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IRS Has $760 Million for People Who Have Not Filed a 2010 Income Tax Return

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IR-2014-30, March 19, 2014

WASHINGTON — Refunds totaling almost $760 million may be waiting for an estimated 918,600 taxpayers who did not file a federal income tax return for 2010, the Internal Revenue Service announced today. However, to collect the money, a return for 2010 must be filed with the IRS no later than Tuesday, April 15, 2014.

"The window is quickly closing for people who are owed refunds from 2010 who haven't filed a tax return," said IRS Commissioner John Koskinen. "We encourage students, part-time workers and others who haven't filed for 2010 to look into this before time runs out on April 15."

The IRS estimates that half the potential refunds for 2010 are more than $571.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2010 returns, the window closes on April 15, 2014. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2010 refund that their checks may be held if they have not filed tax returns for 2011 and 2012. In addition, the refund will be applied to any amounts still owed to the IRS or their state tax agency, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than just their refund of taxes withheld or paid during 2010. In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). For 2010, the credit is worth as much as $5,666. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2010 were:

  • $43,352 ($48,362 if married filing jointly) for those with three or more qualifying children,
  • $40,363 ($45,373 if married filing jointly) for people with two qualifying children,
  • $35,535 ($40,545 if married filing jointly) for those with one qualifying child, and
  • $13,460 ($18,470 if married filing jointly) for people without qualifying children.

Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling toll-free 800-TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2010, 2011 or 2012 should request copies from their employer, bank or other payer.

If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by going to IRS.gov. Taxpayers can also file Form 4506-T to request a transcript of their tax return.

Individuals who did not file a 2010 return with a potential refund:
 

State or District

Estimated

Number of

Individuals

Median

Potential

Refund

Total

Potential

Refunds*

 

Alabama

15,700

$574

$12,473,000

Alaska

4,700

$649

$4,810,000

Arizona

23,800

$508

$17,517,000

Arkansas

8,400

$562

$6,667,000

California

86,500

$519

$69,752,000

Colorado

17,100

$567

$14,061,000

Connecticut

11,700

$620

$10,304,000

Delaware

3,800

$573

$3,126,000

District of Columbia

3,500

$604

$3,080,000

Florida

56,800

$593

$48,407,000

Georgia

28,400

$539

$22,504,000

Hawaii

6,200

$586

$5,413,000

Idaho

3,500

$490

$2,604,000

Illinois

37,900

$626

$32,696,000

Indiana

19,600

$570

$15,478,000

Iowa

9,200

$576

$7,050,000

Kansas

9,300

$522

$6,986,000

Kentucky

11,500

$576

$8,975,000

Louisiana

17,500

$603

$15,579,000

Maine

3,500

$502

$2,373,000

Maryland

20,700

$575

$18,002,000

Massachusetts

21,000

$560

$17,856,000

Michigan

29,200

$597

$24,259,000

Minnesota

12,700

$516

$9,582,000

Mississippi

8,500

$556

$6,769,000

Missouri

17,900

$514

$13,153,000

Montana

2,900

$534

$2,338,000

Nebraska

4,500

$528

$3,368,000

Nevada

11,400

$570

$9,156,000

New Hampshire

3,800

$602

$3,245,000

New Jersey

29,500

$639

$26,712,000

New Mexico

7,200

$572

$5,915,000

New York

57,400

$623

$50,543,000

North Carolina

24,300

$494

$17,538,000

North Dakota

1,900

$600

$1,551,000

Ohio

32,100

$560

$24,508,000

Oklahoma

15,100

$585

$12,246,000

Oregon

14,300

$519

$10,359,000

Pennsylvania

37,400

$614

$31,009,000

Rhode Island

3,000

$598

$2,472,000

South Carolina

10,200

$532

$7,756,000

South Dakota

2,100

$558

$1,605,000

Tennessee

16,300

$559

$12,839,000

Texas

80,600

$588

$71,998,000

Utah

6,100

$518

$4,705,000

Vermont

1,600

$519

$1,136,000

Virginia

26,300

$568

$22,376,000

Washington

24,800

$640

$23,033,000

West Virginia

4,100

$626

$3,534,000

Wisconsin

10,900

$516

$8,423,000

Wyoming

2,200

$648

$2,045,000

Totals

918,600

$571

$759,889,000

                      * Excluding the Earned Income Tax Credit and other credits.

