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1099x

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1099x

1099x Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. 1099x The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. 1099x If you are requesting relief for more than three tax years, you must file an additional Form 8857. 1099x The IRS will review your Form 8857 and let you know if you qualify. 1099x A completed Form 8857 is shown later. 1099x When to file Form 8857. 1099x   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. 1099x The following are some of the ways you may become aware of such a liability. 1099x The IRS is examining your tax return and proposing to increase your tax liability. 1099x The IRS sends you a notice. 1099x   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. 1099x (But see the exceptions below for different filing deadlines that apply. 1099x ) For this reason, do not delay filing because you do not have all the documentation. 1099x   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. 1099x The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. 1099x This includes the filing of a proof of claim in a bankruptcy proceeding. 1099x The filing of a suit by the United States against you to collect the joint liability. 1099x The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. 1099x The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. 1099x Exception for equitable relief. 1099x   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. 1099x irs. 1099x gov/irb/2011-32_IRB/ar11. 1099x html) expanding the amount of time to request equitable relief. 1099x The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. 1099x Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. 1099x In certain cases, the 10-year period is suspended. 1099x The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. 1099x See Pub. 1099x 594, The IRS Collection Process, for details. 1099x Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. 1099x But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. 1099x See Pub. 1099x 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. 1099x Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. 1099x Exception for relief based on community property laws. 1099x   If you are requesting relief based on community property laws, a different filing deadline applies. 1099x See Relief from liability arising from community property law discussed later under Community Property Laws . 1099x Form 8857 filed by or on behalf of a decedent. 1099x   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. 1099x An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. 1099x For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. 1099x Situations in which you are not entitled to relief. 1099x   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. 1099x In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. 1099x In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. 1099x You entered into an offer in compromise with the IRS. 1099x You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. 1099x Exception for agreements relating to TEFRA partnership proceedings. 1099x   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. 1099x (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. 1099x ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). 1099x Transferee liability not affected by innocent spouse relief provisions. 1099x   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. 1099x Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. 1099x Example. 1099x Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. 1099x Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. 1099x In August 2010, the IRS assessed a deficiency for the 2008 return. 1099x The items causing the deficiency belong to Herb. 1099x Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. 1099x However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. 1099x The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. 1099x There are no exceptions, even for victims of spousal abuse or domestic violence. 1099x We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. 1099x If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. 1099x However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. 1099x If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. 1099x Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. 1099x The IRS sends you a final determination letter regarding your request for relief. 1099x You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. 1099x If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. 1099x The United States Tax Court is an independent judicial body and is not part of the IRS. 1099x You must file a petition with the United States Tax Court in order for it to review your request for relief. 1099x You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. 1099x If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. 1099x You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. 1099x ustaxcourt. 1099x gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. 1099x Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 1099x Generally, community property laws require you to allocate community income and expenses equally between both spouses. 1099x However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 1099x Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. 1099x Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. 1099x You did not file a joint return for the tax year. 1099x You did not include the item of community income in gross income. 1099x The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. 1099x Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. 1099x Your spouse's (or former spouse's) distributive share of partnership income. 1099x Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). 1099x Use the appropriate community property law to determine what is separate property. 1099x Any other income that belongs to your spouse (or former spouse) under community property law. 1099x You establish that you did not know of, and had no reason to know of, that community income. 1099x See  Actual Knowledge or Reason To Know , below. 1099x Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. 1099x See Indications of unfairness for liability arising from community property law, later. 1099x Actual knowledge or reason to know. 1099x   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. 1099x Amount of community income unknown. 1099x   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. 1099x Not knowing the specific amount is not a basis for relief. 1099x Reason to know. 1099x   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. 1099x The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. 1099x The financial situation of you and your spouse (or former spouse). 1099x Your educational background and business experience. 1099x Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). 1099x Indications of unfairness for liability arising from community property law. 1099x   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. 1099x   The following are examples of factors the IRS will consider. 1099x Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). 1099x Whether your spouse (or former spouse) deserted you. 1099x Whether you and your spouse have been divorced or separated. 1099x  For other factors see Factors for Determining Whether To Grant Equitable Relief later. 1099x Benefit from omitted item of community income. 1099x   A benefit includes normal support, but does not include de minimis (small) amounts. 1099x Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. 1099x   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. 1099x Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). 1099x How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. 1099x Fill in Form 8857 according to the instructions. 1099x For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. 