxpayer. If the child
is the child of only one of the spouses, and the other spouse had
not legally adopted such child, any portion of a deficiency relating
to the liability of such child is allocated solely to the parent
spouse.
(iv) Allocation of certain items--
(A) Alternative minimum tax. Any portion of the deficiency
attributable to alternative minimum tax under section 55 is
allocated between the spouses in the same proportion as each
spouse's share of the total alternative minimum taxable income, as
defined in section 55(b)(2).
(b) Accuracy-related and fraud penalties. Any portion of the
deficiency attributable to accuracy-related or fraud penalties under
section 6662 or 6663 is allocated to the spouse whose item generated
the penalty.
(5) Examples. The following examples illustrate the rules of this
paragraph (d). In each example, assume that the requesting spouse or
spouses qualify to elect to allocate the deficiency, that any
election is timely made, and that the deficiency remains unpaid. In
addition, unless otherwise stated, assume that neither spouse has
actual knowledge of the erroneous items allocable to the other
spouse. The examples are as follows:
Example 1. Allocation of erroneous items.
(i) H and W file a 2003 joint Federal income tax return on April 15,
2004. On April 28, 2006, a deficiency is assessed with respect to
their 2003 return. Three erroneous items give rise to the
deficiency--
(A) Unreported interest income, of which W had actual knowledge,
from H and W's joint bank account;
(B) A disallowed business expense deduction on H's Schedule C;
(C) A disallowed Lifetime Learning Credit for W's post-secondary
education; and
(ii) H and W divorce in May 2006, and in September 2006, W timely
elects to allocate the deficiency. The erroneous items are allocable
as follows:
(A) The interest income would be allocated ½ to H and ½ to W, except
that W has actual knowledge of it. Therefore, W's election to
allocate the portion of the deficiency attributable to this item is
invalid, and W remains jointly and severally liable for it.
(b) The business expense deduction is allocable to H.
(c) The Lifetime Learning Credit is allocable to W.
Example 2. Proportionate allocation.
(i) W and H timely file their 2001 joint Federal income tax return
on April 15, 2002. On August 16, 2004, a $54,000 deficiency is
assessed with respect to their 2001 joint return. H and W divorce on
October 14, 2004, and W timely elects to allocate the deficiency.
Five erroneous items give rise to the deficiency--
(A) A disallowed $15,000 business deduction allocable to H;
(B) $20,000 of unreported income allocable to H;
(C) A disallowed $5,000 deduction for educational expense allocable
to H;
(D) A disallowed $40,000 charitable contribution deduction allocable
to W; and
(E) A disallowed $40,000 interest deduction allocable to W.
(ii) In total, there are $120,000 worth of erroneous items, of which
$80,000 are attributable to W and $40,000 are attributable to H.
W's items H's items
----------------------------- ---------------------------
$40,000 charitable deduction $15,000 business deduction
$40,000 interest deduction $20,000 unreported income
$ 5,000 education deduction
------------------------------ ----------------------------
$80,000 $40,000
(iii) The ratio of erroneous items allocable to W to the total
erroneous items is 2/3 ($80,000/$120,000). W's liability is limited
to $36,000 of the deficiency (2/3 of $54,000). The Internal Revenue
Service may collect up to $36,000 from W and up to $54,000 from H
(the total amount collected, however, may not exceed $54,000). If H
also made an election, there would be no remaining joint and several
liability, and the Internal Revenue Service would collect $36,000
from W and $18,000 from H.
Example 3. Proportionate allocation with joint erroneous item.
(i) On September 4, 2001, W elects to allocate a $3,000 deficiency
for the 1998 tax year to H. Three erroneous items give rise to the
deficiency--
(A) Unreported interest in the amount of $4,000 from a joint bank
account;
(B) A disallowed deduction for business expenses in the amount of
$2,000 attributable to H's business; and
(C) Unreported wage income in the amount of $6,000 attributable to
W's second job.
