Facing unexpected tax debt after a divorce can be overwhelming. Federal tax law provides three forms of innocent spouse relief under Internal Revenue Code (IRC) §6015 to help taxpayers escape joint liability for a former spouse’s tax mistakes including potentially those involving tax fraud. These are: traditional innocent spouse relief (IRC 6015(b)), separation of liability relief (IRC 6015(c)), and equitable relief (IRC 6015(f)). Each type has different requirements and procedures.
At the Tax Law Offices of David W. Klasing, our dual-licensed Tax Attorneys and CPAs provide comprehensive representation in innocent spouse relief matters at both the federal and California state level. We assist clients in accurately completing and filing IRS Form 8857, crafting persuasive supporting narratives, and navigating the IRS’s review process—including representation before IRS appeals & the U.S. Tax Court if necessary. Because California is a community property state, we also handle parallel relief claims before the Franchise Tax Board (FTB), which typically conforms to IRS determinations or grants relief independently under R&TC § 18533. In divorce contexts, we collaborate with family law counsel to negotiate protective tax clauses, obtain Tax Relief Certification Certificates (TRCCs), and ensure innocent spouse issues are fully addressed in marital settlement agreements. Our dual-licensed Tax Attorney-CPAs leverage legal strategy and forensic accounting to shield our clients from unjust joint tax liabilities and secure the best possible outcome.
We also routinely find that our forensic accounting supports your divorce counsel in negotiating advantageous marital settlement agreements as to division of property, spousal support & child support.
Tax Fraud Discovered During a Divorce on Married Filing Joint Returns that you Signed.
It’s amazing how often we come across this identical fact pattern in our practice.
Common Fact Patterns Include:
- Martial assets are stolen by either husband or wife in advance preparation for an impending divorce that are commonly deposited to offshore bank or financial institutions. To help hide the stolen assets the income generated by the hidden assets also goes unreported, resulting in tax and foreign information reporting fraud. Tax Evasion can occur with stolen assets invested in the United States.
- One spouse runs the family business and controls the tax filings for it. This spouse underreports income, overstates deductions, or claims tax credits the couple is not entitled to.
- One spouse receives a large inheritance or gift from offshore relatives and decides not to report it too the U.S. government fearing transfer tax liability. This commonly results in income tax evasion and foreign information reporting fraud.
- One spouse heavily trades in cryptocurrency and decides not to report it for tax purposes.
The bottom line here is in a divorce scenario you have two choices; make an innocent spouse claim or have your tax counsel enter you into a Voluntary Disclosure to ensure you receive a pass on criminal tax prosecution for the tax fraud that occurred on the married filing joint returns that you signed. The pros and cons of this decision go beyond the scope of this blog post, but you can learn more here about this issue – Criminal Tax Issues & Divorce.
Joint Tax Liability and the Three Relief Options
When a married couple files a joint federal tax return, both spouses are jointly and severally liable for the entire tax due. This means the IRS can hold either spouse – or both – responsible for any underpayment or understatement of tax, regardless of who earned the income or caused the error. Even if a divorce decree assigns all tax debts to one party, the IRS and California generally ignore that assignment when collecting taxes.
Innocent spouse relief offers qualified individuals a way out of this joint liability. The IRS IRM characterizes three “avenues” of relief from joint and several liability under IRC 6015:
- Innocent Spouse Relief (6015(b)) – Relief from a deficiency or understatement attributable to the other spouse’s erroneous items. The requesting spouse must show (among other things) that they did not know or have reason to know of the error when signing the return, and that, under all the facts and circumstances, it would be unfair to hold them liable.
- Separation of Liability Relief (6015(c)) – Available when the spouses are divorced or legally separated (or haven’t lived together for 12 months) and one spouse asks the IRS to split the deficiency. The IRS allocates the tax deficiency between the spouses based on ownership of items of income, deduction, credit, etc. This limits the requesting spouse’s liability to their share under IRC 6015(d). (A key caveat: if you elect separation of liability, you cannot claim a refund for any overpayment by which you might otherwise benefit.)
- Equitable Relief (6015(f)) – If neither 6015(b) nor (c) applies, a spouse can ask the IRS for relief based on equitable considerations. Under 6015(f), if “taking into account all the facts and circumstances, it is inequitable to hold the individual liable for the tax”, the IRS may grant relief. This catch-all remedy looks at factors like whether the requesting spouse suffered abuse or fraud, whether they received a significant benefit from the unpaid tax, their financial situation, and whether it’s unfair to collect from them.