1099x However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. 1099x The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. 1099x Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. 1099x Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). 1099x However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. 1099x The IRS can collect these amounts from either you or your spouse (or former spouse). 1099x You must meet all of the following conditions to qualify for innocent spouse relief. 1099x You filed a joint return. 1099x There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). 1099x You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). 1099x See Actual Knowledge or Reason To Know, later. 1099x Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. 1099x See Indications of Unfairness for Innocent Spouse Relief , later. 1099x Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. 1099x A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. 1099x Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. 1099x Erroneous Items Erroneous items are either of the following. 1099x Unreported income. 1099x This is any gross income item received by your spouse (or former spouse) that is not reported. 1099x Incorrect deduction, credit, or basis. 1099x This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). 1099x The following are examples of erroneous items. 1099x The expense for which the deduction is taken was never paid or incurred. 1099x For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. 1099x The expense does not qualify as a deductible expense. 1099x For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. 1099x Fines are not deductible. 1099x No factual argument can be made to support the deductibility of the expense. 1099x For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. 1099x Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. 1099x Actual knowledge. 1099x   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. 1099x You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. 1099x For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. 1099x Reason to know. 1099x   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. 1099x You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. 1099x   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. 1099x The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. 1099x The financial situation of you and your spouse (or former spouse). 1099x Your educational background and business experience. 1099x The extent of your participation in the activity that resulted in the erroneous item. 1099x Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. 1099x Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). 1099x Partial relief when a portion of erroneous item is unknown. 1099x   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. 1099x You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. 1099x Example. 1099x At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. 1099x The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. 1099x You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. 1099x The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. 1099x The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. 1099x Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. 1099x The following are examples of factors the IRS will consider. 1099x Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. 1099x Whether your spouse (or former spouse) deserted you. 1099x Whether you and your spouse have been divorced or separated. 1099x Whether you received a benefit on the return from the understated tax. 1099x For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. 1099x Significant benefit. 1099x   A significant benefit is any benefit in excess of normal support. 1099x Normal support depends on your particular circumstances. 1099x Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. 1099x Example. 1099x You receive money from your spouse that is beyond normal support. 1099x The money can be traced to your spouse's lottery winnings that were not reported on your joint return. 1099x You will be considered to have received a significant benefit from that income. 1099x This is true even if your spouse gives you the money several years after he or she received it. 1099x Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). 1099x The understated tax allocated to you is generally the amount you are responsible for. 1099x This type of relief is available only for unpaid liabilities resulting from the understated tax. 1099x Refunds are not allowed. 1099x To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 1099x You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 1099x (Under this rule, you are no longer married if you are widowed. 1099x ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. 1099x Members of the same household. 1099x   You and your spouse are not members of the same household if you are living apart and are estranged. 1099x However, you and your spouse are considered members of the same household if any of the following conditions are met. 1099x You and your spouse reside in the same dwelling. 1099x You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. 1099x Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. 1099x Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. 1099x Burden of proof. 1099x   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). 1099x You must also establish the basis for allocating the erroneous items. 1099x Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. 1099x The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 1099x A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. 1099x The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). 1099x For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. 1099x Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 1099x See Transfers of Property To Avoid Tax , later. 1099x Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. 1099x You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. 1099x If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. 1099x You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. 1099x (This rule applies whether or not there was a receipt of cash. 1099x ) You knew of the facts that made an incorrect deduction or credit unallowable. 1099x For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. 1099x Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. 1099x Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. 1099x Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. 1099x Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. 1099x Neither is your actual knowledge of how the erroneous item was treated on the tax return. 1099x For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. 1099x Example. 1099x Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. 1099x The IRS audited their return and found that Bill did not report $20,000 of self-employment income. 1099x The additional income resulted in a $6,000 understated tax, plus interest and penalties. 1099x After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. 1099x The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. 1099x Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. 1099x Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. 1099x The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. 1099x Factors supporting actual knowledge. 1099x   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. 1099x The following are examples of factors the IRS may use. 1099x Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. 1099x Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. 1099x Exception for spousal abuse or domestic violence. 1099x   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. 1099x   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. 1099x However, you may be required to file a separate return for that tax year. 1099x For more information about duress, see the instructions for Form 8857. 