How to Get California Innocent Spouse Relief

When married couples file a joint state tax return in California, both individuals accept equal responsibility for the entire tax liability. This joint and several liability remains in effect even if a subsequent divorce decree assigns the tax debt to one spouse. California law, however, provides innocent spouse relief for individuals who were unaware of errors on a joint return that resulted in additional tax, interest, and penalties. This relief, administered by the California Franchise Tax Board (FTB), can absolve a qualifying person from tax debt created by their current or former spouse. The FTB makes the final determination on state tax matters, though a federal determination from the IRS can influence the state’s decision.

Eligibility for Relief

Innocent Spouse Relief

To qualify for traditional Innocent Spouse Relief, you must have filed a joint tax return containing a tax understatement. This understatement must be directly attributable to erroneous items of the other spouse, which include unreported income or incorrectly claimed deductions, credits, or property basis. A central element of the claim is proving a lack of knowledge. You must establish that when you signed the return, you did not know, and had no reason to know, about the tax understatement. The FTB will consider factors like your level of education, involvement in family finances, and whether unusual or lavish expenditures occurred.

Finally, it must be shown that holding you liable for the tax deficiency would be unfair. The FTB evaluates all facts and circumstances to make this determination, assessing whether you received any significant benefit from the understated tax beyond normal support. Evidence of desertion by the other spouse or being divorced or separated can weigh in favor of granting relief.

Separation of Liability Relief

Separation of Liability Relief offers an alternative path that allocates the tax deficiency between you and your spouse. You are then responsible only for the tax debt allocated to your own income and deductions. To be eligible, you must have filed a joint return and, at the time of the request, be divorced, legally separated, or have lived apart from the other spouse for at least 12 continuous months. Unlike traditional innocent spouse relief, you can have some knowledge of the erroneous item. However, if the FTB proves you had actual knowledge of the item when you signed the return, relief may be denied for that portion of the liability.

Equitable Relief

Equitable Relief is an option if the requirements for the other two types of relief are not met. It may be granted if the FTB determines it would be inequitable to hold you liable for the tax. The FTB considers many factors in this analysis, including:

• Your current marital status.
• Whether you would suffer economic hardship if relief is not granted.
• If you had knowledge or reason to know about the erroneous item.
• Whether you significantly benefited from the unpaid tax.
• Your compliance with subsequent income tax laws.
• Your physical and mental health.

A history of domestic abuse and the other spouse’s control over household finances can also be compelling factors in the FTB’s decision.

Information and Documentation to Prepare

The process for requesting relief begins with FTB Form 705, Request for Innocent Joint Filer Relief. You will need to provide personal information for both spouses and specify the tax years for which you are requesting relief. A key component of the application is a detailed written statement explaining why you believe you qualify. This narrative should directly address the eligibility criteria for the type of relief you are seeking, whether it’s a lack of knowledge, a separation of liability, or grounds for equitable relief.

Supporting documentation is essential to substantiate your claims. Important documents to prepare include:

• A complete copy of your divorce decree or separation agreement if applicable.
• Financial statements, proof of income and expenses, and evidence of debts if claiming economic hardship.
• Documents showing you had limited access to financial records or that your spouse managed all finances, which can help prove a lack of knowledge.
• A copy of the IRS Final Determination letter if the IRS has already granted you federal relief for the same tax years.

The Application Process

After completing Form 705 and gathering your documents, mail the application package to the Franchise Tax Board. It is advisable to use a mailing method that provides proof of delivery to establish a clear filing date.

Upon receiving your request, the FTB begins its review and will notify the other spouse (the non-requesting spouse) that you have applied for relief. The law requires the FTB to give the non-requesting spouse an opportunity to participate in the proceedings and submit information. The review process can take several months. The FTB will analyze the information you provided, any information from the non-requesting spouse, and the facts of your case against the legal requirements. Once the review is complete, the FTB will issue a formal determination letter informing you whether your request has been granted, partially granted, or denied.

California Community Property Considerations

California’s status as a community property state complicates innocent spouse cases. Under this law, most income earned and assets acquired during a marriage are considered to belong equally to both spouses. Similarly, debts incurred during the marriage are generally considered community debts for which both spouses are responsible.

This framework can complicate a claim, as the FTB generally presumes that income is community property. This makes it more difficult to argue that an item of unreported income belongs solely to the other spouse. To overcome this presumption, you must provide specific evidence showing the income was the other spouse’s separate property.

The community property presumption also affects the FTB’s analysis of the “knowledge” requirement. If income was deposited into a joint bank account to which you had access, the FTB might argue that you had reason to know about it, even if you were not actively involved in managing the finances. When preparing your case, it is important to address how community property rules apply to your situation and present clear evidence to support your position.