(ii) The erroneous items total $12,000. Generally, income,
deductions, or credits from jointly held property that are erroneous
items are allocable 50% to each spouse. However, in this case, both
spouses had actual knowledge of the unreported interest income.
Therefore, W's election to allocate the portion of the deficiency
attributable to this item is invalid, and W and H remain jointly and
severally liable for this portion. Assume that this portion is
$1,000. W may allocate the remaining $2,000 of the deficiency.
H's items W's items
------------------------- ------------------
$2,000 business deduction $6,000 wage income
Total allocable items: $8,000
(iii) The ratio of erroneous items allocable to W to the total
erroneous items is 3/4 ($6,000/$8,000). W's liability is limited to
$1,500 of the deficiency (3/4 of $2,000) allocated to her. The
Internal Revenue Service may collect up to $2,500 from W (3/4 of the
total allocated deficiency plus $1,000 of the deficiency
attributable to the joint bank account interest) and up to $3,000
from H (the total amount collected, however, cannot exceed $3,000).
(iv) Assume H also elects to allocate the 1998 deficiency. H is
relieved of liability for 3/4 of the deficiency, which is allocated
to W. H's relief totals $1,500 (3/4 of $2,000). H remains liable for
$1,500 of the deficiency (1/4 of the allocated deficiency plus
$1,000 of the deficiency attributable to the joint bank account
interest).
Example 4. Separate treatment items (STIs).
(i) On September 1, 2006, a $28,000 deficiency is assessed with
respect to H and W's 2003 joint return. The deficiency is the result
of 4 erroneous items--
(A) A disallowed Lifetime Learning Credit of $2,000 attributable to
H;
(B) A disallowed business expense deduction of $8,000 attributable
to H;
(C) Unreported income of $24,000 attributable to W; and
(D) Unreported self-employment tax of $14,000 attributable to W.
(ii) H and W both elect to allocate the deficiency.
(iii) The $2,000 Lifetime Learning Credit and the $14,000 self-
employment tax are STIs totaling $16,000. The amount of erroneous
items included in computing the proportionate allocation ratio is
$32,000 ($24,000 unreported income and $8,000 disallowed business
expense deduction). The amount of the deficiency subject to
proportionate allocation is reduced by the amount of STIs
($28,000-$16,000 = $12,000).
(iv) Of the $32,000 of proportionate allocation items, $24,000 is
allocable to W, and $8,000 is allocable to H. W's share of allocable
items H's share of allocable items 3/4 ($24,000/$32,000) 1/4
($8,000/$32,000)
(v) W's liability for the portion of the deficiency subject to
proportionate allocation is limited to $9,000 (3/4 of $12,000) and
H's liability for such portion is limited to $3,000 (1/4 of
$12,000).
(vi) After the proportionate allocation is completed, the amount of
the STIs is added to each spouse's allocated share of the
deficiency.
W's share of total deficiency H's share of total deficiency
----------------------------- -------------------------------
$ 9,000 allocated deficiency $3,000 allocated deficiency
$14,000 self-employment tax $2,000 Lifetime Learning Credit
----------------------------- -------------------------------
$23,000 $5,000
(vii) Therefore, W's liability is limited to $23,000 and H's
liability is limited to $5,000.
Example 5. Allocation of the alternative minimum tax.
(i) H and W file their 2004 joint Federal income tax return on April
15, 2005. During 2004, W's total alternative minimum taxable income
was $120,000, and H's total alternative minimum taxable income was
$30,000. All of H's income was from his business and was reported on
Schedule C. Everything on the 2004 return was properly reported, and
there was no alternative minimum tax liability. In 2005, H
experienced a net operating loss of $25,000 for regular tax
purposes. H did not have a net operating loss for alternative
minimum tax purposes. In February 2006, H and W file an amended
return for 2004 claiming the net operating loss that was carried
back from 2005. The loss is a proper deduction, but it results in an
alternative minimum tax liability, which H and W do not report on
the amended return. In December 2007, a $5,500 deficiency is
assessed on their 2004 joint Federal income tax return resulting
from the unreported alternative minimum tax liability.