1099x Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. 1099x The increase may not be more than the entire amount of the liability. 1099x A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. 1099x This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. 1099x If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. 1099x Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. 1099x Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. 1099x An underpaid tax is an amount of tax you properly reported on your return but you have not paid. 1099x For example, your joint 2009 return shows that you and your spouse owed $5,000. 1099x You paid $2,000 with the return. 1099x You have an underpaid tax of $3,000. 1099x Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. 1099x You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 1099x You have an understated tax or an underpaid tax. 1099x You did not pay the tax. 1099x However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. 1099x You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. 1099x See Factors for Determining Whether To Grant Equitable Relief, later. 1099x You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 1099x A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. 1099x Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 1099x See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. 1099x You did not file or fail to file your return with the intent to commit fraud. 1099x The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. 1099x If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. 1099x If the item is titled in your name, the item is presumed to be attributable to you. 1099x However, you can rebut this presumption based on the facts and circumstances. 1099x You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. 1099x If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). 1099x You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. 1099x If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. 1099x Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. 1099x The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. 1099x The IRS will consider all factors and weigh them appropriately. 1099x Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. 1099x Whether you are separated (whether legally or not) or divorced from your spouse. 1099x A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. 1099x A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. 1099x Whether you would suffer a significant economic hardship if relief is not granted. 1099x (In other words, you would not be able to pay your reasonable basic living expenses. 1099x ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. 1099x This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. 1099x Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. 1099x (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. 1099x ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. 1099x Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. 1099x Knowledge or reason to know. 1099x   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. 1099x   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. 1099x Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. 1099x Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. 1099x This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. 1099x Reason to know. 1099x   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. 1099x Example. 1099x You and your spouse filed a joint 2009 return. 1099x That return showed you owed $10,000. 1099x You had $5,000 of your own money and you took out a loan to pay the other $5,000. 1099x You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. 1099x Without telling you, your spouse took the $5,000 loan and spent it on himself. 1099x You and your spouse were divorced in 2010. 1099x In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. 1099x These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. 1099x The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. 1099x Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. 1099x Whether your spouse (or former spouse) abused you. 1099x Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. 1099x Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . 1099x Not permitted under separation of liability relief. 1099x Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. 1099x Proof Required The IRS will only refund payments you made with your own money. 1099x However, you must provide proof that you made the payments with your own money. 1099x Examples of proof are a copy of your bank statement or a canceled check. 1099x No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. 1099x Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. 1099x Underpaid tax. 1099x   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. 1099x However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. 1099x For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. 1099x   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. 1099x Understated tax. 1099x   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. 1099x You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. 1099x Only installment payments made after the date you filed Form 8857 are eligible for a refund. 1099x   The amount of the refund is subject to the limit discussed next. 1099x Limit on Amount of Refund The amount of your refund is limited. 1099x Read the following chart to find out the limit. 1099x IF you file Form 8857. 1099x . 1099x . 1099x THEN the refund cannot be more than. 1099x . 1099x . 1099x Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. 1099x After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. 1099x Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. 1099x Janie and Joe Boulder filed a joint tax return for 2007. 1099x They claimed one dependency exemption for their son Michael. 1099x Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. 1099x Janie did not know about the award when the return was filed. 1099x They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). 1099x Janie and Joe were divorced on May 13, 2009. 1099x In February 2010, Janie filed her 2009 federal income tax return as head of household. 1099x She expected a refund of $1,203. 1099x In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. 1099x Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. 1099x Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. 1099x Janie believes she meets the third condition. 1099x She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. 1099x Janie believes she meets the fourth condition. 1099x She believes it would be unfair to be held liable for the tax because she did not benefit from the award. 1099x Joe spent it on personal items for his use only. 1099x Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. 1099x In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. 1099x Part I Line 1. 1099x   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. 1099x Line 2. 1099x   She checks the box because she wants a refund. 1099x Note. 1099x Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. 1099x Line 3. 1099x   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. 1099x Line 4. 1099x   She checks the “Yes” box because she filed a joint tax return for tax year 2007. 1099x Line 5. 1099x   She skips this line because she checked the “Yes” box on line 4. 1099x Part II Line 6. 1099x   She enters her name, address, social security number, county, and best daytime phone number. 1099x Part III Line 7. 1099x   She enters Joe's name, address, social security number, and best daytime phone number. 1099x Line 8. 1099x   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. 1099x ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. 1099x Line 9. 1099x   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. 1099x Line 10. 1099x   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. 1099x Line 11. 