Filing Requirements and Form 8857
To seek innocent spouse relief, you must file Form 8857, Request for Innocent Spouse Relief. Don’t file it with your tax return; instead, follow these instructions.
- If you are working with an IRS examiner (audit or appeal), give Form 8857 to that IRS person.
- If you received a Notice of Deficiency (90-day letter), file Form 8857 with the IRS office or agent named in that notice (do not send it to the Tax Court or with your amended return).
- If you are in collections (levy or wage garnishment), mail Form 8857 to the address in the IRS letter or notice.
Form 8857 must be verified (signed under penalty of perjury) and should include:
- A clear statement of the facts showing why you qualify for relief.
- Copies of the federal (and state, if relevant) tax returns for the year(s) in question.
- Any IRS or state notices of deficiency or collection.
- Documentation of your divorce or separation (if applicable).
- Any documentation of abuse, financial status, etc., that supports your innocence.
Keep in mind: once you file Form 8857, the IRS will notify your (ex-)spouse that you filed the claim and allow that spouse to participate in the process including proving arguments / evidence as to why you may not be innocent. The IRS will keep your personal information confidential (it will not disclose your address or job, for example), but your ex will know that relief was requested. (If you have serious concerns about spousal retaliation or abuse, that should be raised on Form 8857: the IRS now includes explicit questions about spousal abuse/domestic violence on the form.)
IRS Criteria, Analysis, and Timing
Once Form 8857 is filed, the IRS reviews it against the statutory criteria. The IRS does a “facts and circumstances” analysis, considering factors such as:
Knowledge and Involvement:
Your level of education, your role in the couple’s finances, and whether you were involved in the transactions that led to the underpayment. For example, if you truly signed the return without scrutinizing any suspicious items, that supports your claim.
Benefit Received:
Whether you (or children in the family) materially benefited from the unpaid tax or unreported income. (Some indirect benefit – living expenses paid, property transfers – might weigh against relief.)
Marital Circumstances:
Whether you are now divorced or separated, or whether you were abused or isolated. Divorce or long-term separation is required for separation-of-liability relief, and it’s a factor for equitable relief as well.
Agreements and Compliance:
Whether a divorce decree or separation agreement expressly makes you responsible (the IRS will ignore that for federal liability, but it still looks at it under “facts and circumstances”), and whether you have generally complied with tax laws since.
Deadlines:
Under IRC 6015(b) and (c), you generally must request relief within two years after the IRS first attempts to collect the tax from you. In practical terms, the IRS will start this clock when it takes a collection action – for example, applying a future refund to the debt, sending a levy notice (Letter 11/1058), or filing a court suit – and notifying you of your right to file Form 8857. Do not wait: file as soon as you learn of the liability. If you miss the 2-year deadline under (b) or (c), you cannot later apply for relief under those sections (though you still could seek equitable relief).
Equitable relief (6015(f)) has different timing rules. For unpaid taxes, you must request equitable relief before the expiration of the collection statute (generally 10 years from assessment). For a refund/credit situation (you already paid more than you owed, or have a refund due), you must request relief within the normal refund period (generally 3 years from filing or 2 years from payment). In practice, IRS guidance emphasizes that you shouldn’t delay equitable relief: file as soon as you believe you qualify.
Importantly, while your innocent spouse claim is pending with the IRS, the clock on collections is paused. If you timely petition the Tax Court after a denial, no levy or collection can proceed until the 90-day period (or final judgment) has passed. Thus, initiating a Tax Court case also buys you time and temporarily stops IRS collections on that assessment.
IRS Review and Tax Court Appeals
After reviewing your Form 8857 and supporting documents, the IRS will issue a preliminary determination (often after an in-person or telephone interview) and then a final determination letter. If the IRS grants relief, the tax liability is adjusted and your account will be updated to remove your portion of the liability. If you receive relief from the IRS, California will generally honor it: the FTB “may give you relief from your state tax debt” if all the following are true: you filed the same year(s) as joint filers, the facts and unpaid liabilities are the same for federal and California purposes, you were granted the IRS relief, and you provided the FTB with the IRS’s final determination letter.