(ii) W and H divorce in January 2008, and W elects to allocate the
deficiency.
W's AMT income for 2004: $120,000 H's AMT income for 2004: $ 30,000
Total AMT income for 2004: $150,000
W's share of AMT income for 2004: 4/5 ($120,000/$150,000) H's share
of AMT income for 2004: 1/5 ($30,000/$150,000)
(iii) W's liability is limited to $4,400 (4/5 x $5,500). H remains
liable for the entire deficiency because he did not make an election
to allocate the deficiency.
Example 6. Requesting spouse receives a benefit on the joint return
from the nonrequesting spouse's erroneous item.
(i) In 2001, H earns gross income of $4,000 from his business, and W
earns $50,000 of wage income. On their 2001 joint Federal income tax
return, H deducts $20,000 of business expenses resulting in a net
loss from his business of $16,000. H and W divorce in September
2002, and on May 22, 2003, a $5,200 deficiency is assessed with
respect to their 2001 joint return. W elects to allocate the
deficiency. The deficiency on the joint return results from a
disallowance of all of H's $20,000 of deductions.
(ii) Since H used only $4,000 of the disallowed deductions to offset
gross income from his business, W benefitted from the other $16,000
of the disallowed deductions used to offset her wage income.
Therefore, $4,000 of the disallowed deductions are allocable to H
and $16,000 of the disallowed deductions are allocable to W. W's
liability is limited to $4,160 (4/5 of $5,200). If H also elected to
allocate the deficiency, H's election to allocate the $4,160 of the
deficiency to W would be invalid because H had actual knowledge of
the erroneous items.
Example 7. Calculation of requesting spouse's benefit on the joint
return when the nonrequesting spouse's erroneous item is partially
disallowed. Assume the same facts as in example 6, except that H
deducts $18,000 for business expenses on the joint return, of which
$16,000 are disallowed. Since H used only $2,000 of the $16,000
disallowed deductions to offset gross income from his business, W
received benefit on the return from the other $14,000 of the
disallowed deductions used to offset her wage income. Therefore,
$2,000 of the disallowed deductions are allocable to H and $14,000
of the disallowed deductions are allocable to W. W's liability is
limited to $4,550 (7/8 of $5,200).
(6) Alternative allocation methods--
(i) Allocation based on applicable tax rates. If a deficiency arises
from two or more erroneous items that are subject to tax at
different rates (e.g., ordinary income and capital gain items), the
deficiency is allocated after first separating the erroneous items
into categories according to their applicable tax rate. After all
erroneous items are categorized, a separate allocation is made with
respect to each tax rate category using the proportionate allocation
method of paragraph (d)(4) of this section.
(ii) Allocation methods provided in subsequent published guidance.
The Secretary may prescribe alternative methods for allocating
erroneous items under section 6015(c) in subsequent revenue rulings,
revenue procedures, or other appropriate guidance.
(iii) Example. The following example illustrates the rules of this
paragraph (d)(6):
Example. Allocation based on applicable tax rates. H and W timely
file their 1998 joint Federal income tax return. H and W divorce in
1999. On July 13, 2001, a $5,100 deficiency is assessed with respect
to H and W's 1998 return. Of this deficiency, $2,000 results from
unreported capital gain of $6,000 that is attributable to W and
$4,000 of capital gain that is attributable to H (both gains being
subject to tax at the 20% marginal rate). The remaining $3,100 of
the deficiency is attributable to $10,000 of unreported dividend
income of H that is subject to tax at a marginal rate of 31%. H and
W both timely elect to allocate the deficiency, and qualify under
this section to do so. There are erroneous items subject to
different tax rates; thus, the alternative allocation method of this
paragraph (d)(6) applies. The three erroneous items are first
categorized according to their applicable tax rates, then allocated.
Of the total amount of 20% tax rate items ($10,000), 60% is
allocable to W and 40% is allocable to H. Therefore, 60% of the
$2,000 deficiency attributable to these items (or $1,200) is
allocated to W. The remaining 40% of this portion of the deficiency
($800) is allocated to H. The only 31% tax rate item is allocable to
H. Accordingly, H is liable for $3,900 of the deficiency ($800 +
$3,100), and W is liable for the remaining $1,200.
§1.6015-4 Equitable relief.
(a) A requesting spouse who files a joint return for which a
liability remains unpaid and who does not qualify for full relief
under §1.6015-2 or 1.6015-3 may request equitable relief under this
section. The Internal Revenue Service has the discretion to grant
equitable relief from joint and several liability to a requesting
spouse when, considering all of the facts and circumstances, it
would be inequitable to hold the requesting spouse jointly and
severally liable.
(b) This section may not be used to circumvent the limitation of
§1.6015-3(c)(1) (i.e., no refunds under §1.6015-3). Therefore,
relief is not available under this section to refund liabilities
already paid, for which the requesting spouse would otherwise
qualify for relief under §1.6015-3.
(c) The Secretary will provide the criteria to be used in
determining whether it is inequitable to hold a requesting spouse
jointly and severally liable under this section in revenue rulings,
revenue procedures, or other published guidance. §1.6015-5 Time and
manner for requesting relief.
(a) Requesting relief. To elect the application of §1.6015-2 or
1.6015-3, or to request equitable relief under §1.6015-4, a
requesting spouse must file Form 8857, "Request for Innocent Spouse
Relief (And Separation of Liability and Equitable Relief)"; submit a
written statement containing the same information required on Form
8857, which is signed under penalties of perjury; or submit
information in the manner as may be prescribed by the Secretary in
relevant revenue rulings, revenue procedures, or other published
guidance.
(b) Time period for filing a request for relief--
(1) In general. To elect the application of §1.6015-2 or 1.6015-3,
or to request equitable relief under §1.6015-4, a requesting spouse
must file Form 8857 or other similar statement with the Internal
Revenue Service no later than two years from the date of the first
collection activity against the requesting spouse after July 22,
1998, with respect to the joint tax liability.
(2) Definitions--
(i) Collection activity. For purposes of this paragraph (b),
collection activity means an administrative levy or seizure
described by section 6331 to obtain property of the requesting
spouse; an offset of an overpayment of the requesting spouse against
a liability under section 6402; the filing of a suit by the United
States against the requesting spouse for the collection of the joint
tax liability; or the filing of a claim by the United States in a
court proceeding in which the requesting spouse is a party or which
involves property of the requesting spouse. Collection activity does
not include a notice of intent to levy under sections 6330 and
6331(d); the filing of a Notice of Federal Tax Lien; or a demand for
payment of tax. The term property of the requesting spouse, for
purposes of this paragraph, means property in which the requesting
spouse has an ownership interest (other than solely through the
operation of community property laws), including property owned
jointly with the nonrequesting spouse.
(ii) Date of levy or seizure. For purposes of this paragraph (b), if
tangible personal property or real property is seized and is to be
sold, a notice of seizure is required under section 6335(a). The
date of levy or seizure is the date the notice of seizure is given.
For more information on the rules regarding notice of seizure, see
section 6502(b) and the regulations thereunder. For purposes of this
paragraph (b), if a levy is made on cash or intangible personal
property that will not be sold, the date of levy or seizure is the
date the notice of levy is made. For more information on the rules
regarding levy, see section 6331 and the regulations thereunder. For
purposes of this paragraph (b), if a notice of levy is served by
mail, the date of levy or seizure is the date of delivery of the
notice of levy to the person on whom the levy is made. For more
information on notices of levy served by mail, see §301.6331-1(c) of
this chapter.
(3) Requests for relief made before commencement of collection
activity. An election or request for relief may be made before
collection activity has commenced. For example, an election or
request for relief may be made in connection with an audit or
examination of the joint return, or pursuant to the pre- levy
collection due process (CDP) hearing procedures pursuant to sections
6320 and 6330. For more information on the rules regarding pre-levy
collection due process, see §§301.6320- 1T(e)(1) and (2), and
301.6330-1T(e)(1) and (2) of this chapter. However, no request for
relief may be made before the date specified in paragraph (b)(5) of
this section.