1099x   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. 1099x Line 12. 1099x   She checks the “Yes” box because she signed the 2007 joint tax return. 1099x Line 13. 1099x   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. 1099x Part IV Line 14. 1099x   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. 1099x ” Line 15. 1099x   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. 1099x She explains this in the space provided. 1099x Line 16. 1099x   She checks the box, “You knew that person had income” because she knew Joe had income from wages. 1099x She also lists Joe's income. 1099x Under “Type of Income” she enters “wages. 1099x ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. 1099x ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. 1099x ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. 1099x Line 17. 1099x   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. 1099x Line 18. 1099x   She checks the “No” box because, when the return was signed, she was not having financial problems. 1099x Line 19. 1099x   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. 1099x She provides additional information in the space provided. 1099x Line 20. 1099x   She checks the “No” box because Joe has never transferred money or property to her. 1099x Part V Line 21. 1099x   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. 1099x Line 22. 1099x   She enters her average monthly income for her entire household. 1099x Line 23. 1099x   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. 1099x Signing and mailing Form 8857. 1099x    Janie signs and dates the form. 1099x She attaches the copy of her divorce decree (not illustrated) required by line 8. 1099x Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. 1099x This image is too large to be displayed in the current screen. 1099x Please click the link to view the image. 1099x Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. 1099x Please click the link to view the image. 1099x Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. 1099x Please click the link to view the image. 1099x Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. 1099x Please click the link to view the image. 1099x Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. 1099x But do not rely on these flowcharts alone. 1099x Also read the earlier discussions. 1099x Figure A. 1099x Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. 1099x "Do You Qualify for Innocent Spouse Relief?" Figure B. 1099x Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. 1099x "Do You Qualify for Separation of Liability Relief?" Figure C. 1099x Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. 1099x Please click the link to view the image. 1099x "Do You Qualify for Equitable Relief?" Prev  Up  Next   Home   More Online Publications
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1099x 1. 1099x   Filing Information Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Filing RequirementsWhen To File and Pay Foreign Currency Does My Return Have To Be On Paper? Where To File Nonresident Alien Spouse Treated as a ResidentSocial Security Number (SSN) How To Make the Choice Suspending the Choice Ending the Choice Estimated Tax Other Forms You May Have To File Topics - This chapter discusses: Whether you have to file a return, When to file your return and pay any tax due, How to treat foreign currency, How to file electronically, Where to file your return, When you can treat your nonresident alien spouse as a resident, and When you may have to make estimated tax payments. 1099x Useful Items - You may want to see: Publication 3 Armed Forces' Tax Guide 501 Exemptions, Standard Deduction, and Filing Information 505 Tax Withholding and Estimated Tax 519 U. 1099x S. 1099x Tax Guide for Aliens 970 Tax Benefits for Education Form (and Instructions) 1040-ES Estimated Tax for Individuals 1040X Amended U. 1099x S. 1099x Individual Income Tax Return 2350 Application for Extension of Time To File U. 1099x S. 1099x Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 4868 Application for Automatic Extension of Time To File U. 1099x S. 1099x Individual Income Tax Return 8822 Change of Address See chapter 7 for information about getting these publications and forms. 1099x Filing Requirements If you are a U. 1099x S. 1099x citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad. 1099x Your income, filing status, and age generally determine whether you must file an income tax return. 1099x Generally, you must file a return for 2013 if your gross income from worldwide sources is at least the amount shown for your filing status in the following table. 1099x Filing Status*   Amount Single $10,000 65 or older $11,500 Head of household $12,850 65 or older $14,350 Qualifying widow(er) $16,100 65 or older $17,300 Married filing jointly $20,000 Not living with spouse at end of year $3,900 One spouse 65 or older $21,200 Both spouses 65 or older $22,400 Married filing separately $3,900 *If you are the dependent of another taxpayer, see the instructions for Form 1040 for more information on whether you must file a return. 1099x Gross income. 1099x   This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. 1099x   For purposes of determining whether you must file a return, gross income includes any income that you can exclude as foreign earned income or as a foreign housing amount. 1099x If you are self-employed, your gross income includes the amount on Part I, line 7 of Schedule C (Form 1040), Profit or Loss From Business, or line 1 of Schedule C-EZ (Form 1040), Net Profit From Business. 1099x Self-employed individuals. 1099x   If your net earnings from self-employment are $400 or more, you must file a return even if your gross income is below the amount listed for your filing status in the table shown earlier. 1099x Net earnings from self-employment are defined in Publication 334, Tax Guide for Small Business. 1099x 65 or older. 1099x   You are considered to be age 65 on the day before your 65th birthday. 1099x For example, if your 65th birthday is on January 1, 2014, you are considered 65 for 2013. 1099x Residents of U. 1099x S. 1099x possessions. 1099x   If you are (or were) a bona fide resident of a U. 1099x S. 1099x possession, you may be required to file Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U. 1099x S. 1099x Possession. 1099x See the instructions for the form for more information. 1099x When To File and Pay If you file on a calendar year basis, the due date for filing your return is April 15 of the following year. 1099x If you file on a fiscal year basis (a year ending on the last day of any month except December), the due date is 3 months and 15 days after the close of your fiscal year. 1099x In general, the tax shown on your return should be paid by the due date of the return, without regard to any extension of time for filing the return. 1099x When the due date for doing any act for tax purposes—filing a return, paying taxes, etc. 1099x — falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. 1099x A tax return delivered by the U. 1099x S. 1099x mail or a designated delivery service that is postmarked or dated by the delivery service on or before the due date is considered to have been filed on or before that date. 1099x See your Form 1040 or Form 1040A instructions for a list of designated delivery services. 1099x Foreign wire transfers. 1099x   If you have a U. 1099x S. 1099x bank account, you can use: EFTPS (Electronic Federal Tax Payment System), or Federal Tax Application (same-day wire transfer). 1099x If you do not have a U. 1099x S. 1099x bank account, ask if your financial institution has a U. 1099x S. 1099x affiliate that can help you make same-day wire transfers. 1099x   For more information, visit www. 1099x eftps. 1099x gov. 1099x Extensions You can get an extension of time to file your return. 