North Carolina spouses who file federal taxes jointly are typically liable for the taxes that are due when they file. This may create issues and complications in a number of scenarios, but there is an exception to this rule if one spouse seeks to be relieved from liability.
Requesting equitable relief under the Internal Revenue Code can be challenging because taxpayers must meet specific conditions to be eligible.
LaRosa v. Commissioner of Internal Revenue
In the case of LaRosa v. Commissioner of Internal Revenue, Commissioner mistakenly made an interest refund to LaRosa and her husband, and after winning an erroneous refund suit, Commissioner tried to collect the amount. LaRosa requested innocent spouse relief, but the request was denied. In their denial, Commissioner stated that liability based on an erroneous interest refund is not eligible for relief. LaRosa then filed a petition challenging the denial, Commissioner requested a dismissal for lack of jurisdiction, and LaRosa objected.
The Tax Court’s Ruling
The United States Tax Court ruled that LaRosa was not eligible for relief because there was no unpaid tax or deficiency for the years in question. Commissioner issued an erroneous refund based only on interest, and there was no recalculation of tax liabilities for LaRosa or her husband. Because of these facts, I.R.C. § 6015(f), under which LaRosa requested equitable relief, would not be applicable.
The Tax Court’s Reasoning
In most situations, taxpayers who are married and file jointly are liable for all taxes associated with the return. Internal Revenue Code (I.R.C.) Section 6015(f) allows a spouse to request relief from joint and several liability even when filing taxes jointly with their spouse, as long as certain conditions are met. This law states that when it is inequitable to hold an individual liable for unpaid tax or a deficiency and relief is not available elsewhere in the Code, the liability can be relieved. A taxpayer can request equitable relief under this law when the liability has not been paid or as long as the timeframe for claiming a refund or credit for the payment has not passed.
Types of Refunds Available
The I.R.C. discusses two types of refunds that taxpayers can receive: rebate and non-rebate. Rebate refunds are issued when there is a recalculation of tax liability, while non-rebate refunds are those made in error and have nothing to do with recalculating tax liability.
A spouse does not qualify for equitable relief under this law unless there is an unpaid tax or deficiency. An erroneous refund, like LaRosa and her husband received in this case, does not meet the qualifications of I.R.C. Section 6015(f).
The tax implications of your marital situation can be complex. To clarify where you stand with the IRS, speak with an attorney at Woodruff Family Law Group.