SECTION 2. BACKGROUND

.01 Section 3201(a) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105–206, 112 Stat.742 (RRA), enacted new § 6015, which provides for relief in certain circumstances from joint and several liability for tax, interest, penalties and other amounts arising from a federal joint income tax return. (Any reference hereinafter to “tax” includes interest, penalties and other amounts.) Sections 6015(b) and 6015(c) specify two sets of circumstances under which relief is available. In addition, where relief is not available under § 6015(b) or 6015(c), § 6015(f) authorizes the Secretary to grant relief if, taking into account all the facts and circumstances, it is inequitable to hold a taxpayer liable for any unpaid tax or any deficiency. Section 3201(b) of RRA amended § 66(c) to add an equitable relief provision similar to § 6015(f). Section 66(c) applies to married individuals with community property income, and provides certain conditions under which an individual can be relieved from separate return liability for items of community income attributable to his or her spouse. The enactment of § 6015 and the amendment of § 66(c) are effective with respect to any liability for tax arising after July 22, 1998, and any liability for tax arising on or before July 22, 1998, that is unpaid on that date.

.02 Under § 6015(b), relief with respect to a deficiency will be granted to an

individual if the following five conditions are met: (1) a joint return was made; (2) there was an understatement of tax attributable to erroneous items of the individual’s spouse; (3) in signing the return, the individual did not know, and had no reason to know, that there was an understatement of tax; (4) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for the deficiency in tax; and (5) the individual elects to apply for relief no later than two years after the date of the Service’s first collection activity after July 22, 1998, with respect to the individual. If all five conditions would be met except for the fact that the individual did not know and had no reason to know of only a portion of the deficiency, then the individual can be granted relief to the extent that the liability is attributable to such portion.

.03 Relief with respect to a deficiency allocable to the other spouse will be granted to an individual under § 6015(c) if the following four conditions are met: (1) a joint return was made; (2) at the time relief is elected, the individual is no longer married to, is legally separated from, or has been living apart at all times for at least 12 months from his or her spouse or former spouse; (3) the individual elects to apply for relief no later than two years after the date of the Service’s first collection activity after July 22, 1998, with respect to the individual; and (4) the liability remains unpaid at the time relief is elected. Relief under § 6015(c) is subject to several limitations. First, relief under § 6015(c) is not available if assets were transferred between the spouses as part of a fraudulent scheme. Second, if an individual has actual knowledge that an item on a return is incorrect, relief is not available to the extent any deficiency is attributable to such item. Third, relief will only be available to the extent that the liability exceeds the value of any disqualified assets transferred to the individual by the nonrequesting spouse. See § 6015(c)(4)(B).

.04 Section 6015 provides for relief only from joint and several liabilities arising from a joint return. If an individual signed a joint return involuntarily while under duress, the signature is not valid and a joint return was not made. The in

dividual is not jointly and severally liable for liabilities arising from such a return and, therefore, § 6015 does not apply.

.05 Under both §§ 6015(b) and 6015(c), relief is limited to relief from liability for proposed or assessed deficiencies. Neither § 6015(b) nor § 6015(c) authorizes relief from liabilities that were properly reported on the return but not paid. However, equitable relief under § 6015(f) may be available for such liabilities. The legislative history of the RRA indicates that Congress intended the Secretary to exercise the equitable relief authority under § 6015(f) when a spouse “does not know, and had no reason to know, that funds intended for the payment of tax were instead taken by the other spouse for such other spouse’s benefit.” H.R. Conf. Rep. No. 599, 105th Cong., 2d Sess. 254 (1998). Congress also intended for the Secretary to exercise the equitable relief authority under § 6015(f) in other situations where, “taking into account all the facts and circumstances, it is inequitable to hold an individual liable for all or part of any unpaid tax or deficiency arising from a joint return.” House Conf. Rep. No. 599 at 254.