1099x In some circumstances, you also can get an extension of time to file and pay any tax due. 1099x However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid. 1099x This publication discusses four extensions: an automatic 2-month extension, an automatic 6-month extension, an additional extension for taxpayers out of the country, and an extension of time to meet tests. 1099x If you served in a combat zone or qualified hazardous duty area, see Publication 3 for a discussion of extensions of deadlines. 1099x Automatic 2-month extension. 1099x   You are allowed an automatic 2-month extension to file your return and pay federal income tax if you are a U. 1099x S. 1099x citizen or resident alien, and on the regular due date of your return: You are living outside the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or You are in military or naval service on duty outside the United States and Puerto Rico. 1099x   If you use a calendar year, the regular due date of your return is April 15. 1099x Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return. 1099x Married taxpayers. 1099x   If you file a joint return, either you or your spouse can qualify for the automatic extension. 1099x If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies for it. 1099x How to get the extension. 1099x   To use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension. 1099x Automatic 6-month extension. 1099x   If you are not able to file your return by the due date, you generally can get an automatic 6-month extension of time to file (but not of time to pay). 1099x To get this automatic extension, you must file a paper Form 4868 or use IRS e-file (electronic filing). 1099x For more information about filing electronically, see E-file options , later. 1099x   The form must show your properly estimated tax liability based on the information available to you. 1099x    You may not be eligible. 1099x You cannot use the automatic 6-month extension of time to file if: You want the IRS to figure your tax, or You are under a court order to file by the regular due date. 1099x E-file options. 1099x    You can use e-file to get an extension of time to file. 1099x You can either file Form 4868 electronically or you can pay part or all of your estimate of tax due using a credit or debit card. 1099x   First, complete Form 4868 to use as a worksheet. 1099x If you think you may owe tax when you file your return, use Part II of the form to estimate your balance due. 1099x    Then, do one of the following. 1099x E-file Form 4868. 1099x You can use a tax software package with your personal computer or a tax professional to file Form 4868 electronically. 1099x You will need to provide certain information from your tax return for 2012. 1099x If you wish to make a payment by electronic funds withdrawal, see the instructions for Form 4868. 1099x If you e-file Form 4868, do not also send a paper Form 4868. 1099x E-file and pay by credit or debit card. 1099x You can get an extension by paying part or all of your estimate of tax due by using a credit or debit card. 1099x You can do this by phone or over the Internet. 1099x If you do this, you do not file Form 4868. 1099x For more information, see the instructions for your tax return. 1099x When to file. 1099x   Generally, you must request the 6-month extension by the regular due date of your return. 1099x Previous 2-month extension. 1099x   If you cannot file your return within the automatic 2-month extension period, you generally can get an additional 4 months to file your return, for a total of 6 months. 1099x The 2-month period and the 6-month period start at the same time. 1099x You have to request the additional 4 months by the new due date allowed by the 2-month extension. 1099x   The additional 4 months of time to file (unlike the original 2-month extension) is not an extension of time to pay. 1099x You must make an accurate estimate of your tax based on the information available to you. 1099x If you find you cannot pay the full amount due with Form 4868, you can still get the extension. 1099x You will owe interest on the unpaid amount from the original due date of the return. 1099x   You also may be charged a penalty for paying the tax late unless you have reasonable cause for not paying your tax when due. 1099x Penalties for paying the tax late are assessed from the original due date of your return, unless you qualify for the automatic 2-month extension. 1099x In that situation, penalties for paying late are assessed from the extended due date of the payment (June 15 for calendar year taxpayers). 1099x Additional extension of time for taxpayers out of the country. 1099x   In addition to the 6-month extension, taxpayers who are out of the country can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). 1099x   To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. 1099x Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045   You will not receive any notification from the Internal Revenue Service unless your request is denied. 1099x   The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350, discussed next. 1099x Extension of time to meet tests. 1099x   You generally cannot get an extension of more than 6 months. 1099x However, if you are outside the United States and meet certain requirements, you may be able to get a longer extension. 1099x   You can get an extension of more than 6 months to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction. 1099x The tests, the exclusions, and the deduction are explained in chapter 4. 1099x   You should request an extension if all three of the following apply. 1099x You are a U. 1099x S. 1099x citizen or resident alien. 1099x You expect to meet either the bona fide residence test or the physical presence test, but not until after your tax return is due. 1099x Your tax home is in a foreign country (or countries) throughout your period of bona fide residence or physical presence, whichever applies. 1099x   If you are granted an extension, it generally will be to 30 days beyond the date on which you can reasonably expect to qualify for an exclusion or deduction under either the bona fide residence test or the physical presence test. 1099x However, if you have moving expenses that are for services performed in 2 years, you may be granted an extension until after the end of the second year. 1099x How to get an extension. 1099x   To obtain an extension, file Form 2350 either by giving it to a local IRS representative or other IRS employee or by mailing it to the: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045   You must file Form 2350 by the due date for filing your return. 1099x Generally, if both your tax home and your abode are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar year basis, the due date for filing your return is June 15. 1099x What if tests are not met. 1099x   If you obtain an extension and unforeseen events make it impossible for you to meet either the bona fide residence test or the physical presence test, you should file your income tax return as soon as possible because you must pay interest on any tax due after the regular due date of the return (even though an extension was granted). 1099x    You should make any request for an extension early, so that if it is denied you still can file your return on time. 1099x Otherwise, if you file late and additional tax is due, you may be subject to a penalty. 1099x Return filed before test is met. 1099x   If you file a return before you meet the bona fide residence test or the physical presence test, you must include all income from both U. 1099x S. 1099x and foreign sources and pay the tax on that income. 1099x If you later meet either of the tests, you can claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction on Form 1040X. 1099x Foreign Currency You must express the amounts you report on your U. 1099x S. 1099x tax return in U. 1099x S. 1099x dollars. 1099x If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. 1099x S. 1099x dollars. 1099x How you do this depends on your functional currency. 