---
kind: "range"
citation: "26 C.F.R. §§ 1.66-1–1.66-4"
title: "26"
from: "1.66-1"
to: "1.66-4"
count: 4
url: "https://uscodex.org/cfr/26/1.66-1..1.66-4"
---

# §1.66-1. Treatment of community income.

- (a) **In general.** Married individuals domiciled in a community property state who do not elect to file a joint individual Federal income tax return under [section 6013](/cfr/26/6013.md) generally must report half of the total community income earned by the spouses during the taxable year except at times when one of the following exceptions applies:
  - (1) The spouses live apart and meet the qualifications of [§ 1.66-2](/cfr/26/1.66-2.md).
  - (2) The Secretary denies a spouse the Federal income tax benefits resulting from community property law under [§ 1.66-3](/cfr/26/1.66-3.md), because that spouse acted as if solely entitled to the income and failed to notify his or her spouse of the nature and amount of the income prior to the due date for the filing of his or her spouse's return.
  - (3) A requesting spouse qualifies for traditional relief from the Federal income tax liability resulting from the operation of community property law under [§ 1.66-4(a)](/cfr/26/1.66-4.md?p=a).
  - (4) A requesting spouse qualifies for equitable relief from the Federal income tax liability resulting from the operation of community property law under [§ 1.66-4(b)](/cfr/26/1.66-4.md?p=b).
- (b) **Applicability.**
  - (1) **The rules of this section apply only to community income, as defined by state law.** The rules of this section do not apply to income that is not community income. Thus, the rules of this section do not apply to income from property that was formerly community property, but in accordance with state law, has ceased to be community property, becoming, e.g., separate property or property held by joint tenancy or tenancy in common.
  - (2) When taxpayers report income under [paragraph (a)](#a) of this section, all community income for the calendar year is treated in accordance with the rules provided by [section 879(a)](/cfr/26/879.md?p=a). Unlike the other provisions under [section 66](/cfr/26/66.md), [section 66(a)](/cfr/26/66.md?p=a) does not permit inclusion on an item-by-item basis.
- (c) **Transferee liability.** The provisions of [section 66](/cfr/26/66.md) do not negate liability that arises under the operation of other laws. Therefore, a spouse who is not subject to Federal income tax on community income may nevertheless remain liable for the unpaid tax (including additions to tax, penalties, and interest) to the extent provided by Federal or state transferee liability or property laws (other than community property laws). For the rules regarding the liability of transferees, see [sections 6901 through 6904](/cfr/26/6901..6904.md) and the regulations thereunder.

# §1.66-2. Treatment of community income where spouses live apart.

- (a) Community income of spouses domiciled in a community property state will be treated in accordance with the rules provided by [section 879(a)](/cfr/26/879.md?p=a) if all of the following requirements are satisfied—
  - (1) The spouses are married to each other at any time during the calendar year;
  - (2) The spouses live apart at all times during the calendar year;
  - (3) The spouses do not file a joint return with each other for a taxable year beginning or ending in the calendar year;
  - (4) One or both spouses have earned income that is community income for the calendar year; and
  - (5) No portion of such earned income is transferred (directly or indirectly) between such spouses before the close of the calendar year.
- (b) **Living apart.** For purposes of this section, living apart requires that spouses maintain separate residences. Spouses who maintain separate residences due to temporary absences are not considered to be living apart. Spouses who are not members of the same household under [§ 1.6015-3(b)](/cfr/26/1.6015-3.md?p=b) are considered to be living apart for purposes of this section.
- (c) **Transferred income.** For purposes of this section, transferred income does not include a de minimis amount of earned income that is transferred between the spouses. In addition, any amount of earned income transferred for the benefit of the spouses' child will not be treated as an indirect transfer to one spouse. Additionally, income transferred between spouses is presumed to be a transfer of earned income. This presumption is rebuttable.
- (d) **Examples.** The following examples illustrate the rules of this section:

# §1.66-3. Denial of the Federal income tax benefits resulting from the operation of community property law where spouse not notified.

- (a) **In general.** The Secretary may deny the Federal income tax benefits of community property law to any spouse with respect to any item of community income if that spouse acted as if solely entitled to the income and failed to notify his or her spouse of the nature and amount of the income before the due date (including extensions) for the filing of the return of his or her spouse for the taxable year in which the item of income was derived. Whether a spouse has acted as if solely entitled to the item of income is a facts and circumstances determination. This determination focuses on whether the spouse used, or made available, the item of income for the benefit of the marital community.
- (b) **Effect.** The item of community income will be included, in its entirety, in the gross income of the spouse to whom the Secretary denied the Federal income tax benefits resulting from community property law. The tax liability arising from the inclusion of the item of community income must be assessed in accordance with [section 6212](/cfr/26/6212.md) against this spouse.
- (c) **Examples.** The following examples illustrate the rules of this section:

# §1.66-4. Request for relief from the Federal income tax liability resulting from the operation of community property law.