(4) Examples. The following examples illustrate the rules of this
paragraph (b):
Example 1. On January 11, 2000, a notice of intent to levy is mailed
to H and W regarding their 1997 joint Federal income tax liability.
The Internal Revenue Service levies on W's employer on June 5, 2000.
The Internal Revenue Service levies on H's employer on July 10,
2000. W must elect or request relief by June 5, 2002, which is two
years after the Internal Revenue Service levied on her wages. H must
elect or request relief by July 10, 2002, which is two years after
the Internal Revenue Service levied on his wages.
Example 2. The Internal Revenue Service levies on W's bank, in which
W maintains a savings account, to collect a joint liability for 1995
on January 12, 1998. The bank complies with the levy, which only
partially satisfies the liability. The Internal Revenue Service
takes no other collection actions. On July 24, 2000, W elects relief
with respect to the unpaid portion of the 1995 liability. W's
election is timely because the Internal Revenue Service has not
taken any collection activity after July 22, 1998; therefore, the
two-year period has not commenced.
Example 3. Assume the same facts as in Example 2, except that the
Internal Revenue Service delivers a second levy on the bank on July
23, 1998. W's election is untimely because it is filed more than two
years after the first collection activity after July 22, 1998.
Example 4. H and W do not remit full payment with their timely filed
joint Federal income tax return for the 1989 tax year. No collection
activity is taken after July 22, 1998, until the United States files
a suit against both H and W to reduce the tax assessment to judgment
and to foreclose the tax lien on their jointly held residence on
July 1, 1999. H elects relief on October 2, 2000. The election is
timely because it is made within two years of the filing of a
collection suit by the United States against H.
Example 5. W files a Chapter 7 bankruptcy petition on July 10, 2000.
On September 5, 2000, the United States files a proof of claim for
her joint 1998 income tax liability. W elects relief with respect to
the 1998 liability on August 20, 2002. The election is timely
because it is made within two years of the date the United States
filed the claim in W's bankruptcy case.
(5) Premature requests for relief. The Secretary will not consider
premature claims for relief under §1.6015-2, 1.6015-3, or 1.6015-4.
A premature claim is a claim for relief that is filed for a tax year
prior to the receipt of a notification of an audit or a letter or
notice from the Secretary indicating that there may be an
outstanding liability with regard to that year. Such notices or
letters do not include notices issued pursuant to section 6223
relating to TEFRA partnership proceedings. A premature claim is not
considered an election or request under §1.6015-1(g)(5).
(c) Effect of a final administrative determination--
(1) In general. A requesting spouse is entitled to only one final
administrative determination of relief under §1.6015-1 for a given
assessment, unless the requesting spouse properly submits a second
request for relief that is described in §1.6015-1(g)(5).
(2) Example. The following example illustrates the rule of this
paragraph (c):
Example. In January 2001, W invests in tax shelter P, and in
February 2001, she starts her own business selling crafts, from
which she earns $100,000 of net income for the year. H and W file a
joint return for tax year 2001, on which they claim $20,000 in
losses from their investment in P, and they omit W's self-employment
tax. In March 2003, the Internal Revenue Service opens an audit
under the provisions of subchapter C of chapter 63 of subtitle F of
the Internal Revenue Code (TEFRA partnership proceeding) and sends H
and W a notice under section 6223(a)(1). In September 2003, the
Internal Revenue Service audits H and W's 2001 joint return
regarding the omitted self-employment tax. H may file a claim for
relief from joint and several liability for the self-employment tax
liability because he has received a notification of an audit
indicating that there may be an outstanding liability on the joint
return. However, his claim for relief regarding the TEFRA
partnership proceeding is premature under paragraph (b)(5) of this
section. H will have to wait until the Internal Revenue Service
sends him a notice of computational adjustment or assesses the
liability from the TEFRA partnership proceeding on H and W's joint
return before he files a claim for relief with respect to any such
liability. The assessment relating to the TEFRA partnership
proceeding is separate from the assessment for the self-employment
tax; therefore, H's subsequent claim for relief for the liability
from the TEFRA partnership proceeding is not precluded by his
previous claim for relief from the self-employment tax liability
under this paragraph (c).
