Receiving a letter from the Internal Revenue Service (IRS) or from the California Franchise Tax Board (FTB) can threaten your financial stability. The possibility that the IRS could garnish your wages, freeze your bank accounts or place a lien on your home can create a highly stressful experience. This is particularly true when you discover that this massive tax debt originates from your spouse’s actions.
The IRS and the FTB understand that these situations happen and offer programs to help individuals who face an unfair burden from a joint tax debt.
Innocent spouse relief
This is the most well-known option. You may qualify if your spouse or former spouse created the tax error without your knowledge. To be eligible for this program in California, you have to prove that:
- The error on your joint return was due to your spouse’s incorrect reporting (for example, unreported income).
- When you signed the return, you did not know and had no reason to know about the error.
Remember, you must file your request for relief within two years after the date the federal and state tax agencies start collection activities against you.
Separation of liability relief
If you are divorced, legally separated or have lived apart from your spouse for at least 12 months, you can opt for this relief. This program divides the tax debt, including penalties and interest, from your joint return between you and your spouse. At the end of the process, you may only be responsible for the portion allotted to you by the IRS or by the FTB, depending on whether the liability is federal or California state tax.
Equitable relief
In case you do not qualify for the other two types of relief, you might still be eligible for equitable relief. Tax agencies will evaluate all the facts and circumstances to determine whether holding you responsible for the tax debt is fair. This often applies in situations involving financial abuse or control by the other spouse, or if paying the debt would cause you to suffer significant economic hardship.
Getting the right help
Requesting relief from the IRS does not automatically grant you relief from the FTB, and vice versa. The application process requires meticulous evidence and a carefully constructed argument to. Seeking the support of a professional to guide you through filing for tax relief is crucial, as tax authorities are likely to deny poorly presented applications.