Innocent spouse, separation of liability and equitable relief (Form 8857)

Joint and several liability

The Form 8857 instructions state the starting point: both spouses on a joint return are responsible for the entire liability, including later deficiencies caused by one spouse's items. “You remain jointly and severally liable for taxes, and the IRS can still collect them from you, even if you later divorce and the divorce decree states that your former spouse will be solely responsible for the tax.” IRC 6015 is the federal exception, and IRC 6015(a) says determinations under it are made without regard to community property laws.

Relief from joint liability is different from injured spouse relief. A spouse whose share of a joint refund was offset for the other spouse's past-due debts files Form 8379, not Form 8857 (Form 8857 instructions, line 2).

The three kinds of relief

The instructions add a fourth type for married taxpayers in community property states who did not file jointly: relief under IRC 66(c) from tax on community income. See Form 8857 for the form itself.

Innocent spouse relief, 6015(b)

IRC 6015(b)(1) requires a joint return, an understatement attributable to erroneous items of the other spouse, that the requesting spouse “establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement”, that holding the requesting spouse liable would be inequitable, and a timely election. An erroneous item is income, a deduction, a credit or basis omitted or misreported. If the requesting spouse knew of the item but not its extent, IRC 6015(b)(2) allows partial relief for the portion they did not know about.

On knowledge, IRM 25.15.3.7.3 tells examiners to ask whether a reasonable person in similar circumstances would have known, looking at the nature and size of the item relative to other items, the couple's finances, the requesting spouse's education and business experience, whether they failed to ask about items a reasonable person would question, and whether the item departed from the pattern of prior returns. Abuse changes the analysis: a requesting spouse who was abused before signing and did not challenge items for fear of retaliation is not held to the knowledge requirement.

Separation of liability, 6015(c)

Separation of liability allocates the deficiency between former spouses as if they had filed separately (IRC 6015(d)). Eligibility under IRC 6015(c)(3)(A) is limited to a requesting spouse who, when the election is filed, is no longer married to or is legally separated from the other spouse, or was not a member of the same household at any time in the 12 months before filing. The election can be made any time after a deficiency is asserted and no later than two years after collection activity begins against the electing spouse.

The knowledge test is narrower and the burden shifts. The election does not apply to any portion the IRS shows the requesting spouse “had actual knowledge, at the time such individual signed the return, of any item giving rise to a deficiency”, unless they signed under duress (IRC 6015(c)(3)(C)). The requesting spouse otherwise bears the burden of proving the allocation. Fraudulent transfers between the spouses invalidate the election, and transfers of disqualified assets increase the requesting spouse's share; transfers within a year before the first letter of proposed deficiency are presumed to be for tax avoidance unless made under a divorce decree (IRC 6015(c)(4)). Separation of liability cannot produce a refund: “No credit or refund shall be allowed as a result of an election under subsection (c).”

Equitable relief, 6015(f)

Equitable relief applies when relief under (b) or (c) is not available and, taking into account all facts and circumstances, it is inequitable to hold the requesting spouse liable (IRC 6015(f)(1)). The instructions are clear that “Equitable relief is the only type of relief available for an unpaid tax”, meaning a balance shown on the return that was not paid.

IRM 25.15.3.9.2.1 lists the threshold conditions from Rev. Proc. 2013-34: a valid joint return; relief unavailable under (b) and (c); a timely request; no fraudulent transfers between spouses; no transfers of disqualified assets (with an abuse exception); no knowing participation in a fraudulent return; and a liability attributable to the non-requesting spouse, with items attributed to the requesting spouse only by community property law treated as the other spouse's.

When the threshold is met, IRM 25.15.3.9.3 grants relief on a streamlined basis if the requesting spouse is no longer married to the other spouse, would suffer economic hardship without relief, and did not know or have reason to know of the understatement or that the other spouse would not or could not pay the underpayment. Otherwise the examiner weighs the Section 4.03 factors: marital status, economic hardship, knowledge, any legal obligation to pay under a divorce decree, significant benefit, compliance, and mental or physical health. On hardship, IRM 25.15.3.9.4.1.2 says: “An economic hardship exists if paying the tax liability in whole or part will cause the RS to be unable to pay reasonable basic living expenses.” It treats hardship as present when gross income is at or below 250 percent of the poverty level and there are no assets to pay from, or when income exceeds that level but income minus reasonable basic living expenses is $300 or less.

Deadlines and what starts the clock

For (b) and (c), the request must be filed within two years after the IRS begins collection activity against the requesting spouse (IRC 6015(b)(1)(E), (c)(3)(B); IRM 25.15.3.7.5). IRM 25.15.3.5.1: “In general, the Collection Due Process (CDP) notice is considered the first collection activity.” Other triggers are an offset of the requesting spouse's own refund against the joint liability (with notice of the right to request relief), a collection suit against the requesting spouse, and a claim in a court proceeding involving the requesting spouse or their property, such as a proof of claim in bankruptcy. A notice of deficiency is not a collection activity.

For (f), IRC 6015(f)(2) allows a request for unpaid amounts any time before the collection statute expires, and for paid amounts within the refund claim period. IRM 25.15.3.5.1 summarizes: “A request is timely for consideration under IRC 6015(f) if the collection statute or refund statute is open at the time of filing.” The instructions describe the refund period as generally three years from filing or two years from payment, whichever is later.

That rule is statutory only since 2019, and the regulation has not caught up with it. Treas. Reg. 1.6015-5(b)(1) still reads that 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” for all three kinds of relief. The Tax Court held that deadline invalid as applied to equitable relief in Lantz v. Commissioner, 132 T.C. 131 (2009), but the Seventh Circuit reversed, 607 F.3d 479 (7th Cir. 2010), upholding the regulation as a reasonable exercise of the Treasury's rulemaking authority, and the Third and Fourth Circuits agreed. The IRS then abandoned the position anyway. Notice 2011-70, 2011-32 I.R.B. 135, announced that “Individuals may request equitable relief under section 6015(f) after the date of this notice without regard to when the first collection activity was taken,” so long as the IRC 6502 collection period or IRC 6511 refund period was open, and it let taxpayers whose requests had been denied solely as untimely reapply. The Taxpayer First Act (Pub. L. 116-25, 2019) then wrote the rule into IRC 6015(f)(2). Lantz is history: cite the statute, not the regulation, if an examiner raises the two-year rule against an equitable relief request.

The two-year rule still governs (b) and (c). Because that clock usually starts with a CDP notice, a client who receives an LT11 or Letter 1058 should file Form 8857 promptly. Spousal defenses can also be raised in the CDP hearing itself.

Filing Form 8857

1. Confirm Form 8857 is the right filing. The instructions say not to file for a year in which a court's final decision denied relief, a court decision did not consider relief but the requesting spouse participated meaningfully and could have asked, the requesting spouse entered an offer in compromise, or a closing agreement disposed of the same liability.
2. Complete the form fully, including the questions about the marriage, finances, education, involvement in household finances and any abuse. The instructions warn that the Tax Court may be limited to the administrative record plus newly discovered or previously unavailable evidence (IRC 6015(e)(7)), so attach everything the IRS should consider.
3. Mail to Internal Revenue Service, P.O. Box 120053, Covington, KY 41012 (USPS), or 7940 Kentucky Drive, Stop 840F, Florence, KY 41042 (private delivery), or fax to 855-233-8558 (Form 8857 instructions, Rev. June 2021). Send it there even if an examiner or collection employee is working the case.
4. If a notice of deficiency has been issued, also petition the Tax Court within the 90 days and raise relief there; the instructions say the petition deadline is not extended while the IRS considers Form 8857. See Letter 3219 and Tax Court petitions.

The other spouse will be told. The instructions say: “By law, the IRS must contact your spouse or former spouse. There are no exceptions, even for victims of spousal abuse or domestic violence.” The IRS will not disclose the requesting spouse's current name, address, phone numbers, employer, income or assets, but other information used in the determination can be disclosed, so redact personal details in attachments where appropriate.

How the IRS works the request

Form 8857 is worked by the Cincinnati Centralized Innocent Spouse Operation (CCISO) unless an examination or revenue officer case is already open, and IRM 25.15.18 sets the steps. Screening comes first: the request must be signed under penalties of perjury (a representative's signature needs a Form 2848 that specifically covers Form 8857), list the tax years and explain the basis for relief; if an element is missing the request is unprocessable and goes back with Letter 3658-C (IRM 25.15.18.5.1.2). A processable request that fails a basic eligibility rule, such as a year covered by an accepted offer in compromise, is closed as non-qualifying with Letter 3657-C rather than worked to a determination (IRM 25.15.18.5.1.11).

Both spouses are then contacted. The requesting spouse receives Letter 3659-C acknowledging the request and asking for anything missing. The other spouse receives Letter 3284-C with Form 12508, Questionnaire for Non-Requesting Spouse, and 30 days to answer. IRM 25.15.3.4 is categorical: “The NRS must receive notice of, and an opportunity to participate in, any proceeding with respect to an innocent spouse relief request.” The questionnaire is where the other spouse disputes knowledge, benefit and control of the finances, so support the requesting spouse's account with records, not narrative alone.

