IRS lowers Bar for innocent spouse relief

IRS lowers Bar for innocent spouse relief:  Filing a joint tax return has the legal effect of an irrevocable election by each spouse to be firmly in charge of tax reported or reportable back correctly. In other words, each spouse can be held liable for the full amount of the tax, even if the IRS can levy taxes only once.

Internal Revenue Code section 6015 authorizes the IRS to grant a relief spouse from a common return, where is unfair to hold the spouse for the return. Revenue procedure 2003-61, the IRS established the following eight factors to be weighed in deciding requests for innocent spouse relief:

Marital status. If the spouse requesting relief from income tax return ("spouse applicant") is separated or divorced spouse from nonrequesting.

Economic hardship. If the spouse applicant would suffer economic hardship, if the service does not grant relief from income tax liability.

Knowledge or reason to know. If the requesting spouse had knowledge or reason to know that the spouse nonrequesting would not pay income tax liability on income tax correctly reported back together (case of underpayment), or a tax deficiency in the tax declaration (case of deficiency). A fiscal deficit generally result from gross income under-reporting or over-reporting of deductions.

Legal obligation of the spouse nonrequesting. If the spouse nonrequesting has a legal obligation to pay the liability of outstanding income tax under a divorce or an agreement. This factor will not weigh in favor of relief if the applicant knew or had reason to know, when entering into the agreement or divorce, the spouse not requiring would not pay the income tax liability.

Significant benefits. If the spouse applicant received significant benefits (beyond normal support) from liability for unpaid taxes or giving rise to the deficit.

Compliance with laws of income tax. If the spouse applicant has made an effort in good faith to conform to the laws on income tax in the years after the year passive passive or years it refers to the distress call.

Abuse. If the spouse nonrequesting abused spouse applicant.

Physical or mental health. If the applicant spouse was in poor physical or mental health to date the spouse applicant has signed the joint tax returns or at the time the spouse applicant requested relief from the back.

The last two factors above if this weighs in favor of relief, but if absent not weigh against relief.

Proc Rev. 2003-61 provides that his list is not exclusive, and that the service will consider and weigh all the relevant facts and circumstances in deciding applications for equitable relief under code section 6015. In practice, however, the IRS and Tax Court of the United States applied only eight factors above. The factors were awarded an equal weight, except in the case of deficit, knowledge of the applicant spouse item giving rise to the deficiency (understated or overstated deductions gross income) was "a strong weight factor against relief".

A spouse applicant has been denied relief unless she could prove to be a majority of applicable factors weighing in favour of it. And the tax court, under the counsel of the IRS, went to lengths to find unrealistic that spouses failed factors in disputed cases. In one of my recent cases, tests have shown that the spouses had filed joint tax returns income throughout their marriage. When a return was filed with a balance due, had always been paid. An accounting firm retained by her husband late in preparing income tax returns of the pair for four years. When the accounting firm, finally, preparations were made returns, joint with a substantial balance due each year. IRS counsel led, and the judge found that the tax, the requesting spouse (wife) had reason to know that the unpaid balances on tax returns in question would not have been paid.