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Page Last Reviewed or Updated: 28-Mar-2014

The Priortax

Priortax Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. Priortax The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. Priortax If you are requesting relief for more than three tax years, you must file an additional Form 8857. Priortax The IRS will review your Form 8857 and let you know if you qualify. Priortax A completed Form 8857 is shown later. Priortax When to file Form 8857. Priortax   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. Priortax The following are some of the ways you may become aware of such a liability. Priortax The IRS is examining your tax return and proposing to increase your tax liability. Priortax The IRS sends you a notice. Priortax   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. Priortax (But see the exceptions below for different filing deadlines that apply. Priortax ) For this reason, do not delay filing because you do not have all the documentation. Priortax   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. Priortax The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. Priortax This includes the filing of a proof of claim in a bankruptcy proceeding. Priortax The filing of a suit by the United States against you to collect the joint liability. Priortax The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. Priortax The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. Priortax Exception for equitable relief. Priortax   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. Priortax irs. Priortax gov/irb/2011-32_IRB/ar11. Priortax html) expanding the amount of time to request equitable relief. Priortax The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. Priortax Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. Priortax In certain cases, the 10-year period is suspended. Priortax The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. Priortax See Pub. Priortax 594, The IRS Collection Process, for details. Priortax Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Priortax But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. Priortax See Pub. Priortax 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. Priortax Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. Priortax Exception for relief based on community property laws. Priortax   If you are requesting relief based on community property laws, a different filing deadline applies. Priortax See Relief from liability arising from community property law discussed later under Community Property Laws . Priortax Form 8857 filed by or on behalf of a decedent. Priortax   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. Priortax An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. Priortax For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. Priortax Situations in which you are not entitled to relief. Priortax   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. Priortax In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. Priortax In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. Priortax You entered into an offer in compromise with the IRS. Priortax You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. Priortax Exception for agreements relating to TEFRA partnership proceedings. Priortax   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. Priortax (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. Priortax ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). Priortax Transferee liability not affected by innocent spouse relief provisions. Priortax   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. Priortax Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. Priortax Example. Priortax Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. Priortax Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. Priortax In August 2010, the IRS assessed a deficiency for the 2008 return. Priortax The items causing the deficiency belong to Herb. Priortax Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. Priortax However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. Priortax The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. Priortax There are no exceptions, even for victims of spousal abuse or domestic violence. Priortax We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. Priortax If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. Priortax However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. Priortax If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. Priortax Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. Priortax The IRS sends you a final determination letter regarding your request for relief. Priortax You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. Priortax If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. Priortax The United States Tax Court is an independent judicial body and is not part of the IRS. Priortax You must file a petition with the United States Tax Court in order for it to review your request for relief. Priortax You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. Priortax If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. Priortax You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. Priortax ustaxcourt. Priortax gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. Priortax Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Priortax Generally, community property laws require you to allocate community income and expenses equally between both spouses. Priortax However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Priortax Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. Priortax Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. Priortax You did not file a joint return for the tax year. Priortax You did not include the item of community income in gross income. Priortax The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Priortax Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Priortax Your spouse's (or former spouse's) distributive share of partnership income. Priortax Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Priortax Use the appropriate community property law to determine what is separate property. Priortax Any other income that belongs to your spouse (or former spouse) under community property law. Priortax You establish that you did not know of, and had no reason to know of, that community income. Priortax See  Actual Knowledge or Reason To Know , below. Priortax Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Priortax See Indications of unfairness for liability arising from community property law, later. Priortax Actual knowledge or reason to know. Priortax   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. Priortax Amount of community income unknown. Priortax   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. Priortax Not knowing the specific amount is not a basis for relief. Priortax Reason to know. Priortax   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. Priortax The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. Priortax