Publication 971 - Instructions Innocent Spouse Relief Forms

20% rate

31% rate

Line 1, Column (b)

Wendy

Capital gain

$4,000

Interest

$7,000

Enter in column (b) the income and deductions allocated

Hal

Capital gain

$6,000

Dividends

$3,000

jointly to you and your spouse. Do not enter them in

column (a). For example, enter the following items in col-

umn (b).

•

Hal decides to request relief by separation of liability. He

Items allocable to your spouse that create a tax

must complete two Worksheets A because each item that

benefit for you.

belongs to him is subject to different tax rates. On Work-

•

Erroneous items you knew about.

sheet A for the 20% rate category, Hal enters $6,000 on

line 1 in column (a); $10,000 on line 2; .60 on line 3 in

column (a); and $2,000 on line 4. He completes the rest of

Items allocable to your spouse that create a tax benefit

Worksheet A as appropriate. On Worksheet A for the 31%

for you. An item that is otherwise allocable to your spouse

rate category, he enters $3,000 on line 1, column (a);

must be allocated to you to the extent the item created a

$10,000 on line 2; .30 on line 3 in column (a); and $3,100

tax benefit on the return for you. This does not relieve your

on line 4. He completes the rest of Worksheet A as appro-

spouse of liability. Rather, both spouses will be jointly and

severally liable for the item to the extent of the benefit

priate.

received.

Income subject to special limits on separate returns.

If the income (such as taxable social security benefits) is

Example. Your joint return shows $50,000 of wages

subject to special limits on a separate return, figure the

allocable to you and $15,000 of self-employment income

income as you would on a joint return and allocate it

allocable to your spouse. The IRS audited your return and

between you and your spouse.

disallowed a $20,000 business deduction allocable to your

spouse. Only $15,000 of the disallowed deduction offset

Example. Charles and Mary filed a joint return for 2001.

your spouse’s self-employment income. The remaining

Charles received social security benefits in 2001, but none

$5,000 must be allocated to you because that amount

of them were taxable because his and Mary’s total income

offset your income.

was less than the base amount ($32,000) for joint returns.

Erroneous items you knew about. Include in column (b)

Several months after filing their return, Charles and Mary

any erroneous items relating to jointly-owned property and

received a notice from the IRS for additional tax because

erroneous items allocable to your spouse to the extent you

they did not report some interest and dividend income. The

actually knew about them. If you are requesting innocent

notice also showed that half of Charles’ social security

spouse relief (discussed on page 3), also include these

benefits were taxable because the additional interest and

erroneous items to the extent you had reason to know

dividend income increased their total income so that it was

about them. You and your spouse are jointly and severally

more than the $32,000 base amount. If Charles had filed a

liable for the tax on these items.

separate return, 85% of his social security benefits would

have been taxable. When figuring his separation of liability,

Example 1. You and your spouse received $4,000 of

Charles allocates only half of his social security benefits.

interest income from a joint bank account that was not

This is true even though 85% of his benefits would have

reported on your joint return. You must include $4,000 in

been taxable if he and Mary had filed separate returns.

column (b). Do not include it in column (a).

Deductions. Allocate deductions related to a business or

Example 2. Your spouse received $3,000 in gambling

investment according to the same allocation rules that

winnings that were not reported on your joint return. You

apply to income. Allocate deductions unrelated to a busi-

actually knew about $1,000 of those winnings. You must

ness or investment (such as itemized deductions for mort-

include $1,000 in column (b). Do not include any of these

gage interest and taxes) equally between you and your

winnings in column (a).

spouse unless there is evidence that shows a different

allocation is appropriate.

Line 5

Deductions that are limited or not allowed on a sepa-

rate return. If a deduction would not be allowed if you had

Enter the part of the understatement of tax that resulted

filed a separate return, figure the deduction as you would

from an adjustment to a credit. Also enter any adjustments

on a joint return and allocate that amount between you and

to your child’s tax liability that you elected to report on your

your spouse.

joint return and any tax other than the income tax. For

A similar rule applies to deductions (such as the IRA

example, enter any adjustments to the following taxes.

deduction) that are subject to special limits on a separate

•

Alternative minimum tax.

return. Figure these items as you would on a joint return

•

and allocate them between you and your spouse.

Household employment taxes.

Page 9

Publication 971 - Instructions Innocent Spouse Relief Forms - 2003 Page 9

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