Equitable Relief Under Section 6015(f): How the IRS Weighs Your Case

Equitable relief is where most spousal tax cases end up. It covers what the other two forms of relief cannot, including tax that was correctly reported but never paid. It also has no two-year election deadline. But it is discretionary, and that word scares people. It should not. The IRS has published the exact framework it uses, and once you understand it, you can build a case around it instead of hoping for mercy.

The statute

Internal Revenue Code section 6015(f)(1) says that the IRS may relieve an individual of liability for any unpaid tax or any deficiency, or any portion of either, if two things are true: taking into account all the facts and circumstances, it is inequitable to hold the individual liable, and relief is not available under section 6015(b) or (c).

That is the whole statutory test. Everything else comes from Revenue Procedure 2013-34, published in Internal Revenue Bulletin 2013-43. It superseded Revenue Procedure 2003-61 and is the guidance the Form 8857 instructions direct you to. It works in three layers: threshold conditions, streamlined relief, and a weighing of factors.

Layer one: the seven threshold conditions

Section 4.01 of Revenue Procedure 2013-34 lists conditions you must meet before the IRS will even weigh the equities. For section 6015(f), they are:

1. You filed a joint return for the year.
2. Relief is not available to you under section 6015(b) or (c).
3. The claim is timely. For an unpaid liability, that means on or before the collection statute expiration date under section 6502. For a refund, it means within the refund period under section 6511.
4. No assets were transferred between the spouses as part of a fraudulent scheme.
5. Your spouse did not transfer disqualified assets to you. If they did, relief is available only to the extent the liability exceeds the value of those assets, with exceptions for abuse, financial control, or your lack of actual knowledge of the transfer.
6. You did not knowingly participate in the filing of a fraudulent joint return.
7. The liability is attributable, in full or in part, to an item of your spouse or an underpayment resulting from your spouse's income.

That seventh condition has five exceptions that let the IRS consider relief even when the item is yours: attribution solely due to community property law, nominal ownership (an item titled in your name that was really your spouse's), misappropriation of funds intended to pay the tax, abuse that kept you from challenging the return or questioning payment, and fraud by your spouse that caused the erroneous item.

Layer two: streamlined relief

If you meet the threshold conditions, section 4.02 lets the IRS grant relief quickly, without a full factor analysis, when you establish all three of these:

• Marital status. You are no longer married to the other spouse, as defined in section 4.03(2)(a).
• Economic hardship. You would suffer economic hardship if relief were not granted.
• Knowledge. You did not know or have reason to know of the understatement, or, in an underpayment case, that your spouse would not or could not pay the reported tax. Abuse or financial control that prevented you from challenging the return or questioning payment satisfies this element even if you knew.

Miss any one, and you are not out. You simply move to the full weighing in section 4.03.

Layer three: the factors

Section 4.03(2) says all the facts and circumstances are considered, the listed factors are guides and not an exclusive list, and no single factor or majority of factors necessarily decides the outcome. Here they are.

Marital status

This factor weighs in favor of relief if you are no longer married to your spouse as of the date the IRS makes its determination. If you are still married, it is neutral. You are treated as no longer married if you are divorced, legally separated under state law, widowed and not an heir to an estate with enough assets to pay the tax, or not a member of the same household at any time during the 12 months ending on the determination date.

Economic hardship

This weighs in favor of relief if paying the tax would leave you unable to meet reasonable basic living expenses. If it would not, the factor is neutral, not negative. The revenue procedure ties this to the federal poverty guidelines and a $300 monthly cushion. The guide to the economic hardship factor explains the math.

Knowledge or reason to know

In an understatement case, the question is whether you knew or had reason to know of the item. In an underpayment case, it is whether you knew or had reason to know your spouse would not or could not pay. If you did not, the factor favors relief. If you did, it weighs against, but the revenue procedure says actual knowledge will not be weighed more heavily than any other factor. And abuse or financial control can flip this factor in your favor. See the guide to abuse and financial control.

Legal obligation

If your spouse has the sole legal obligation to pay the tax under a divorce decree or other binding agreement, this favors relief, unless you knew or had reason to know when you entered the agreement that your spouse would not pay. If you have the sole obligation, it weighs against. If both of you are obligated, you are not separated or divorced, or the decree is silent, it is neutral. A bankruptcy discharge of your spouse's liability is disregarded.

Significant benefit

If you significantly benefited from the unpaid tax or understatement, meaning a benefit beyond normal support, this weighs against relief. If only your spouse benefited, or your spouse benefited to your detriment, it favors relief. If your spouse controlled the finances or there was abuse, a lavish lifestyle you did not choose becomes neutral. The guide to the significant benefit factor has more.

Compliance with the tax laws

The IRS looks at whether you have made a good faith effort to comply in the years after the year at issue. If you are divorced and compliant, it favors relief. If you are not compliant, it weighs against. If you filed on time but could not fully pay because of your post-divorce finances, it is neutral. The rules differ slightly for spouses who are still married and still filing jointly or separately.

Mental or physical health

Poor mental or physical health at the time the return was filed, or at the time you requested relief, favors relief. The IRS considers the nature, extent and duration of the condition, including its ongoing economic impact. Good health is neutral.

What this framework rewards

Read the factors carefully and a pattern jumps out. Most of them are either favorable or neutral. Only a few can actually hurt you: knowledge, legal obligation if the decree puts it on you, significant benefit, and noncompliance. That means a well-documented request can often stack several favorable factors against one or two negatives.

It also means your own conduct after the marriage matters. File your returns. Pay what you can. Keep records of your health and your finances. The IRS weighs those things.

Timing and Tax Court review

Section 6015(f)(2) sets the deadline. For unpaid amounts, you must ask before the collection statute under section 6502 expires. For amounts already paid, you must ask within the refund claim period. The guide to the equitable relief deadline has the details.

If the IRS denies relief, you can petition the Tax Court under section 6015(e). Section 6015(e)(7) says the court reviews de novo, based on the administrative record plus newly discovered or previously unavailable evidence. So build the record the first time. Do not save your best facts for court.