If the IRS denies your claim (or only partially grants it), you have an important right: Tax Court review. Under IRC 6015(e), in addition to any other remedy, you may petition the U.S. Tax Court to review the IRS’s decision. You must file the petition within 90 days of the IRS mailing its final determination letter. (In some cases, the deadline is extended to 6 months after filing 8857, but in no event later than 90 days after notice. Practically, Pub. 971 advises that you must file by the 90th day after the final IRS letter or you lose Tax Court review.) Filing a Tax Court petition is recommended if you want to preserve rights, because it stays IRS collections (the IRS cannot levy during the 90-day period or, if a petition is filed, until the Court’s decision)
In Tax Court, the case is reviewed de novo. The court will consider the administrative record (the information you and your ex-spouse provided to the IRS) and any new evidence relevant to the relief request. You should include in the petition any documentation of the circumstances (timing of Form 8857, when you learned of the tax, etc.) that shows why relief is warranted. If the Tax Court grants relief, it can order the IRS to abate the tax for you and refund any payments already made. (Under IRC 6015(g)(1), a refund must be made to the extent attributable to the relief – except separation-of-liability elections do not yield refunds.)
Note: If you petition the Tax Court, the IRS must have notified your (ex-)spouse of the pending case. The (ex-)spouse then has the opportunity to intervene. By law, the IRS will inform your spouse that you filed Form 8857 and must notify them of preliminary and final determinations. In Tax Court you may request that your address be kept confidential, but in general these proceedings are public. If you prevail in Tax Court, the decision is binding on the IRS (and the FTB, once the IRS case is final) unless the ex-spouse can prove you participated meaningfully in the proceeding.
Divorce, Marital Agreements, and Innocent Spouse Relief
Divorce itself does not eliminate joint federal or state tax liability for past years. As IRS Pub. 504 and Form 8857 instructions emphasize, even after divorce you remain liable for taxes on joint returns filed before the divorce, regardless of what the divorce paperwork says In fact, IRS guidelines explicitly state: “one spouse may be held liable for all the tax due even if all the income was earned by the other spouse.” And if your divorce decree says your ex will pay the tax, that agreement has no force on the IRS or FTB.
Because the tax code treats you as still responsible, divorce attorneys and clients must take innocent spouse claims into account when negotiating settlements. Here are some practical points for divorcing couples:
Timing of Filing:
You can file for innocent spouse relief before, during, or after the divorce. Some spouses apply immediately when they learn of a deficiency; others wait to see if the audit completes. There is no rule forbidding a simultaneous divorce negotiation and innocent spouse claim. However, note the 2-year collection deadline. Even if you are in the middle of a divorce, you should file Form 8857 within 2 years of the IRS’s first collection action, or you lose some relief options.
Protective Clauses in Agreements:
Divorce settlements often include provisions about tax liability. For example, a marital settlement may:
Indemnification:
Have the spouse who caused the error (or a jointly responsible spouse) indemnify the other for any deficiency. However, if that spouse cannot pay, the indemnity is worthless unless relief is obtained.
Relief Cooperation:
Obligate one spouse to timely file for innocent spouse relief or to provide necessary financial info/truth in the process.
Splitting Refunds:
Agree in advance how any tax refunds (from amended returns or relief) will be split.
Hold Harmless:
State that one spouse will hold the other harmless for any joint taxes; again, this is just an internal promise, not binding on the IRS.
Tax Clearance:
In California divorces exceeding thresholds ($150k income or $7.5k liability), include a clause requiring a tax revision clearance certificate (TRCC) and specifying how the parties will satisfy any split tax obligations
Legal Fees:
Specify responsibility for any legal fees related to tax defense or innocent spouse filings.
Tax Liability Allocations:
If a divorce decree or property settlement explicitly allocates tax debts, make sure it meets the FTB’s formal requirements. A very common mistake is to gloss over tax liability in the decree. Under California Family Code and Revenue & Taxation Code, a court can allocate tax liabilities, but to be effective for relief you’ll need exactly what FTB requires (line-item tax year, amount, who pays.) After a decree, if one spouse refuses to pay the assigned taxes, you will have to petition the court for enforcement or go to Innocent Spouse court, but the wording in the decree will be crucial.