The financial situation of you and your spouse (or former spouse). Priortax Your educational background and business experience. Priortax Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Priortax Indications of unfairness for liability arising from community property law. Priortax   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. Priortax   The following are examples of factors the IRS will consider. Priortax Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). Priortax Whether your spouse (or former spouse) deserted you. Priortax Whether you and your spouse have been divorced or separated. Priortax  For other factors see Factors for Determining Whether To Grant Equitable Relief later. Priortax Benefit from omitted item of community income. Priortax   A benefit includes normal support, but does not include de minimis (small) amounts. Priortax Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. Priortax   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. Priortax Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). Priortax How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. Priortax Fill in Form 8857 according to the instructions. Priortax For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. Priortax However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. Priortax The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. Priortax Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Priortax Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). Priortax However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. Priortax The IRS can collect these amounts from either you or your spouse (or former spouse). Priortax You must meet all of the following conditions to qualify for innocent spouse relief. Priortax You filed a joint return. Priortax There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). Priortax You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). Priortax See Actual Knowledge or Reason To Know, later. Priortax Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. Priortax See Indications of Unfairness for Innocent Spouse Relief , later. Priortax Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. Priortax A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Priortax Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. Priortax Erroneous Items Erroneous items are either of the following. Priortax Unreported income. Priortax This is any gross income item received by your spouse (or former spouse) that is not reported. Priortax Incorrect deduction, credit, or basis. Priortax This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). Priortax The following are examples of erroneous items. Priortax The expense for which the deduction is taken was never paid or incurred. Priortax For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. Priortax The expense does not qualify as a deductible expense. Priortax For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. Priortax Fines are not deductible. Priortax No factual argument can be made to support the deductibility of the expense. Priortax For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. Priortax Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. Priortax Actual knowledge. Priortax   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Priortax You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Priortax For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. Priortax Reason to know. Priortax   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Priortax You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Priortax   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. Priortax The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. Priortax The financial situation of you and your spouse (or former spouse). Priortax Your educational background and business experience. Priortax The extent of your participation in the activity that resulted in the erroneous item. Priortax Whether you failed to ask, 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. Priortax Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Priortax Partial relief when a portion of erroneous item is unknown. Priortax   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. Priortax You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. Priortax Example. Priortax At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. Priortax The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. Priortax You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. Priortax The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. Priortax The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. Priortax Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. Priortax The following are examples of factors the IRS will consider. Priortax Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. Priortax Whether your spouse (or former spouse) deserted you. Priortax Whether you and your spouse have been divorced or separated. Priortax Whether you received a benefit on the return from the understated tax. Priortax For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. Priortax Significant benefit. Priortax   A significant benefit is any benefit in excess of normal support. Priortax Normal support depends on your particular circumstances. Priortax Evidence of a 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 understated tax. Priortax Example. Priortax You receive money from your spouse that is beyond normal support. Priortax The money can be traced to your spouse's lottery winnings that were not reported on your joint return. Priortax You will be considered to have received a significant benefit from that income. Priortax This is true even if your spouse gives you the money several years after he or she received it. Priortax Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). Priortax The understated tax allocated to you is generally the amount you are responsible for. Priortax This type of relief is available only for unpaid liabilities resulting from the understated tax. Priortax Refunds are not allowed. Priortax To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Priortax You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Priortax (Under this rule, you are no longer married if you are widowed. Priortax ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. Priortax Members of the same household. Priortax   You and your spouse are not members of the same household if you are living apart and are estranged. Priortax However, you and your spouse are considered members of the same household if any of the following conditions are met. Priortax You and your spouse reside in the same dwelling. Priortax You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. Priortax Either spouse is temporarily absent from the household and 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 the absent spouse's return. Priortax Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. Priortax Burden of proof. Priortax   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). Priortax You must