1099x Your functional currency generally is the U. 1099x S. 1099x dollar unless you are required to use the currency of a foreign country. 1099x You must make all federal income tax determinations in your functional currency. 1099x The U. 1099x S. 1099x dollar is the functional currency for all taxpayers except some qualified business units (QBUs). 1099x A QBU is a separate and clearly identified unit of a trade or business that maintains separate books and records. 1099x Even if you have a QBU, your functional currency is the dollar if any of the following apply. 1099x You conduct the business in U. 1099x S. 1099x dollars. 1099x The principal place of business is located in the United States. 1099x You choose to or are required to use the U. 1099x S. 1099x dollar as your functional currency. 1099x The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. 1099x Make all income tax determinations in your functional currency. 1099x If your functional currency is the U. 1099x S. 1099x dollar, you must immediately translate into U. 1099x S. 1099x dollars all items of income, expense, etc. 1099x (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. 1099x Use the exchange rate prevailing when you receive, pay, or accrue the item. 1099x If there is more than one exchange rate, use the one that most properly reflects your income. 1099x You can generally get exchange rates from banks and U. 1099x S. 1099x Embassies. 1099x If your functional currency is not the U. 1099x S. 1099x dollar, make all income tax determinations in your functional currency. 1099x At the end of the year, translate the results, such as income or loss, into U. 1099x S. 1099x dollars to report on your income tax return. 1099x Blocked Income You generally must report your foreign income in terms of U. 1099x S. 1099x dollars and, with one exception (see Fulbright Grant, later), you must pay taxes due on it in U. 1099x S. 1099x dollars. 1099x If, because of restrictions in a foreign country, your income is not readily convertible into U. 1099x S. 1099x dollars or into other money or property that is readily convertible into U. 1099x S. 1099x dollars, your income is “blocked” or “deferrable” income. 1099x You can report this income in one of two ways: Report the income and pay your federal income tax with U. 1099x S. 1099x dollars that you have in the United States or in some other country, or Postpone the reporting of the income until it becomes unblocked. 1099x If you choose to postpone the reporting of the income, you must file an information return with your tax return. 1099x For this information return, you should use another Form 1040 labeled “Report of Deferrable Foreign Income, pursuant to Rev. 1099x Rul. 1099x 74-351. 1099x ” You must declare on the information return that you will include the deferrable income in your taxable income for the year that it becomes unblocked. 1099x You also must state that you waive any right to claim that the deferrable income was includible in your income for any earlier year. 1099x You must report your income on your information return using the foreign currency in which you received that income. 1099x If you have blocked income from more than one foreign country, include a separate information return for each country. 1099x Income becomes unblocked and reportable for tax purposes when it becomes convertible, or when it is converted, into U. 1099x S. 1099x dollars or into other money or property that is convertible into U. 1099x S. 1099x currency. 1099x Also, if you use blocked income for your personal expenses or dispose of it by gift, bequest, or devise, you must treat it as unblocked and reportable. 1099x If you have received blocked income on which you have not paid tax, you should check to see whether that income is still blocked. 1099x If it is not, you should take immediate steps to pay tax on it, file a declaration or amended declaration of estimated tax, and include the income on your tax return for the year in which the income became unblocked. 1099x If you choose to postpone reporting blocked income and in a later tax year you wish to begin including it in gross income although it is still blocked, you must obtain the permission of the IRS to do so. 1099x To apply for permission, file Form 3115, Application for Change in Accounting Method. 1099x You also must request permission from the IRS on Form 3115 if you have not chosen to defer the reporting of blocked income in the past, but now wish to begin reporting blocked income under the deferred method. 1099x See the instructions for Form 3115 for information on changing your accounting method. 1099x Fulbright Grant All income must be reported in U. 1099x S. 1099x dollars. 1099x In most cases, the tax also must be paid in U. 1099x S. 1099x dollars. 1099x If, however, at least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use the currency of the host country to pay the part of the U. 1099x S. 1099x tax that is based on the blocked income. 1099x Paying U. 1099x S. 1099x tax in foreign currency. 1099x   To qualify for this method of payment, you must prepare a statement that shows the following information. 1099x You were a Fulbright grantee and were paid in nonconvertible foreign currency. 1099x The total grant you received during the year and the amount you received in nonconvertible foreign currency. 1099x At least 70% of the grant was paid in nonconvertible foreign currency. 1099x The statement must be certified by the U. 1099x S. 1099x educational foundation or commission paying the grant or other person having control of grant payments to you. 1099x   You should prepare at least two copies of this statement. 1099x Attach one copy to your Form 1040 and keep the other copy for identification purposes when you make a tax deposit of nonconvertible foreign currency. 1099x Figuring actual tax. 1099x   When you prepare your income tax return, you may owe tax or the entire liability may have been satisfied with your estimated tax payments. 1099x If you owe tax, figure the part due to (and payable in) the nonconvertible foreign currency by using the following formula. 1099x   Adjusted gross income that is blocked income × Total U. 1099x S. 1099x tax = Tax on blocked income     Total adjusted  gross income     You must attach all of the following to the return. 1099x A copy of the certified statement discussed earlier. 1099x A detailed statement showing the allocation of tax attributable to amounts received in foreign currency and the rates of exchange used in determining your tax liability in U. 1099x S. 1099x dollars. 1099x The original deposit receipt for any balance of tax due that you paid in nonconvertible foreign currency. 1099x Figuring estimated tax on nonconvertible foreign currency. 1099x   If you are liable for estimated tax (discussed later), figure the amount you can pay to the IRS in nonconvertible foreign currency using the following formula. 1099x   Adjusted gross income that is blocked income × Total estimated U. 1099x S. 1099x tax = Estimated tax on blocked income     Total adjusted  gross income     If you must pay your host country income tax on your grant, subtract any estimated foreign tax credit that applies to your grant from the estimated tax on the blocked income. 1099x Deposit of foreign currency with disbursing officer. 1099x   Once you have determined the amount of the actual tax or estimated tax that you can pay in nonconvertible foreign currency, deposit that amount with the disbursing officer of the Department of State in the foreign country in which the foundation or commission paying the grant is located. 1099x Estimated tax installments. 1099x   You can either deposit the full estimated tax amount before the first installment due date or make four equal payments before the installment due dates. 1099x See Estimated Tax , later. 1099x Deposit receipt. 1099x   Upon accepting the foreign currency, the disbursing officer will give you a receipt in duplicate. 