IRA, Trust and Transfer Issues:
Divorces often involve transfers of assets (retirement accounts, property, trusts). If assets were moved between spouses to reduce taxes, the IRS may scrutinize those as “disqualified assets” under 6015(c)(3)(A). But a divorce decree transfer (or written instrument incident to divorce) is generally exempt from that presumption.
Appeal Rights and Strategy:
Remember that filing for innocent spouse relief is an administrative step. If the IRS denies you, your fallback is Tax Court. If your ex-spouse also filed for relief (sometimes both spouses do), each must be informed and can appeal. Strategic considerations in divorce include timing the innocent spouse claim with financial negotiations: sometimes achieving IRS relief can provide more leverage or leverage to get a better divorce settlement.
Hiring Professionals:
Given the complexity, it is wise for divorcing taxpayers to consult dual-licensed Tax Attorneys and CPAs early. A dual-licensed Tax Attorney-CPA can advise how to structure the settlement, file for IRS/FTB relief, and represent you if a Tax Court case is needed. For example, the attorney can request the TRCC in California, draft the divorce decree language, and ensure protective provisions (like indemnity and cooperation clauses) are robust and enforceable.
Throughout the divorce, keep thorough documentation: all financial accounts, income records, property deeds, loan agreements, and communications with your spouse about tax matters. These can support an innocent spouse or equitable relief claim by showing, for example, that you truly had no knowledge of the error or that you did not benefit from it.
How Our Dual-Licensed Tax Attorneys and CPAs Can Help You Navigate Innocent Spouse Relief
At the Tax Law Offices of David W. Klasing, we offer specialized, dual-licensed representation for clients navigating the intersection of divorce, joint tax liability, and innocent spouse relief. Our dual-licensed Tax Attorney and CPAs understand both the legal framework and the financial realities that often give rise to unjust tax burdens. Whether you are being targeted for your ex-spouse’s unreported income or disallowed deductions, we take a holistic approach to your case. We start by identifying the most appropriate avenue for relief—be it classic innocent spouse relief (IRC § 6015(b)), separation of liability (IRC § 6015(c)), or equitable relief (IRC § 6015(f))—based on the facts, timing, and your marital history. We comb through divorce decrees, tax return prep notes, emails, financial records, and patterns of abuse or financial domination to uncover evidence that strengthens your claim. With our deep knowledge of both federal tax law and California state’s unique community property regime, we simultaneously craft a coordinated strategy under the IRS and the FTB systems.
Once the appropriate relief path is selected, our team prepares meticulous submissions to maximize your chances of success. We assist in completing IRS Form 8857 and the necessary attachments, including detailed narrative statements and factual exhibits that show your lack of knowledge or control over the tax understatement. On the state side, we complete FTB Form 705 and secure relevant Tax Relief Clearance Certificates (TRCCs) to ensure the Franchise Tax Board mirrors the IRS’s determinations. Because innocent spouse determinations often hinge on credibility and documentation, we ensure every filing is presented with the precision of a legal brief and the evidentiary detail of an accountant’s audit trail. If the IRS or FTB denies relief or makes an adverse finding, we pursue appeals and can litigate the matter in U.S. Tax Court. Our ability to represent clients at every administrative and judicial stage—without relying on outside experts—sets us apart. We know how to tell your story in a way that aligns with the IRS’s multi-factor tests and California state’s equitable relief standards, using both statutory authority and practical experience to frame your claim.
Beyond relief applications, we offer critical advice during and after divorce proceedings. We work alongside family law counsel to draft marital settlement agreements that allocate tax liability in ways that protect your post-divorce financial future and meet FTB’s documentation requirements. We advocate for inclusion of indemnity clauses, mutual cooperation agreements for future filings, and tax allocation language that supports future relief claims. If you’re eligible for a refund but your spouse owes back taxes, we also help prepare Form 8379 (Injured Spouse Allocation) to protect your share. Once relief is granted, we ensure IRS and FTB records are correctly updated and monitor for compliance to avoid any surprise levies or offsets. For clients who believe they missed a relief deadline, we evaluate late claims under the equitable relief exception, where careful argument and factual framing can still win results.
Call the tax law offices of David W. Klasing at (800) 681-1295 or book a confidential, reduced-rate consultation online HERE. From beginning to end, we offer the strategic, credentialed support that only experienced dual-licensed attorney-CPAs can provide. If you’re facing tax debt tied to your former spouse, let our award-winning team help you separate your financial life from theirs—for good.
