Innocent spouse relief denied for attorney with actual knowledge.

• Author: Larue, John J.

The Fourth Circuit has ruled that a tax attorney who had actual knowledge of understatements on a joint return was not entitled to relief as an innocent spouse under the provisions of new Sec. 6015 (Grossman, 6/28/99). Robert D. Grossman, Jr., had asked the court to separate the liability for the deficiency on his joint return and wanted the IRS to seek payment of the additional tax and penalty from his former spouse under Sec. 6015(c). The court rejected his claim, noting that he knew of constructive dividend income received by his wife and intended for it to be omitted from their joint return.

The Internal Revenue Service Restructuring and Reform Act of 1998 repealed the existing innocent spouse provisions of Sec. 6013(e) and replaced them with the somewhat more liberal and expanded provisions of Sec. 6015. Under the old rules, relief was available only when a substantial understatement was due to the grossly erroneous items of one spouse. Sec. 6015 eliminated these requirements and may apply to any deficiency on a joint return.

In addition, Sec. 6015(c) provides special relief for taxpayers who are no longer married, are legally separated or are no longer living together. This new provision provides separation of liability for electing individuals who have not lived with their spouse or former spouse within the past 12 months and did not have actual knowledge of the items giving rise to the deficiency at the time they signed a joint return. In the event that the individual seeking relief had actual knowledge of some erroneous items, the individual may still be granted relief for items giving rise to a deficiency of which he was unaware.

A special rule also grants relief to individuals with...