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42-2202. Separate liability election; definition

A. Notwithstanding section 43-301, subsection B and section 43-562, a taxpayer who filed a joint income tax return under section 43-309 for a taxable year and who meets the following requirements may elect to limit the taxpayer's liability pursuant to this section with respect to a deficiency assessed for that return:

1. At the time the election is filed, the electing taxpayer is no longer married to, or is legally separated from, the spouse with whom the taxpayer filed the joint return.

2. The electing taxpayer was not a member of the same household as the spouse with whom the joint return was filed at any time during the twelve month period ending on the date the election is filed.

B. If the department grants relief under this section, the taxpayer's liability for any deficiency assessed with respect to the return shall not exceed the portion of the deficiency properly allocable to the electing taxpayer.

C. The department shall allocate a deficiency under this section as follows:

1. The portion of any deficiency allocated to an individual under this section is the amount that bears the same ratio to the deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under subsection D of this section bears to the net amount of all items taken into account in computing the deficiency.

2. If all or part of a deficiency is attributable to the disallowance of a credit, and that credit is allocated to one individual under subsection D of this section, the deficiency or portion shall be allocated to that individual. That amount shall not be taken into account under paragraph 1 of this subsection.

D. For the purposes of this section, items giving rise to the deficiency shall be allocated as follows:

1. Any item giving rise to a deficiency on a joint return shall be allocated to the 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, without regard to community property laws.

2. An item otherwise allocable to an individual under paragraph 1 of this subsection shall be allocated to the other individual filing the joint return to the extent the item gave rise to a tax benefit on the joint return to the other individual.

3. The director may provide for allocation of any item in a different manner if the department establishes that the different allocation is appropriate due to fraud of one or both individuals.

E. If the tax liability of the taxpayer's child is included on the joint return:

1. The child's liability shall be disregarded in computing the liability of either spouse.

2. The child's liability shall be allocated appropriately between the spouses.

F. Any deficiency that is assessed with respect to the return shall not exceed the portion of the deficiency properly allocable to the individual.

G. Each electing individual under this section has the burden of proof with respect to establishing the portion of any deficiency allocable to that individual.

H. An election under this section is invalid if the department demonstrates that assets were transferred between individuals filing a joint return as part of a fraudulent scheme by those individuals.

I. If the department demonstrates that an individual making an election under this section had actual knowledge at the time the individual signed the return of any item giving rise to all or part of a deficiency that is not allocable to that individual under subsection E of this section, the election does not apply to that deficiency. This subsection does not apply if the individual with actual knowledge establishes that the return was signed under duress.

J. Any determination under this section shall be made without regard to community property laws.

K. An election made by an individual under this section after the department has collected tax attributable to the deficiency is considered to be a claim for refund pursuant to section 42-1118. The individual making an election after making the payment must make the election within six months after making the payment or within the time limits prescribed by section 42-1106, whichever period expires later.

L. A taxpayer may appeal a determination under this section pursuant to section 42-1251 or 42-1253.

M. Except in the case of a jeopardy assessment under section 42-1111, the department may not levy or proceed in court to collect any tax for taxable years from which the taxpayer is claiming relief under this section until all determinations are final. The period of limitations under section 42-1104 is suspended for the same period for which collection activities are suspended.

N. The department shall notify and allow the other joint filer to participate in any administrative proceeding under this section.

O. The portion of the deficiency for which the electing individual is liable, without regard to this subsection, shall be increased by the value of any disqualified asset, as defined in section 6015(c)(4)(B) of the internal revenue code, transferred to the individual.

P. For the purposes of this section, "deficiency" has the same meaning prescribed by section 6211 of the internal revenue code.