1099x The original of this receipt (showing the amount of foreign currency deposited and its equivalent in U. 1099x S. 1099x dollars) should be attached to your Form 1040 or payment voucher from Form 1040-ES. 1099x Keep the copy for your records. 1099x Does My Return Have To Be On Paper? IRS e-file (electronic filing) is the fastest, easiest, and most convenient way to file your income tax return electronically. 1099x IRS e-file offers accurate, safe, and fast alternatives to filing on paper. 1099x IRS computers quickly and automatically check for errors or other missing information. 1099x Even returns with a foreign address can be e-filed! How to e-file. 1099x   There are three ways you can e-file. 1099x Use your personal computer. 1099x Use a volunteer. 1099x Many programs offering free tax help can e-file your return. 1099x Use a tax professional. 1099x Most tax professionals can e-file your return. 1099x These methods are explained in detail in the instructions for your tax return. 1099x Where To File If any of the following situations apply to you, do not file your return with the service center listed for your home state. 1099x You claim the foreign earned income exclusion. 1099x You claim the foreign housing exclusion or deduction. 1099x You live in a foreign country. 1099x Instead, use one of the following special addresses. 1099x If you are not enclosing a check or money order, file your return with the: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215 USA If you are enclosing a check or money order, file your return with: Internal Revenue Service Center P. 1099x O. 1099x Box 1303 Charlotte, NC 28201-1303 USA If you do not know where your legal residence is and you do not have a principal place of business in the United States, you can file with the appropriate address listed above. 1099x However, you should not file with the addresses listed above if you are a bona fide resident of the U. 1099x S. 1099x Virgin Islands, Guam, or the Commonwealth of the Northern Mariana Islands during your entire tax year. 1099x Resident of U. 1099x S. 1099x Virgin Islands (USVI). 1099x   If you are a bona fide resident of the USVI during your entire tax year, you generally are not required to file a U. 1099x S. 1099x return. 1099x However, you must file a return with the USVI. 1099x    Send your return to the:     Virgin Islands Bureau of Internal Revenue 6115 Estate Smith Bay Suite 225 St. 1099x Thomas, Virgin Islands 00802 Non-USVI resident with USVI income. 1099x   If you are a U. 1099x S. 1099x citizen or resident alien and you have income from sources in the USVI or income effectively connected with the conduct of a trade or business in the USVI, and you are not a bona fide resident of the USVI during your entire tax year, you must file identical tax returns with the United States and the USVI. 1099x File the original return with the United States and file a signed copy of the U. 1099x S. 1099x return (including all attachments, forms, and schedules) with the Virgin Islands Bureau of Internal Revenue. 1099x   You must complete Form 8689, Allocation of Individual Income Tax to the U. 1099x S. 1099x Virgin Islands, and attach a copy to both your U. 1099x S. 1099x return and your USVI return. 1099x You should file your U. 1099x S. 1099x return with the address listed under Where To File. 1099x   See Publication 570, Tax Guide for Individuals With Income From U. 1099x S. 1099x Possessions, for information about filing Virgin Islands returns. 1099x Resident of Guam. 1099x   If you are a bona fide resident of Guam during your entire tax year, you should file a return with Guam. 1099x    Send your return to the:     Department of Revenue and Taxation Government of Guam P. 1099x O. 1099x Box 23607 GMF, GU 96921   However, if you have income from sources within Guam and you are a U. 1099x S. 1099x citizen or resident alien, but not a bona fide resident of Guam during the entire tax year, you should file a return with the United States. 1099x Send your return to the address listed under Where To File. 1099x   See Publication 570 for information about filing Guam returns. 1099x Resident of the Commonwealth of the Northern Mariana Islands. 1099x   If you are a bona fide resident of the Commonwealth of the Northern Mariana Islands (CNMI) during your entire tax year, you should file a return with the Northern Mariana Islands. 1099x    Send your return to the:      Division of Revenue and Taxation Commonwealth of the Northern Mariana Islands P. 1099x O. 1099x Box 5234, CHRB Saipan, MP 96950   However, if you have income from sources within the CNMI and you are a U. 1099x S. 1099x citizen or resident alien, but not a bona fide resident of the CNMI during the entire tax year, you should file a return with the United States. 1099x Send your return to the address listed under Where To File. 1099x   See Publication 570 for information about filing Northern Mariana Islands returns. 1099x Nonresident Alien Spouse Treated as a Resident If, at the end of your tax year, you are married and one spouse is a U. 1099x S. 1099x citizen or a resident alien and the other is a nonresident alien, you can choose to treat the nonresident as a U. 1099x S. 1099x resident. 1099x This includes situations in which one of you is a nonresident alien at the beginning of the tax year and a resident alien at the end of the year and the other is a nonresident alien at the end of the year. 1099x If you make this choice, the following two rules apply. 1099x You and your spouse are treated, for income tax purposes, as residents for all tax years that the choice is in effect. 1099x You must file a joint income tax return for the year you make the choice. 1099x This means that neither of you can claim under any tax treaty not to be a U. 1099x S. 1099x resident for a tax year for which the choice is in effect. 1099x You can file joint or separate returns in years after the year in which you make the choice. 1099x Example 1. 1099x Pat Smith, a U. 1099x S. 1099x citizen, is married to Norman, a nonresident alien. 1099x Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. 1099x Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless the choice is ended or suspended. 1099x Although Pat and Norman must file a joint return for the year they make the choice, they can file either joint or separate returns for later years. 1099x Example 2. 1099x When Bob and Sharon Williams got married, both were nonresident aliens. 1099x In June of last year, Bob became a resident alien and remained a resident for the rest of the year. 1099x Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return for last year. 1099x Bob and Sharon must report their worldwide income for last year and all later years unless the choice is ended or suspended. 1099x Bob and Sharon must file a joint return for last year, but they can file either joint or separate returns for later years. 1099x If you do not choose to treat your nonresident alien spouse as a U. 1099x S. 1099x resident, you may be able to use head of household filing status. 1099x To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. 1099x For more information, see Publication 501. 1099x Social Security Number (SSN) If you choose to treat your nonresident alien spouse as a U. 1099x S. 1099x resident, your spouse must have either an SSN or an individual taxpayer identification number (ITIN). 1099x To get an SSN for a nonresident alien spouse, apply at an office of the U. 1099x S. 1099x Social Security Administration (SSA) or U. 1099x S. 1099x consulate. 1099x You must complete Form SS-5, Application for a Social Security Card, available at www. 1099x socialsecurity. 1099x gov or by calling 1-800-772-1213. 1099x You must also provide original or certified copies of documents to verify that spouse's age, identity, and citizenship. 1099x If the nonresident alien spouse is not eligible to get an SSN, he or she can file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS to apply for an ITIN. 1099x How To Make the Choice Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. 