also establish the basis for allocating the erroneous items. Priortax Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. Priortax The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Priortax A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Priortax The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). Priortax For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. Priortax Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Priortax See Transfers of Property To Avoid Tax , later. Priortax Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. Priortax You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. Priortax If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. Priortax You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. Priortax (This rule applies whether or not there was a receipt of cash. Priortax ) You knew of the facts that made an incorrect deduction or credit unallowable. Priortax For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. Priortax Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. Priortax Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. Priortax Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. Priortax Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. Priortax Neither is your actual knowledge of how the erroneous item was treated on the tax return. Priortax For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. Priortax Example. Priortax Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. Priortax The IRS audited their return and found that Bill did not report $20,000 of self-employment income. Priortax The additional income resulted in a $6,000 understated tax, plus interest and penalties. Priortax After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. Priortax The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. Priortax Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. Priortax Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. Priortax The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. Priortax Factors supporting actual knowledge. Priortax   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. Priortax The following are examples of factors the IRS may use. Priortax Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. Priortax Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. Priortax Exception for spousal abuse or domestic violence. Priortax   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. Priortax   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. Priortax However, you may be required to file a separate return for that tax year. Priortax For more information about duress, see the instructions for Form 8857. Priortax Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. Priortax The increase may not be more than the entire amount of the liability. Priortax A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. Priortax This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. Priortax If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. Priortax Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. Priortax Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. Priortax An underpaid tax is an amount of tax you properly reported on your return but you have not paid. Priortax For example, your joint 2009 return shows that you and your spouse owed $5,000. Priortax You paid $2,000 with the return. Priortax You have an underpaid tax of $3,000. Priortax Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. Priortax You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Priortax You have an understated tax or an underpaid tax. Priortax You did not pay the tax. Priortax However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. Priortax You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. Priortax See Factors for Determining Whether To Grant Equitable Relief, later. Priortax You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Priortax A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Priortax Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Priortax See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. Priortax You did not file or fail to file your return with the intent to commit fraud. Priortax The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. Priortax If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. Priortax If the item is titled in your name, the item is presumed to be attributable to you. Priortax However, you can rebut this presumption based on the facts and circumstances. Priortax You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. Priortax If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). Priortax You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. Priortax If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. Priortax Factors for Determining Whether To Grant 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 understated or underpaid tax. Priortax The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. Priortax The IRS will consider all factors and weigh them appropriately. Priortax Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. Priortax Whether you are separated (whether legally or not) or divorced from your spouse. Priortax A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. Priortax A temporary absence is one where 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 the absent spouse's return. Priortax Whether you would suffer a significant economic hardship if relief is not granted. Priortax (In other words, you would not be able to pay your reasonable basic living expenses. Priortax ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. Priortax This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. Priortax Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. Priortax (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. Priortax ) Whether you have 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. Priortax Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. Priortax Knowledge or reason to know. Priortax   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. Priortax   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. Priortax Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. Priortax Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. Priortax This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. Priortax Reason to know. Priortax   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. Priortax Example. Priortax You and your spouse filed a joint 2009 return. Priortax That return showed you owed $10,000. Priortax You had $5,000 of your own money and you took out a loan to pay the other $5,000. Priortax You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Priortax Without telling you, your spouse took the $5,000 loan and spent it on himself. Priortax You and your spouse were divorced in 2010. Priortax In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. Priortax These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. Priortax 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 underpaid