§1.6015-6 Nonrequesting spouse's notice and opportunity to
participate in administrative proceedings.
(a) In general. (1) When the Secretary receives an election under
§1.6015-2 or 1.6015-3, or a request for relief under §1.6015-4, the
Secretary must send a notice to the nonrequesting spouse's last
known address that informs the nonrequesting spouse of the
requesting spouse's claim for relief. The notice must provide the
nonrequesting spouse with an opportunity to submit any information
that should be considered in determining whether the requesting
spouse should be granted relief from joint and several liability. A
nonrequesting spouse is not required to submit information under
this section. The Secretary has the discretion to share with one
spouse any of the information submitted by the other spouse. At the
request of one spouse, the Secretary will omit from shared documents
the spouse's new name, address, employer, telephone number, and any
other information that would reasonably indicate the other spouse's
location.
(2) The Secretary must notify the nonrequesting spouse of the
Secretary's final determination with respect to the requesting
spouse's claim for relief under section 6015. However, the
nonrequesting spouse is not permitted to appeal such determination.
(b) Information submitted. The Secretary will consider all of the
information (as relevant to each particular relief provision) that
the nonrequesting spouse submits in determining whether relief from
joint and several liability is appropriate, including information
relating to the following--
(1) The legal status of the requesting and nonrequesting spouses'
marriage;
(2) The extent of the requesting spouse's knowledge of the erroneous
items or underpayment;
(3) The extent of the requesting spouse's knowledge or participation
in the family business or financial affairs;
(4) The requesting spouse's education level;
(5) The extent to which the requesting spouse benefitted from the
erroneous items;
(6) Any asset transfers between the spouses;
(7) Any indication of fraud on the part of either spouse;
(8) Whether it would be inequitable, within the meaning of
§§1.6015-2(d) and 1.6015-4(b), to hold the requesting spouse jointly
and severally liable for the outstanding liability;
(9) The allocation or ownership of items giving rise to the
deficiency; and
(10) Anything else that may be relevant to the determination of
whether relief from joint and several liability should be granted.
(c) Effect of opportunity to participate. The failure to submit
information pursuant to paragraph (b) of this section does not
affect the nonrequesting spouse's ability to seek relief from joint
and several liability for the same tax year. However, information
that the nonrequesting spouse submits pursuant to paragraph (b) of
this section is relevant in determining whether relief from joint
and several liability is appropriate for the nonrequesting spouse
should the nonrequesting spouse also submit an application for
relief. §1.6015-7 Tax Court review.
(a) In general. Requesting spouses may petition the Tax Court to
review the denial of relief under §1.6015-1.
(b) Time period for petitioning the Tax Court. Pursuant to section
6015(e), the requesting spouse may petition the Tax Court to review
a denial of relief under §1.6015-1 within the 90-day period
beginning on the date the final determination letter is mailed. If
the Secretary does not mail the requesting spouse a final
determination letter within 6 months of the date the requesting
spouse files an election under §1.6015-2 or 1.6015-3, the requesting
spouse may petition the Tax Court to review the election at any time
after the expiration of the 6-month period, and before the
expiration of the 90-day period beginning on the mailing date of the
final determination letter. The Tax Court also may review a claim
for relief if Tax Court jurisdiction has been acquired under section
6213(a) or 6330(d). For rules regarding petitioning the Tax Court
under section 6213(a) or 6330(d), see §§301.6213-1, 301.6330-1T(f),
and 301.6330-1T(g) of this chapter.