1099x It should contain the following: A declaration that one spouse was a nonresident alien and the other spouse a U. 1099x S. 1099x citizen or resident alien on the last day of your tax year and that you choose to be treated as U. 1099x S. 1099x residents for the entire tax year, and The name, address, and social security number (or individual taxpayer identification number) of each spouse. 1099x (If one spouse died, include the name and address of the person making the choice for the deceased spouse. 1099x ) You generally make this choice when you file your joint return. 1099x However, you also can make the choice by filing a joint amended return on Form 1040X. 1099x Attach Form 1040, 1040A, or 1040EZ and print “Amended” across the top of the amended return. 1099x If you make the choice with an amended return, you and your spouse also must amend any returns that you may have filed after the year for which you made the choice. 1099x You generally must file the amended joint return within 3 years from the date you filed your original U. 1099x S. 1099x income tax return or 2 years from the date you paid your income tax for that year, whichever is later. 1099x Table 1–1. 1099x Ending the Choice To Treat Nonresident Alien Spouse as a Resident Revocation   Either spouse can revoke the choice for any tax year. 1099x   • The revocation must be made by the due date for filing the tax return for that tax year. 1099x   • The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. 1099x The statement revoking the choice must include the following:     • The name, address, and social security number (or taxpayer identification number) of each spouse. 1099x     • The name and address of any person who is revoking the choice for a deceased spouse. 1099x     • A list of any states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income. 1099x   • If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal Revenue Service Center where the last joint return was filed. 1099x Death   The death of either spouse ends the choice, beginning with the first tax year following the year in which the spouse died. 1099x   • If the surviving spouse is a U. 1099x S. 1099x citizen or resident alien and is entitled to the joint tax rates as a surviving spouse, the choice will not end until the close of the last year for which these joint rates may be used. 1099x   • If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses died. 1099x Divorce or  Legal separation   A divorce or legal separation ends the choice as of the beginning of the tax year in which the legal separation occurs. 1099x Inadequate records   The Internal Revenue Service can end the choice for any tax year that either spouse has failed to keep adequate books, records, and other information necessary to determine the correct income tax liability, or to provide adequate access to those records. 1099x Suspending the Choice The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U. 1099x S. 1099x citizen or resident alien at any time during the later tax year. 1099x Example. 1099x Dick Brown was a resident alien on December 31, 2010, and married to Judy, a nonresident alien. 1099x They chose to treat Judy as a resident alien and filed a joint 2010 income tax return. 1099x On January 10, 2012, Dick became a nonresident alien. 1099x Judy had remained a nonresident alien. 1099x Because Dick was a resident alien during part of 2012, Dick and Judy can file joint or separate returns for that year. 1099x Neither Dick nor Judy was a resident alien at any time during 2013 and their choice is suspended for that year. 1099x For 2013, both are treated as nonresident aliens. 1099x If Dick becomes a resident alien again in 2014, their choice is no longer suspended and both are treated as resident aliens. 1099x Ending the Choice Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained earlier) or ended in one of the ways shown in Table 1-1. 1099x If the choice is ended for any of the reasons listed in Table 1-1, neither spouse can make a choice in any later tax year. 1099x Estimated Tax The requirements for determining who must pay estimated tax are the same for a U. 1099x S. 1099x citizen or resident abroad as for a taxpayer in the United States. 1099x For current instructions on making estimated tax payments, see Form 1040-ES. 1099x If you had a tax liability for 2013, you may have to pay estimated tax for 2014. 1099x Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax for 2014 after subtracting your withholding and credits and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return. 1099x (The return must cover all 12 months. 1099x ) If less than two-thirds of your gross income for 2013 and 2014 is from farming or fishing and your adjusted gross income for 2013 is more than $150,000 ($75,000 if you are married and file separately), substitute 110% for 100% in (2). 1099x See Publication 505 for more information. 1099x The first installment of estimated tax is due on April 15, 2014. 1099x Foreign earned income exclusion. 1099x   When figuring your estimated gross income, subtract amounts you expect to exclude under the foreign earned income exclusion and the foreign housing exclusion. 1099x In addition, you can reduce your income by your estimated foreign housing deduction. 1099x However, you must estimate tax on your nonexcluded income using the tax rates that will apply had you not excluded the income. 1099x If the actual amount of the exclusion or deduction is less than you estimate, you may have to pay a penalty for underpayment of estimated tax. 1099x   For more information about figuring your estimated tax, see Publication 505. 1099x Other Forms You May Have To File FinCEN Form 114 (replaces Form TD F 90-22. 1099x 1). 1099x   Beginning October 1, 2013, Form 114, Report of Foreign Bank and Financial Accounts (FBAR), must be filed instead of Form TD F 90-22. 1099x 1. 1099x Form 114 is filed electronically with the Financial Crimes Enforcement Network (FinCEN). 1099x See the filing instructions at www. 1099x bsaefiling. 1099x fincen. 1099x treas. 1099x gov/main. 1099x html. 1099x   You must file Form 114 if you had any financial interest in, or signature or other authority over a bank, securities, or other financial account in a foreign country. 1099x You do not need to file the report if the assets are with a U. 1099x S. 1099x military banking facility operated by a financial institution or if the combined assets in the account(s) are $10,000 or less during the entire year. 1099x   More information about the filing of Form 114 can be found in the instructions for the form. 1099x FinCEN Form 105. 1099x   You must file Form 105, Report of International Transportation of Currency or Monetary Instruments, if you physically transport, mail, ship, or cause to be physically transported, mailed, or shipped into or out of the United States, currency or other monetary instruments totaling more than $10,000 at one time. 1099x Certain recipients of currency or monetary instruments also must file Form 105. 1099x   More information about the filing of Form 105 can be found in the instructions on the back of the form. 1099x Form 8938. 1099x   You must file Form 8938 to report the ownership of specified foreign financial assets if the total value of those assets exceeds an applicable threshold amount (the “reporting threshold ”). 1099x The reporting threshold varies depending on whether you live in the United States, are married, or file a joint income tax return with your spouse. 1099x Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U. 1099x S. 1099x person. 1099x   You may have to pay penalties if you are required to file Form 8938 and fail to do so, or if you have an understatement of tax due to any transaction involving an undisclosed foreign financial asset. 1099x   More information about the filing of Form 8938 can be found in the separate instructions for Form 8938. 1099x Prev  Up  Next   Home   More Online Publications