Form Pa-971 - Relief From Joint Liability (Innocent Spouse Relief) Page 4
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11Example: At the time you signed your joint return, you
You may qualify for relief by income allocation if you
meet all of the following conditions:
knew that your spouse did not report $5,000 of gambling
winnings. The Department examined your tax return
1. You are not eligible for relief from an understate-
several months after you filed it and determined that
ment of tax or relief by separation of liability, or
you are jointly liable for an underpayment of tax
your spouse’s unreported gambling winnings were actu-
that is not attributable to income that would have
ally $25,000. This resulted in a much larger understate-
been reported by you if you had filed a separate
ment of tax than you knew about at the time you signed
return;
your return. You established that you did not know
2. You and your spouse did not transfer assets to one
about, and had no reason to know about, the additional
another as a part of a fraudulent scheme;
$20,000 because of the way your spouse handled gam-
3. Your spouse did not transfer assets to you for the
bling winnings. The understatement of tax due to the
main purpose of avoiding tax or the payment of
$20,000 will qualify for innocent spouse relief if you
tax. See “Transfers of property to avoid tax” on
meet the other requirements. The understatement of tax
Page 4;
due to the $5,000 of gambling winnings will not qualify
4. You did not file your return with the intent to com-
for relief.
mit fraud;
Transfers of property to avoid tax. If your spouse trans-
5. You have filed all required personal income tax
fers property to you for the main purpose of avoiding tax
returns and do not have an outstanding personal
or payment of tax, the tax liability allocated to you will
income tax liability for a tax year or years other
than the year or years for which you are seeking
be increased by the value of the property transferred. A
relief;
transfer will be presumed to have as its main purpose
the avoidance of tax or payment of tax if the transfer is
6. You were not a member of the same household as
made during or after the 12-month period before the
the spouse with whom you filed the joint return at
any time during the 12-month period preceding the
mailing date of the Department’s first billing notice. This
date you filed the election packet; and
presumption will not apply if the transfer was made
under a divorce decree, separate maintenance agree-
7. You establish that taking into account all the facts
and circumstances, it would be unfair to hold you
ment, or a written instrument incident to such an agree-
liable for the understatement or underpayment of
ment. The presumption will also not apply if you estab-
tax. See Indications of unfairness for the granting
lish that the transfer did not have as its main purpose
of relief by income allocation (defined below).
the avoidance of tax or payment of tax.
Indications of unfairness for the granting of relief by
Relief by Income Allocation (See Flowchart C,
income allocation. The Department will consider all of
Page 9)
the facts and circumstances in order to determine
whether it is unfair to hold you responsible for the under-
You may qualify for relief by income allocation if you are
statement or underpayment of tax. The Department will
jointly liable for an underpayment of tax, and the under-
consider positive and negative factors and weigh them
paid tax is not attributable to income that would have
appropriately to determine whether to grant relief by
been on your separate return if you were to have filed a
income allocation.
separate return. In addition, you may qualify for relief
The following example shows a situation that may qual-
by income allocation if you failed to qualify for relief from
ify for relief by income allocation:
joint liability for an erroneous item through your election
for relief from an understatement of tax or your election
You and your spouse file a joint 2006 return. That return
for relief by separation of liability.
shows you owe $10,000. You have $5,000 of your own
money, and you take out a loan to pay the other $5,000.
Underpayment of tax. An underpayment of tax is the
You give two $5,000 checks to your spouse to pay the
amount of tax you reported or should have reported on
$10,000 liability. Without telling you, your spouse takes
your return, but you have not paid. For example, your
the $5,000 loan and spends it on himself. You and your
joint 2008 return shows that you and your spouse owe
spouse were divorced in 2007. In addition, you had no
$5,000. You pay $2,000 with the return. You have an
knowledge or reason to know at the time you signed the
underpayment of $3,000.
return that the tax would not be paid. Both of these
facts indicate to the Department that it may be unfair to
If you elect relief from an understatement of tax and/or
hold you liable for the $5,000 underpayment. The
relief by separation of liability and the Department deter-
Department will consider these facts, together with all of
mines that you do not qualify for either, the Taxpayers’
the other facts and circumstances, to determine whether
Rights Advocate will automatically consider whether
to grant you relief from joint liability through income
relief by income allocation is appropriate.
allocation for the $5,000 underpayment.
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