(c) Restrictions on collection and suspension of the running of the
period of limitations--
(1) Restrictions on collection under §1.6015-2 or 1.6015-3. Unless
the Secretary determines that collection will be jeopardized by
delay, no levy or proceeding in court shall be made, begun, or
prosecuted against a requesting spouse electing the application of
§1.6015-2 or 1.6015-3 for the collection of any assessment to which
the election relates until the expiration of the 90-day period
described in paragraph (b) of this section, or if a petition is
filed with the Tax Court, until the decision of the Tax Court
becomes final under section 7481. Notwithstanding the preceding
sentence, if the requesting spouse appeals the Tax Court's
determination, the Internal Revenue Service may resume collection of
the liability from the requesting spouse on the date of the Tax
Court's determination unless the requesting spouse files an appeal
bond pursuant to the rules of section 7485. For more information
regarding the date on which a decision of the Tax Court becomes
final, see section 7481 and the regulations thereunder. Jeopardy
under this paragraph (c)(1) means conditions exist that would
require an assessment under section 6851 or 6861 and the regulations
thereunder.
(2) Suspension of the running of the period of limitations--
(i) Relief under §1.6015-2 or 1.6015-3. The running of the period of
limitations in section 6502 on collection against the requesting
spouse of the assessment to which an election under §1.6015-2 or
1.6015-3 relates is suspended for the period during which the
Commissioner is prohibited by paragraph (c)(1) of this section from
collecting by levy or a proceeding in court and for 60 days
thereafter.
(ii) Relief under §1.6015-4. If a requesting spouse seeks only
equitable relief under §1.6015-4, the restrictions on collection of
paragraph (c)(1) of this section do not apply. The request for
relief does not suspend the running of the period of limitations on
collection.
(3) Definitions--
(i) Levy. For purposes of this paragraph (c), levy means an
administrative levy or seizure described by section 6331.
(ii) Proceedings in court. For purposes of this paragraph (c),
proceedings in court means suits filed by the United States for the
collection of Federal tax. Proceedings in court does not refer to
the filing of pleadings and claims and other participation by the
Commissioner or the United States in suits not filed by the United
States, including Tax Court cases, refund suits, and bankruptcy
cases.
(iii) Assessment to which the election relates. For purposes of this
paragraph (c), the assessment to which the election relates is the
entire assessment of the deficiency to which the election relates,
even if the election is made with respect to only part of that
deficiency. §1.6015-8 Applicable liabilities.
(a) In general. Sections 6015(b), 6015(c), and 6015(f) apply to
liabilities that arise after July 22, 1998, and to liabilities that
arose prior to July 22, 1998, that were not paid on or before July
22, 1998.
(b) Liabilities paid on or before July 22, 1998. A requesting spouse
seeking relief from joint and several liability for amounts paid on
or before July 22, 1998, must request relief under section 6013(e)
and the regulations thereunder.
(c) Examples. The following examples illustrate the rules of this
section:
Example 1. H and W file a joint income tax return for 1995 on April
15, 1996. There is an understatement on the return attributable to
an omission of H's wage income. On October 15, 1998, H and W receive
a 30-day letter proposing a deficiency on the 1995 joint return. W
pays the outstanding liability in full on November 30, 1998. In
March 1999, W files Form 8857, requesting relief from joint and
several liability under section 6015(b). Although W's liability
arose prior to July 22, 1998, it was unpaid as of that date.
Therefore, section 6015 is applicable.
Example 2. H and W file their 1995 joint income tax return on April
15, 1996. On October 14, 1997, a deficiency is assessed regarding a
disallowed business expense deduction attributable to H. On June 30,
1998, the Internal Revenue Service levies on W's bank account in
full satisfaction of the outstanding liability. On August 31, 1998,
W files a request for relief from joint and several liability. The
liability arose prior to July 22, 1998, and it was paid as of July
22, 1998. Therefore, section 6015 is not applicable and section
6013(e) is applicable.
§1.6015-9 Effective date.
Sections 1.6015-0 through 1.6015-9 are applicable for all elections
under §1.6015-2 or 1.6015-3 or any requests for relief under
§1.6015-4 filed on or after the date final regulations are published
in the Federal Register.
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