Innocent Spouse Relief (Portfolio 645)

Tax Management Portfolio, Innocent Spouse Relief, No. 645-2nd, examines the rules permitting one spouse to avoid joint and several liability for federal income taxes and self-employment taxes reflected on a joint tax return.

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Tax Management Portfolio, Innocent Spouse Relief, No. 645-2nd, examines the rules permitting one spouse to avoid joint and several liability for federal income taxes and self-employment taxes reflected on a joint tax return. The portfolio describes in detail the three avenues of innocent spouse relief under the current rules effective post-July 22, 1998. It also analyzes the pre-July 23, 1998 provisions that afforded more limited innocent spouse relief. 

It covers the following provisions:
 Section 6015(b) rules providing full or partial relief from joint and
 several liability;
 Section 6015(c) rules providing an election to determine liability on a
 separate return basis;
 Section 6015(f) rules providing for equitable relief when other relief is
 not available;
 Section 66(c) rules providing relief from the operation of community
 property laws;
 Section 6013(e) rules providing pre-July 23, 1998 innocent spouse relief.

For each of the above provisions, the portfolio analyzes the rules of the Internal Revenue Code section, the relevant regulations and case law.


Karen B. Brown

Karen B. Brown, B.A., Princeton University; J.D., LL.M. (Taxation), New York University, is the Donald Phillip Rothschild Research Professor of Law at the George Washington University School of Law, where she teaches courses in Federal Income Taxation, Corporate Taxation, and International Taxation. Before joining the faculty at George Washington University, Professor Brown was Professor of Law and Associate Dean for Academic Affairs at the University of Minnesota Law School and Professor of Law at Brooklyn Law School. She was appointed the Julius E. Davis Professor of Law for 1995–1996 at the University of Minnesota. Professor Brown is co-author of an international tax transactions treatise and co-editor of a book on taxation reform. She has published numerous articles and book chapters on federal income, corporate, and international taxation. She is a member of the American Law Institute and the International Fiscal Association. This portfolio is dedicated in loving memory to Leon E. Wynter.

Table of Contents

Detailed Analysis

I. Introduction

II. Who Is Eligible to File a Joint Federal Income Tax Return

III. Current Innocent Spouse Provisions

Introductory Material

A. Effective Date Rules

B. Full Relief from Liability for Understatement of the Other Spouse - Available for All Qualifying Filers

1. Knowledge of or Reason to Know of Understatement

a. In General

b. Knowledge or Reason to Know - Case Law

2. When It is Inequitable to Hold Requesting Spouse Jointly and Severally Liable for Understatement

C. Partial Relief from Liability for Understatement of Other Spouse - Available for All Qualifying Filers

D. Separate Allocation of Deficiency - Available Only for Individuals Who Are No Longer Married, Are Legally Separated, or Are Not Members of Same Household

1. Allocation of Deficiency - Separate Return Determination

a. Method of Allocation

b. Separate Return Method Not Available in Specified Cases

c. Alternative Allocation Methods

d. Application of the Separate Return Method

2. Actual Knowledge

a. Victims of Domestic Abuse

b. Factors Indicating Actual Knowledge

c. Actual Knowledge of Spouse - Examples

d. Actual Knowledge - Case Law

3. Nonmarital or Separate Household Status Necessary to Qualify for Separate Return Election

4. No Credit or Refund Available under Section 6015(c)

E. No Relief for Underpayment of Tax under Section 6015(b) and (c)

F. Equitable Relief - Available Only When Other Relief Denied

1. Threshold Requirements for Equitable Relief

2. Factors Bearing Upon the Grant of Equitable Relief

a. Relevant Factors

(1) Marital Status

(2) Economic Hardship

(3) Knowledge or Reason to Know that Properly Reported Obligation Was Not Paid or Knowledge of Item Giving Rise to Deficiency

(4) Nonrequesting Spouse's Legal Obligation

(5) Significant Benefit

(6) Compliance with Income Tax Laws

b. Additional Factors Weighing in Favor of Grant of Relief

(1) History of Abuse

(2) Mental or Physical Health

3. Availability of Refunds for Successful Applicant

a. Deficiency Cases

b. Underpayment Cases

4. Effective Dates of Equitable Relief

5. Evolution of IRS Guidance for Equitable Relief

6. Timing of Request for Equitable Relief

IV. Time and Manner for Requesting Relief - Requesting Spouse

A. Written Request Required

B. Two Year Time Limit

1. Collection Activity Commences Two Year Period

2. Collection Activity - Defined

3. Earliest Time for Filing Request for Relief

4. Single Final Administrative Determination

C. Claims for Relief and Bars to Claims for Relief

1. Claims for Relief

2. Bars to Claims for Relief

a. Administrative Bars

b. Previous Adjudication of Claim

c. Running of Limitations Period

D. Prosecution of Claim by Requesting Spouse's Executor

V. Time and Manner for Requesting Relief - Nonrequesting Spouse

Introductory Material

A. Notice

B. Relevant Information

C. Disclosure of Information

D. Administrative Appeal Rights of Nonrequesting Spouse - Preliminary Determination

1. In General

2. Protest Rights

E. Appeal Rights - Final Determination

VI. Tax Court Review

A. In General

B. Standard and Scope of Review

C. Restriction on Collection Activity

D. Suspension of Running of Period of Limitations

E. Restrictions on Collection and Suspension of Limitations Period Relate to Entire Assessment

VII. Previously Adjudicated Claims

VIII. Community Property Laws - Relief from Liability (Nonresident Alien and Resident Spouses)

A. Nonresident Alien Spouse

B. Resident Spouses

C. Relief from Liability for Community Income

1. Traditional Method of Relief - Available only for Deficiency Attributable to Omitted Income

a. Knowledge or Reason to Know

b. Inequity

c. Items Eligible for Relief

d. Example - Relief from Community Income Liability

e. Effect of Relief on Nonrequesting Spouse

2. Equitable Method of Relief - Available for Any Deficiency or Unpaid Tax

3. Fraudulent Scheme

D. Filing Claim for Relief

1. Time Period

2. Notice to Nonrequesting Spouse

E. Bars to Relief - Closing Agreement or Offer in Compromise

IX. Situations Not Governed by Innocent Spouse Relief

Introductory Material

A. Fraudulent Scheme

B. Operation of Other Laws

X. Injured Spouse Relief

XI. Prior Law Innocent Spouse Rules

A. 1971 Rules

B. 1984 Rules

C. Knowledge or Reason to Know

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Pre-1998 Innocent Spouse Statute and Regulation

Worksheet 2 Form 8857 - Request for Innocent Spouse Relief

Worksheet 3 Checklist for Innocent Spouse Relief

Worksheet 4 Conference Report to Accompany H.R. 2676, Internal Revenue Service Restructuring and Reform Act of 1998 [Conf. Rep. No. 559, 105th Cong., 2d Sess. 249-255 (1998) (excerpt)]

Worksheet 5 Statement of Managers for 2000 Community Renewal Tax Relief Act P.L. 106-554 (Excerpt - Innocent Spouse Relief, § 6015)




Treasury Regulations:

Committee Reports:

Treasury Rulings and Procedures: