9.3.4 Equitable Relief

If relief is not available under the innocent spouse rule (§ 6015(b)) or the separate liability election (§ 6015(c)), the IRS may relieve an individual of liability if it would be inequitable to hold the individual liable for any unpaid tax or deficiency.1   The IRS automatically considers a taxpayer for equitable relief if innocent spouse and separate liability relief are denied.

Low-income clients, particularly survivors of domestic violence, often qualify for equitable relief under § 6015(f) or § 66(c).2  I.R.C. § 66(c) provides equitable relief in community property states where a joint return was not filed; I.R.C. § 6015(f) applies if a joint return was filed (even in community property states). Unlike I.R.C. § 6015(b) and (c), § 6015(f) and § 66(c) permit equitable relief from an underpayment of income tax. The requesting spouse may even be able to obtain a refund in some circumstances.3

Under the requesting spouse must satisfy 7 threshold conditions for § 6015(f) relief.4  Conditions 1 and 2 don’t apply for a § 66(c) equitable relief request. These conditions are:

  1. Filing a joint return
  2. Denial of relief under § 6015(b) and (c)
  3. Application within 2 years of first collection activity5
  4. No transfer of assets as part of fraudulent scheme
  5. No transfer of disqualified assets to the requesting spouse
  6. Requesting spouse did not file or fail to file with fraudulent intent
  7. Item resulting in deficiency or underpayment is attributable to non-requesting spouse unless (a) attribution is due to operation of community property laws and the item is only nominally owned by requesting spouse; (b) the non-requesting spouse misappropriated funds and the requesting spouse had no knowledge or reason to know of the misappropriation; or (c) abuse not amounting to duress led the requesting spouse not to challenge treatment of items.6

If a case involves an underpayment on a joint return, the IRS will ordinarily grant § 6015(f) equitable relief if the taxpayer meets the 3 “safe harbor” conditions in § 4.02 of Rev. Proc. 2003-61: marital status, no knowledge of underpayment, and economic hardship.7  In some cases, the marital status factor may be met even if the spouses lived separately in the same house.8  Equitable relief under § 4.02 is available to all joint return taxpayers with underpayments, including taxpayers in community property states.

If only partial relief is granted under § 4.02, a taxpayer may still be eligible for total relief under § 4.03.9  Equitable relief is available under § 4.03 for a “community property state” taxpayer who did not file a joint return, who requested relief under I.R.C. § 66(c), and who met the applicable threshold conditions of § 4.01, i.e., conditions 3 to 7. It is also available to a spouse who filed a joint return and met the § 4.01 threshold conditions, but did not qualify for “safe harbor” relief under § 4.02.

Under § 4.03, no single factor is determinative. All factors must be considered and weighed appropriately.10  The Tax Court now reviews IRS denials of § 6015(f) equitable relief under a de novo standard of review and a de novo scope of review.11 The Tax Court regularly reverses IRS denials of equitable relief. If the Tax Court finds that the IRS erred in denying equitable innocent spouse relief, it must decide the appropriate relief and may not remand the case to the IRS.12

  • 1I.R.C. § 6015(f).
  • 2For a sample analysis of § 6015(f) equitable innocent spouse relief, see Stephenson v. Comm’r, T.C. Memo 2011-16. For a sample analysis of § 66(c) equitable innocent spouse relief, see Bennett v. Comm’r, T.C. Summ. Op. 2005-84.
  • 3See Rev. Proc. 2003-61, § 4.04; see also Washington v. Comm’r, 120 T.C. 137, 152–54 (2003).
  • 4See Rev. Proc. 2003-61, § 4.01.
  • 5The IRS has decided not to impose the 2-year time limit for § 6015(f) equitable relief claims. See Notice 2011-70, 2011-32 I.R.B. 135. However, the IRS has decided that that the Rev. Proc. 2003-61 time limits for § 66(c) equitable relief claims are invalid.
  • 6For helpful discussion of the “abuse exception”, see Nihiser v. Comm’r, T.C. Memo 2008-135; Brown v. Comm’r, T.C. Summ. Op. 2008-121.
  • 7Gonce v. Comm’r, T.C. Memo 2007-328.
  • 8Nihiser v. Comm’r, T.C. Memo 2008-135.
  • 9Cf. Bruen v. Comm’r, T.C. Memo 2009-249.
  • 10Rosenthal v. Comm’r, T.C. Memo 2004-89.
  • 11Porter v. Comm’r, 132 T.C. 2003 (2009).
  • 12Friday v. Comm’r, 124 T.C. 220, 222 (2005); Nihiser v. Comm’r, T.C. Memo 2008-135.

Disclaimer: The articles in the Gillis Long Desk Manual do not contain any legal advice.