IRS Restructuring and Reform Act of 1998
3201 - Relief from Joint & Several Liability on Joint Return
A. Provision(s) covered: Section 3201 Relief from Joint and Several Liability on Joint Return [Enacting Code § 6015 & amending Code § 66]
B. Background: To qualify for relief from joint and several liability under current law, a joint return filer has the burden of proving that all of the following statutory requirements have been met:
C. Changes: There are three ways to obtain relief: Expanded Innocent Spouse Relief, Separate Liability Election, and Equitable Relief.
Expanded Innocent Spouse Relief (Rule I): The present rule is amended by relaxing requirement (2), above. The understatement need not be substantial and the item need only be erroneous (and not grossly erroneous). Also, if a taxpayer knew of an understatement, but not its extent, he or she may be relieved of the portion of the liability that is attributable to the part of the understatement he or she did not know about and had no reason to know about.
Separate Liability Election (Rule II): A qualified taxpayer may elect (in addition to electing relief under Rule I) to have the liability for any deficiency limited to the portion of the deficiency that is attributable to items allocable to that taxpayer under special rules. In general, the items are allocated as if the taxpayers had filed separate returns (but the Secretary shall prescribe other allocation methods). To qualify, at the time of the election the taxpayer must be either: (i) no longer married to, (ii) legally separated from, or (iii) living apart for at least 12 months from, the person with whom the taxpayer originally filed a joint return. The burden is on the taxpayer electing relief to establish the allocation. The election is not available if the Secretary shows that assets were transferred between the joint filers as part of a fraudulent scheme, or that the electing taxpayer had actual knowledge of the understatement (unless the taxpayer signed under duress). Also, the portion of the deficiency for which the electing spouse is liable is increased by the value of any "disqualified assets" received from the other spouse. (A disqualified asset is one transferred with the principal purpose of avoiding tax or the payment of tax.)
Equitable Relief (Rule III): Under procedures prescribed by the Secretary, a taxpayer may request equitable relief. Primarily, this relief is to be available where tax was shown on a joint return, but not paid with the return; e.g., the taxpayer did not know or have reason to know that funds intended for the payment of the tax were taken by the other spouse for that spouse's benefit. However, relief is also to be available where there is an understatement of tax for which relief under Rules I and II are not available. These procedures (Rule III) are not effective until guidance is issued by Treasury and the Service.
Also, under procedures prescribed by the Secretary, an individual filing a separate return in a community property state may obtain equitable relief.
Period for making election: A taxpayer must elect Rule I or II no later than 2 years after the Commissioner begins collection activities. (The Secretary may adopt the same period for Rule III.) The legislative history provides that the period should begin when collection activities have been undertaken against the electing spouse that have the effect of giving that spouse notice of the Service's intention to collect the joint liability from such spouse; e.g., a levy on wages or the service of a notice of intent to levy against the property of the electing spouse; but not simply mailing a notice of deficiency and a demand for payment that is addressed to both spouses. With respect to deficiencies that are unpaid on the date of enactment, the period does not expire until 2 years after the date of the first collection activity after the date of enactment.
Tax Court review: A taxpayer may petition the Tax Court within 90 days after the Service mails (by registered or certified mailing) a notice denying relief requested under Rule I or II. (If the Service does not act within six months of the request for relief, the taxpayer may petition anytime after that period.) The Tax Court must establish rules for notifying the other joint filer of a proceeding and providing that filer with the opportunity to become a party.
Suspension of collection actions and statute of limitations: As with other Tax Court proceedings, no levy or proceeding to collect in court shall be made until the 90 day period expires or the Tax Court decision becomes final, unless the collection of the tax is in jeopardy. Also, the statute of limitations on collection is suspended during the period in which collection is prohibited and for 60 days thereafter.
E. Necessary Actions
F. Other Special Comments: Issues to be addressed: