What can the IRS do regarding Karen's liability for the taxes from unreported income after she filed for separation of liability relief?

The IRS can collect from either Karen or Bill regarding the taxes from unreported income after she filed for separation of liability relief because separation of liability relief does not absolve both parties of the debt owed. When a taxpayer requests separation of liability, they are essentially asking to be responsible only for the tax attributable to their own income and deductions, separating their liability from that of their spouse.

Even with this relief, the IRS retains the right to collect the full amount of the owed taxes from either individual. This means that the IRS can pursue Karen for the entire unpaid tax owed on her income, or they can go after Bill for his portion. Therefore, the correct understanding is that while Karen may have filed for relief from full liability, the IRS still holds both parties responsible to ensure eventual collection of the tax owed.

Separation of liability serves more to clarify which spouse is responsible for what portion of the tax for purposes of tax calculations, but it does not limit the IRS's ability to collect from either spouse. Thus, the correct answer highlights the IRS's authority in collections regardless of the separation of liability.