The determination follows Rev. Proc. 2013-34. After the threshold conditions, the technician checks for a streamlined grant: “The Service will make streamlined determinations granting equitable relief under section 66(c) or section 6015(f), in cases in which the requesting spouse establishes that the requesting spouse” is no longer married to the other spouse, would suffer economic hardship without relief, and did not know or have reason to know of the understatement or that the tax would not be paid; a spouse who misses one element is still weighed under the section 4.03 factors above. The preliminary determination is Letter 3661-C to the requesting spouse and Letter 3660-C to the other spouse (IRM 25.15.3.10.1). When relief is fully or partially allowed the non-requesting spouse may protest; when it is denied the requesting spouse may protest and “the NRS is notified that they will be contacted if the RS protests the determination and Appeals proposes to increase the amount of relief granted in the preliminary determination” (IRM 25.15.3.4). The protest is Form 12509, Innocent Spouse Statement of Disagreement, or a written protest meeting Publication 5, and the deadline is strict: “If a request for Appeals has been made, it must be postmarked within 30 days from the date of the preliminary determination letter.” (IRM 25.15.18.5.6.1).

If no one protests, the case closes automatically: “Stage 11 suspense is normally 45 days from the date the preliminary determination letter is mailed” (IRM 25.15.18.7.4), then Letter 3279-C issues to the requesting spouse with the result and the Tax Court rights, and Letter 3323-C to the other spouse. When the request was raised in a collection due process hearing, CCISO does not close the case: IRM 25.15.18.7.6 says “DO NOT issue the final determination letter,” and the file goes to Appeals so the spousal defense is decided in the Notice of Determination (see the CDP page).

Refunds. IRC 6015(g)(1) allows a credit or refund “to the extent attributable to the application of this section,” subject to IRC 6511, and (g)(3) bars any refund from a separation of liability election. Under IRM 25.15.3.9.4.3 the requesting spouse may recover separate payments made after July 22, 1998 if they show they provided the funds, but not withholding, estimated tax payments, payments made with the joint return, joint payments or payments made solely by the other spouse. “The availability of refunds is subject to IRC 6511. Generally the Form 8857, Request for Innocent Spouse Relief is treated as a claim for refund.” File before the IRC 6511 window closes on any payment the client wants back, and list those payments and their source on the form.

Collection while the request is pending

IRC 6015(e)(1)(B) bars levy and collection suits against the requesting spouse for the years at issue until the 90-day petition period ends or, if a petition is filed, until the Tax Court decision is final. Interest and penalties continue to accrue. The collection statute is suspended for that period plus 60 days (IRC 6015(e)(2)), and the instructions describe the result: the 10-year period is increased by the time the request was pending plus 60 days. IRM 5.1.9.3.6 notes that an innocent spouse request also suspends the statute when it is raised in an equivalent hearing. When a bankruptcy is also pending, the automatic stay does not prevent the IRS from issuing a final determination, but it suspends the Tax Court petition period for as long as filing is barred plus 60 days (IRM 5.9.4.18; IRC 6015(e)(6)).

Determinations and Tax Court review

After reviewing the request and the other spouse's input, the IRS issues a preliminary determination to both spouses. Either can appeal to the Independent Office of Appeals; otherwise a final determination follows. Under IRC 6015(e)(1)(A) the requesting spouse may petition the Tax Court any time after the earlier of the final determination or six months after filing, and no later than the 90th day after the final determination is mailed. The non-requesting spouse gets notice and an opportunity to intervene. Spousal relief is also one of the few issues reviewable by the Tax Court after an equivalent hearing.

Standard and scope of review. The current rule is in the statute. IRC 6015(e)(7), added by the Taxpayer First Act in 2019, provides that any review of a determination under section 6015 “shall be reviewed de novo by the Tax Court and shall be based upon” the administrative record established at the time of the determination and “any additional newly discovered or previously unavailable evidence.” The case law that preceded it explains the two halves. In Porter v. Commissioner, 132 T.C. 203 (2009), the Tax Court abandoned its practice of reviewing equitable relief denials for abuse of discretion and held that “in cases brought under section 6015(f) we now apply a de novo standard of review as well as a de novo scope of review”; the first half, de novo standard, is what Congress wrote into the statute. The second half came from the earlier opinion in the same case, Porter v. Commissioner, 130 T.C. 115 (2008), which held that the court conducts a trial de novo and may consider evidence that was not in the administrative record. That scope holding is superseded: under IRC 6015(e)(7) the court is confined to the administrative record plus evidence that is newly discovered or was previously unavailable, so a document the client had but did not send to CCISO or Appeals may be excluded at trial. Build the record during the administrative stage, answer every request in Letter 3659-C, and put the divorce decree, bank records and medical evidence in the file before the final determination issues.

Questions practitioners ask