tax. Priortax Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. Priortax Whether your spouse (or former spouse) abused you. Priortax Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. Priortax Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . Priortax Not permitted under separation of liability relief. Priortax Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. Priortax Proof Required The IRS will only refund payments you made with your own money. Priortax However, you must provide proof that you made the payments with your own money. Priortax Examples of proof are a copy of your bank statement or a canceled check. Priortax No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. Priortax Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. Priortax Underpaid tax. Priortax   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. Priortax However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. Priortax For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. Priortax   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. Priortax Understated tax. Priortax   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Priortax You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. Priortax Only installment payments made after the date you filed Form 8857 are eligible for a refund. Priortax   The amount of the refund is subject to the limit discussed next. Priortax Limit on Amount of Refund The amount of your refund is limited. Priortax Read the following chart to find out the limit. Priortax IF you file Form 8857. Priortax . Priortax . Priortax THEN the refund cannot be more than. Priortax . Priortax . Priortax Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. Priortax After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. Priortax Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. Priortax Janie and Joe Boulder filed a joint tax return for 2007. Priortax They claimed one dependency exemption for their son Michael. Priortax Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. Priortax Janie did not know about the award when the return was filed. Priortax They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). Priortax Janie and Joe were divorced on May 13, 2009. Priortax In February 2010, Janie filed her 2009 federal income tax return as head of household. Priortax She expected a refund of $1,203. Priortax In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. Priortax Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. Priortax Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. Priortax Janie believes she meets the third condition. Priortax She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. Priortax Janie believes she meets the fourth condition. Priortax She believes it would be unfair to be held liable for the tax because she did not benefit from the award. Priortax Joe spent it on personal items for his use only. Priortax Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. Priortax In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. Priortax Part I Line 1. Priortax   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. Priortax Line 2. Priortax   She checks the box because she wants a refund. Priortax Note. Priortax Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. Priortax Line 3. Priortax   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. Priortax Line 4. Priortax   She checks the “Yes” box because she filed a joint tax return for tax year 2007. Priortax Line 5. Priortax   She skips this line because she checked the “Yes” box on line 4. Priortax Part II Line 6. Priortax   She enters her name, address, social security number, county, and best daytime phone number. Priortax Part III Line 7. Priortax   She enters Joe's name, address, social security number, and best daytime phone number. Priortax Line 8. Priortax   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. Priortax ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. Priortax Line 9. Priortax   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. Priortax Line 10. Priortax   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. Priortax Line 11. Priortax   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. Priortax Line 12. Priortax   She checks the “Yes” box because she signed the 2007 joint tax return. Priortax Line 13. Priortax   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. Priortax Part IV Line 14. Priortax   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. Priortax ” Line 15. Priortax   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. Priortax She explains this in the space provided. Priortax Line 16. Priortax   She checks the box, “You knew that person had income” because she knew Joe had income from wages. Priortax She also lists Joe's income. Priortax Under “Type of Income” she enters “wages. Priortax ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. Priortax ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. Priortax ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. Priortax Line 17. Priortax   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. Priortax Line 18. Priortax   She checks the “No” box because, when the return was signed, she was not having financial problems. Priortax Line 19. Priortax   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. Priortax She provides additional information in the space provided. Priortax Line 20. Priortax   She checks the “No” box because Joe has never transferred money or property to her. Priortax Part V Line 21. Priortax   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. Priortax Line 22. Priortax   She enters her average monthly income for her entire household. Priortax Line 23. Priortax   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. Priortax Signing and mailing Form 8857. Priortax    Janie signs and dates the form. Priortax She attaches the copy of her divorce decree (not illustrated) required by line 8. Priortax Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. Priortax This image is too large to be displayed in the current screen. Priortax Please click the link to view the image. Priortax Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. Priortax Please click the link to view the image. Priortax Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. Priortax Please click the link to view the image. Priortax Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. Priortax Please click the link to view the image. Priortax Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. Priortax But do not rely on these flowcharts alone. Priortax Also read the earlier discussions. Priortax Figure A. Priortax Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. Priortax "Do You Qualify for Innocent Spouse Relief?" Figure B. Priortax Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. Priortax "Do You Qualify for Separation of Liability Relief?" Figure C. Priortax Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. Priortax Please click the link to view the image. Priortax "Do You Qualify for Equitable Relief?" Prev  Up  Next   Home   More Online Publications