(a) Any individual who has made a joint return under this chapter may elect to seek relief under the provisions of subsection (b) of this section and if such individual is eligible to elect the application of subsection (c) of this section, such individual may, in addition to any election under subsection (b) of this section, elect to limit such individual's liability for any deficiency with respect to such joint return in the manner prescribed under subsection (c) of this section. Any individual who has made a joint return under this chapter may elect to seek relief under the provisions of subsection (f) of this section, even if such individual is not eligible to seek relief under subsection (b) or (c) of this section.
(b) (1) Under procedures prescribed by the commissioner, if (A) a joint return has been made for a taxable year and on such return there is an understatement of tax attributable to erroneous items of one individual filing the joint return; (B) the other individual filing the joint return establishes that in signing the return such other individual did not know, and had no reason to know, that there was such an understatement; (C) taking into account all the facts and circumstances, it is inequitable to hold such other individual liable for the deficiency in tax for such taxable year attributable to such understatement or portion of such understatement, as the case may be; and (D) such other individual elects the application of this subsection, in such form as the Commissioner of Revenue Services may prescribe, not later than the date which is two years after the date the commissioner has begun collection activities with respect to the individual making the election, such other individual shall be relieved of liability for tax, including interest, penalties and other amounts due for such taxable year to the extent such liability is attributable to such understatement.
(2) If the electing individual satisfies the conditions of subdivision (1) of this subsection except subparagraph (B) of said subdivision (1), and establishes that in signing the return such individual did not know, and had no reason to know, the extent of such understatement, such individual shall be relieved of liability for tax, including interest, penalties and other amounts due for such taxable year to the extent such liability is attributable to the portion of such understatement of which such individual did not know and had no reason to know.
(c) (1) If an individual who has made a joint return for any taxable year elects the application of this subsection, the individual's liability for any deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to such individual under subsection (d) of this section.
(2) The electing individual shall have the burden of proof with respect to establishing the portion of any deficiency allocable to such individual.
(3) An individual shall be eligible to elect the application of this subsection if (A) at the time such election is filed, such individual is no longer married to, or is legally separated from, the individual with whom such individual filed the joint return to which the election relates, or (B) such individual was not a member of the same household as the individual with whom such joint return was filed at any time during the twelve-month period ending on the date such election is filed.
(4) If the commissioner demonstrates that assets were transferred between individuals filing a joint return as part of a fraudulent scheme by such individuals, an election under this subsection by either individual shall be invalid.
(5) If the commissioner demonstrates that the individual electing under this subsection had actual knowledge, at the time such individual signed the return, of any item giving rise to a deficiency or portion thereof which is not allocable to such individual under subsection (d) of this section, the election shall not apply to such deficiency or portion thereof, unless the individual with actual knowledge establishes that the electing individual signed the return under duress.
(6) The portion of the deficiency for which the individual electing under this subsection is liable shall be increased by the value of any disqualified asset transferred to the individual. For purposes of this section, “disqualified asset” means any property or right to property transferred to an electing individual with respect to a joint return by the other individual filing such joint return if the principal purpose of the transfer was the avoidance of tax or payment of tax. Any transfer which is made after the date which is one year before the date on which a notice of proposed deficiency assessment is sent, other than any transfer pursuant to a decree of divorce or separate maintenance or a written instrument incident to such a decree or to any transfer which an individual establishes did not have as its principal purpose the avoidance of tax or payment of tax, shall be presumed to have as its principal purpose the avoidance of tax or payment of tax.
(7) An election under this subsection for any taxable year shall be made not later than two years after the date on which the commissioner has begun collection activities with respect to the individual making the election.
(d) (1) The portion of any deficiency on a joint return allocated to an individual electing under subsection (c) of this section shall be the amount which bears the same ratio to such deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under this subdivision bears to the net amount of all items taken into account in computing the deficiency.
(2) If a deficiency or portion thereof is attributable to the disallowance of a credit, and such item is allocated to one individual under subdivision (3) of this subsection, such deficiency or portion thereof shall be allocated to such individual. Any such item shall not be taken into account under subdivision (1) of this subsection.
(3) Except as provided in subdivisions (4) and (5) of this subsection, any item giving rise to a deficiency on a joint return shall be allocated to individuals filing the return in the same manner as it would have been allocated if the individuals had filed separate returns for the taxable year. If the commissioner establishes that the allocation of any item is appropriate due to fraud of one or both individuals, the commissioner may provide for such allocation in a manner as prescribed in regulations adopted in accordance with chapter 54.
(4) If an exemption under section 12-702 or a credit under section 12-703 would be disallowed in its entirety solely because a separate return is filed, such disallowance shall be disregarded and the item shall be computed as if a joint return had been filed and then allocated between the joint filers appropriately.
(5) If the liability of a child of a taxpayer is included on a joint return, such liability shall be disregarded in computing the separate liability of either joint filer and such liability shall be allocated appropriately between the joint filers.
(e) (1) The commissioner shall determine what relief, if any, is available to an electing individual under this section and shall mail notice of the proposed determination to such individual. Such notice shall set forth briefly the commissioner's findings of fact and the basis of the determination in each case decided in whole or in part adversely to such individual. Sixty days after the date on which it is mailed, a notice of proposed determination shall constitute a final determination except only for such amounts as to which such individual has filed a written protest with the commissioner in accordance with subdivision (2) of this subsection.
(2) On or before the sixtieth day after the mailing of the proposed determination, such individual may file with the commissioner a written protest against the proposed determination in which such individual sets forth the grounds on which the protest is based. If a protest is filed, the commissioner shall reconsider the proposed determination and, if such individual has so requested, may grant or deny such individual or such individual's authorized representative an oral hearing.
(3) The commissioner shall mail notice of the commissioner's determination to such individual, which notice shall set forth briefly the commissioner's findings of fact and the basis of decision in each case decided in whole or in part adversely to such individual.
(4) The action of the commissioner on such individual's protest shall be final upon the expiration of one month from the date on which the commissioner mails notice of the commissioner's action to such individual unless within such period such individual seeks judicial review of the commissioner's determination pursuant to section 12-730.
(f) Under procedures prescribed by the commissioner, if taking into account all the facts and circumstances, it is inequitable to hold such individual liable for any unpaid tax or any deficiency, or any portion of such unpaid tax or deficiency, and relief is not otherwise available to such individual under this section, the commissioner may relieve such individual of such liability.
(g) The commissioner may adopt regulations, in accordance with chapter 54, as are necessary to carry out the provisions of this section, including regulations providing the opportunity for an individual to have notice of, and an opportunity to participate in, any administrative proceeding with respect to an election made under this section by the other individual filing the joint return.
(h) The provisions of this section shall be applicable with respect to any liability arising after May 27, 1999, and any liability arising on or before May 27, 1999, if such liability remains unpaid as of said date, provided the two-year period to make an election under subsection (b) or (c) of this section shall not expire before the date that is two years after the date of the first collection activity after May 27, 1999.
(P.A. 99-48, S. 4, 10; P.A. 00-230, S. 12; June Sp. Sess. P.A. 15-5, S. 124, 125.)
History: P.A. 99-48 effective May 27, 1999; P.A. 00-230 made technical changes in Subsec. (a); June Sp. Sess. P.A. 15-5 amended Subsec. (a) to allow individual who made joint return to elect relief under Subsec. (f) even if not eligible for relief under Subsec. (b) or (c), amended Subsec. (f) to make a technical change, amended Subsec. (g) to make regulations permissive, rather than mandatory, and amended Subsec. (h) to add reference to Subsec. (b) or (c) re two-year period to make an election, effective June 30, 2015.