- (a) **Traditional relief—**
  - (1) **In general.** A requesting spouse will receive relief from the Federal income tax liability resulting from the operation of community property law for an item of community income if—
    - (i) The requesting spouse did not file a joint Federal income tax return for the taxable year for which he or she seeks relief;
    - (ii) The requesting spouse did not include in gross income for the taxable year an item of community income properly includible therein, which, under the rules contained in [section 879(a)](/cfr/26/879.md?p=a), would be treated as the income of the nonrequesting spouse;
    - (iii) The requesting spouse establishes that he or she did not know of, and had no reason to know of, the item of community income; and
    - (iv) Taking into account all of the facts and circumstances, it is inequitable to include the item of community income in the requesting spouse's individual gross income.
  - (2) **Knowledge or reason to know.**
    - (i) A requesting spouse had knowledge or reason to know of an item of community income if he or she either actually knew of the item of community income, or if a reasonable person in similar circumstances would have known of the item of community income. All of the facts and circumstances are considered in determining whether a requesting spouse had reason to know of an item of community income. The relevant facts and circumstances include, but are not limited to, the nature of the item of community income, the amount of the item of community income relative to other income items, the couple's financial situation, the requesting spouse's educational background and business experience, and whether the item of community income was reflected on prior years' returns (e.g., investment income omitted that was regularly reported on prior years' returns).
    - (ii) If the requesting spouse is aware of the source of community income or the income-producing activity, but is unaware of the specific amount of the nonrequesting spouse's community income, the requesting spouse is considered to have knowledge or reason to know of the item of community income. The requesting spouse's lack of knowledge of the specific amount of community income does not provide a basis for relief under this section.
  - (3) **Inequitable.** All of the facts and circumstances are considered in determining whether it is inequitable to hold a requesting spouse liable for a deficiency attributable to an item of community income. One relevant factor for this purpose is whether the requesting spouse benefitted, directly or indirectly, from the omitted item of community income. A benefit includes normal support, but does not include de minimis amounts. Evidence of 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. Thus, for example, if a requesting spouse receives from the nonrequesting spouse property (including life insurance proceeds) that is traceable to items of community income attributable to the nonrequesting spouse, the requesting spouse will have benefitted from those items of community income. Other factors may include, if the situation warrants, desertion, divorce or separation. Factors relevant to whether it would be inequitable to hold a requesting spouse liable, more specifically described under the applicable administrative procedure issued under [section 66(c)](/cfr/26/66.md?p=c) (Revenue Procedure 2000-15 (2000-1 C.B. 447) (See [§ 601.601(d)(2)](/cfr/26/601.601.md?p=d-2) of this chapter), or other applicable guidance published by the Secretary), are to be considered in making a determination under this paragraph.
- (b) **Equitable relief.** Equitable relief may be available when the four requirements of [paragraph (a)(1)](#a-1) of this section are not satisfied, but it would be inequitable to hold the requesting spouse liable for the unpaid tax or deficiency. Factors relevant to whether it would be inequitable to hold a requesting spouse liable, more specifically described under the applicable administrative procedure issued under [section 66(c)](/cfr/26/66.md?p=c) (Revenue Procedure 2000-15 (2000-1 C.B. 447), or other applicable guidance published by the Secretary), are to be considered in making a determination under this paragraph.
- (c) **Applicability.** Traditional relief under [paragraph (a)](#a) of this section applies only to deficiencies arising out of items of omitted income. Equitable relief under [paragraph (b)](#b) of this section applies to any deficiency or any unpaid tax (or any portion of either). Equitable relief is available only for the portion of liabilities that were unpaid as of July 22, 1998, and for liabilities that arise after July 22, 1998.
- (d) **Effect of relief.** When the requesting spouse qualifies for relief under paragraph [(a)](#a) or [(b)](#b) of this section, the IRS must assess any deficiency of the nonrequesting spouse arising from the granting of relief to the requesting spouse in accordance with [section 6212](/cfr/26/6212.md).
- (e) **Examples.** The following examples illustrate the rules of this section:
- (f) **Fraudulent scheme.** If the Secretary establishes that a spouse transferred assets to his or her spouse as part of a fraudulent scheme, relief is not available under this section. For purposes of this section, a fraudulent scheme includes a scheme to defraud the Secretary or another third party, such as a creditor, ex-spouse, or business partner.
- (g) **Definitions—**
  - (1) **Requesting spouse.** A requesting spouse is an individual who does not file a joint Federal income tax return with the nonrequesting spouse for the taxable year in question, and who requests relief from the Federal income tax liability resulting from the operation of community property law under this section for the portion of the liability arising from his or her share of community income for such taxable year.
