Equitable Relief

If you do not qualify for innocent spouse relief or separation of liability, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief.

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

1. You are not eligible for innocent spouse relief or relief by separation of liability.
2. You and your spouse did not transfer assets to one another as a part of a fraudulent scheme.
3. Your spouse did not transfer assets to you for the main purpose of avoiding tax or the payment of tax. See Transfers of property to avoid tax, earlier, under, Relief by Separation of Liability.
4. You did not file your return with the intent to commit fraud.
5. You did not pay the tax. However, you may be able to receive a refund of:
1. Amounts paid after July 21, 1998, and before April 16, 1999, and
2. Certain installment payments made after you file Form 8857.
6. You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax. See Indications of unfairness for equitable relief, later.

Unlike innocent spouse relief or separation of liability, you can get equitable relief from an understatement of tax (defined earlier under Innocent Spouse Relief) or an underpayment of tax (defined next).

Underpayment of tax. An underpayment of tax is an amount of tax you properly reported on your return but you have not paid. For example, your joint 1998 return shows that you and your spouse owed $5,000. You pay $2,000 with the return. You have an underpayment of $3,000.

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

Positive factors. The following are examples of factors that weigh in favor of equitable relief.

• You are separated (whether legally or not) or divorced from your spouse.
• You would suffer economic hardship if relief is not granted. (In other words, you would not be able to pay your reasonable basic living expenses.)
• You were abused by your spouse, but the abuse did not amount to duress.
• You did not know and had no reason to know about the items causing the understatement or that the tax would not be paid.
• Your spouse has a legal obligation under a divorce decree or agreement to pay the tax. (This will not be a positive factor if you knew or had reason to know, at the time the divorce decree or agreement was entered into, that your spouse would not pay the tax.)
• The tax for which you are requesting relief is attributable to your spouse.

Negative factors. The following are examples of factors that weigh against equitable relief.

• You will not suffer economic hardship if relief is not granted.
• You knew or had reason to know about the items causing the understatement or that the tax would be unpaid at the time you signed the return.
• You received a significant benefit from the unpaid tax or items causing the understatement. (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief, on page 4.)
• You have not made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years.
• You have a legal obligation under a divorce decree or agreement to pay the tax.
• The tax for which you are requesting relief is attributable to you.

Examples. The following examples show situations that may qualify for equitable relief.

Example 1. You and your spouse file a joint 1998 return. That return shows you owe $10,000. You have $5,000 of your own money and you take out a loan to pay the other $5,000. You give 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Without telling you, your spouse takes the $5,000 loan and spends it on himself. You and your spouse were divorced in 1999. In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. Both of these facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpayment. The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpayment.

Example 2. You request innocent spouse relief or separation of liability, but the IRS determines you do not qualify for either one. The IRS automatically will consider whether equitable relief is appropriate.

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