Information About Tax Practice And Procedure

By: Robert T. Leonard, J.D., C.P.A.

Relief for Innocent Spouses

Congress adopted sweeping changes to the "innocent spouse" rules in the 1998 Restructuring & Reform Act- changes that provide taxpayers with several significant new options. New Code Section 6015 now offers three important avenues for spouses seeking relief from joint and several tax liabilities:

  1. Relief on traditional "innocent spouse" grounds.
  2. A new "separate liability" election for taxpayers who are no longer married or who have separated; and
  3. "Equitable" relief for those who deserve it, based on the surrounding facts and circumstances.

Traditional Innocent Spouse Relief

While preserving the basic elements of former law, the Restructuring Act generally makes spousal relief on this ground easier to obtain. The basic elements include:

  1. A joint return must have been made for the taxable year;
  2. there must be an understatement of tax attributable to erroneous items of one of the individuals filing the return
  3. the other individual filing the joint return establishes that in signing the return, he or she did not know, and had no reason to know that there was such an understatement of tax; and
  4. taking into account all the facts and circumstances, it would be inequitable to hold the other liable for deficiency attributable to such understatement.

The act eliminates the understatement thresholds of former IRC Section 6013, and now requires only that the understatement of tax be attributable to an erroneous (and not just "grossly erroneous", as in the past). The new statue also incorporates the "appointment" concept illustrated in the case of Wiksell V. Commissioner, (90 F.3d 1459 (9 th circuit)). This significant change allows a spouse to be found "partially innocent" and partially relieved of liability when he or she did not know or have reason to know of the extent of the understatement.