Three paths to innocent spouse relief.

AuthorBurke, Timothy

Taxpayers who file "married filing jointly" become jointly and severally liable for the tax that is due when the return is filed and for any subsequent increases to tax (Sec. 6013(d)(3)). Often, one taxpayer is surprised to find out that the tax reflected on the return was not paid (or the return was delinquently filed) or that an examination has led to a large increase to tax.

There are three avenues for the unsuspecting spouse to request relief from the unpaid tax. They are the "traditional" innocent spouse claim, the split or allocation of the deficiency, and a request for equitable relief.

The 'traditional' innocent spouse claim

If an additional assessment arises, Sec. 6015(b) can provide relief from joint and several liability where there is an understatement of tax attributable to erroneous items of one spouse. Under this provision, the spouse requesting relief (the "requesting spouse") must establish that in signing the return the requesting spouse did not know, and had no reason to know, that there was a possible understatement and that it would be inequitable to hold the requesting spouse liable for the deficiency. Sec. 6015(b) is commonly referred to as the traditional claim, as it was part of the Internal Revenue Code (with narrower relief) prior to the expansion of innocent spouse relief in 1998.

The critical issues in meeting this section are regularly whether the requesting spouse did not know, and had no reason to know, that there was a potential understatement and that it would be inequitable to hold the requesting spouse liable for the deficiency.

A taxpayer has reason to know of the understatement if a reasonably prudent taxpayer could be expected to know that the return contained the understatement (Briley, T.C. Memo. 2019-55). A taxpayer who signs a return is generally charged with constructive knowledge of its contents. A requesting spouse must establish that he or she was unaware, and had no reason to know, of the facts that gave rise to the error; it is not enough to be unaware of the tax consequences. In short, Sec. 6015 does not protect a spouse who turns a blind eye. Factors to be considered in making this determination are:

  1. The requesting spouse's level of education;

  2. The requesting spouse's involvement in the family's business and financial affairs;

  3. The presence of expenditures that appear lavish or unusual when compared to the family's past levels of income, standard of living, and spending patterns; and

  4. ...

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