  - (2) **Nonrequesting spouse.** A nonrequesting spouse is the individual to whom the requesting spouse was married and whose income or deduction gave rise to the tax liability from which the requesting spouse seeks relief in whole or in part.
- (h) **Effect of prior closing agreement or offer in compromise.** A requesting spouse is not entitled to relief from the Federal income tax liability resulting from the operation of community property law under [section 66](/cfr/26/66.md) for any taxable year for which the requesting spouse has entered into a closing agreement (other than an agreement pursuant to [section 6224(c)](/cfr/26/6224.md?p=c) relating to partnership items) with the Secretary that disposes of the same liability that is the subject of the request for relief. In addition, a requesting spouse is not entitled to relief from the Federal income tax liability resulting from the operation of community property law under [section 66](/cfr/26/66.md) for any taxable year for which the requesting spouse has entered into an offer in compromise with the Secretary. For rules relating to the effect of closing agreements and offers in compromise, see sections [7121](/cfr/26/7121.md) and [7122](/cfr/26/7122.md), and the regulations thereunder.
- (i) [Reserved]
- (j) **Time and manner for requesting relief—**
  - (1) **Requesting relief.** To request relief from the Federal income tax liability resulting from the operation of community property law under this section, a requesting spouse must file, within the time period prescribed in [paragraph (j)(2)](#j-2) of this section, Form 8857, “Request for Innocent Spouse Relief” (or other specified form), or other written request, signed under penalties of perjury, stating why relief is appropriate. The requesting spouse must include the nonrequesting spouse's name and taxpayer identification number in the written request. The requesting spouse must also comply with the Secretary's reasonable requests for information that will assist the Secretary in identifying and locating the nonrequesting spouse.
  - (2) **Time period for filing a request for relief—**
    - (i) **Traditional relief.** The earliest time for submitting a request for relief from the Federal income tax liability resulting from the operation of community property law under [paragraph (a)](#a) of this section, for an amount underreported on, or omitted from, the requesting spouse's separate return, is the date the requesting spouse receives notification of an audit or a letter or notice from the IRS stating that there may be an outstanding liability with regard to that year (as described in [paragraph (j)(2)(iii)](#j-2-iii) of this section). The latest time for requesting relief under [paragraph (a)](#a) of this section is 6 months before the expiration of the period of limitations on assessment, including extensions, against the nonrequesting spouse for the taxable year that is the subject of the request for relief, unless the examination of the requesting spouse's return commences during that 6-month period. If the examination of the requesting spouse's return commences during that 6-month period, the latest time for requesting relief under [paragraph (a)](#a) of this section is 30 days after the commencement of the examination.
    - (ii) **Equitable relief.** The earliest time for submitting a request for relief from the Federal income tax liability resulting from the operation of community property law under [paragraph (b)](#b) of this section is the date the requesting spouse receives notification of an audit or a letter or notice from the IRS stating that there may be an outstanding liability with regard to that year (as described in [paragraph (j)(2)(iii)](#j-2-iii) of this section). A request for equitable relief from the Federal income tax liability resulting from the operation of community property law under [paragraph (b)](#b) of this section for a liability that is properly reported but unpaid is properly submitted with the requesting spouse's individual Federal income tax return, or after the requesting spouse's individual Federal income tax return is filed.
    - (iii) **Premature requests for relief.** The Secretary will not consider a premature request for relief under this section. The notices or letters referenced in this [paragraph (j)(2)](#j-2) do not include notices issued pursuant to [section 6223](/cfr/26/6223.md) relating to TEFRA partnership proceedings. These notices or letters include notices of computational adjustment to a partner or partner's spouse (Notice of Income Tax Examination Changes) that reflect a computation of the liability attributable to partnership items of the partner or the partner's spouse.
- (k) **Nonrequesting spouse's notice and opportunity to participate in administrative proceedings—**
  - (1) **In general.** When the Secretary receives a request for relief from the Federal income tax liability resulting from the operation of community property law under this section, the Secretary must send a notice to the nonrequesting spouse's last known address that informs the nonrequesting spouse of the requesting spouse's request for relief. The notice must provide the nonrequesting spouse with an opportunity to submit any information for consideration in determining whether to grant the requesting spouse relief from the Federal income tax liability resulting from the operation of community property law. The Secretary will share with each spouse the information submitted by the other spouse, unless the Secretary determines that the sharing of this information will impair tax administration.
  - (2) **Information submitted.** The Secretary will consider all of the information (as relevant to the particular relief provision) that the nonrequesting spouse submits in determining whether to grant relief from the Federal income tax liability resulting from the operation of community property law under this section.