By Robert E, McKenzie
Although many taxpayers enjoy substantial tax benefits from filing joint returns, those benefits may be outweighed when a tax deficiency or unpaid balance is asserted for a return. The general rule is that each spouse has joint and several liability. In community property states married individuals face the more onerous duty to pay taxes on ½ of a spouse’s income even when they file a married filing separate return. This course will cover methods to secure relief from spousal liability:
Four types of relief are available:
1. Innocent spouse relief
2. Separation of liability relief
3. Equitable relief
4. Relief from liability arising from community property law
INNOCENT SPOUSE RELIEF
The IRS Restructuring Act of 1998 provided expanded spousal relief for taxpayers who have filed joint returns. IRC §6015 provides three types of relief which depend upon whether the tax liability arose as a deficiency or as a filed joint return with a balance outstanding and upon the current marital status of the parties. Taxpayers may seek equitable relief from joint and several liability on joint returns even when the liability resulted from a return filed with a balance due.
Practice Pointer! Return Signed Under Duress
If an individual asserts and establishes that he or she signed a return under legal duress, the return is not a joint return. The individual who signed such return under duress is not jointly and severally liable for the tax shown on the return or any deficiency in tax with respect to the return. The return is adjusted to reflect only the tax liability of the individual who voluntarily signed the return, and the liability is determined at the applicable rates in section 1(d). Section 6212 applies to the assessment of any deficiency in tax on such return. Temp. Reg Sec. 1-6015-4
The IRS Restructuring Act of 1998 was intended to make innocent spouse relief easier to obtain. The Act eliminates all of the understatement thresholds of prior IRC §6013 and requires only that the understatement of tax be attributable to an erroneous item of the other spouse. Under IRC §6015, an individual will be relieved of liability for tax (including interest, penalties and other amounts) for a tax year to the extent the liability is attributable to an understatement (or tax deficiency) described below:
- A joint return was filed for the taxable year;
- On the return there is an understatement attributable to erroneous items of the non-requesting spouse;
- The requesting spouse establishes that in signing the return he or she did not know and had no reason to know of the item giving rise to the understatement; and
- It is inequitable to hold the requesting spouse liable for the deficiency attributable to the understatement.
- A taxpayer elects the benefits of this provision, on [Form 8857], no later than the date that is two years (for §6015(b) and (c) relief) after the date the IRS has begun collection activities with respect to the taxpayer.
If an individual who otherwise qualifies for innocent spouse relief fails to establish that he/she did not know or have reason to know of the understatement, but does establish that he/she did not know or have reason to know the extent of the understatement, that individual may be relieved of liability for tax, penalties and interest to the extent that liability is attributable to the portion of the understatement that he/she did not know or have reason to know.
§6015(b) Example: H and W are married and file their 2004 joint income tax return in March 2005. In April 2006, H is convicted of embezzling $2 million from his employer during 2004. H kept all of his embezzlement income in an individual bank account, and he used most of the funds to support his gambling habit. However, each month during 2004, H transferred $10,000 from the individual account to H and W’s joint bank account. W paid the household expenses using this joint account, and regularly received the bank statements relating to the account. W had no knowledge or reason to know of H’s embezzling activities. However, W did have knowledge and reason to know of $120,000 of the $2 million of H’s embezzlement income at the time she signed the joint return because that amount passed through the couple’s joint bank account. Therefore, W may be relieved of the liability arising from $1,880,000 of the unreported embezzlement income, but she may not be relieved of the liability for the deficiency arising from $120,000 of the unreported embezzlement income of which she knew and had reason to know.
Election of Separate Liability §6015(b)
The law also provides a separate liability election for a taxpayer who, at the time of the election, is no longer married to, is widowed or legally separated from, or has been living apart for at least 12 months, from the person with whom the taxpayer originally filed a joint return. The IRS must show that the electing spouse did not know of the understatement by the other spouse. The knowledge requirement is lower than for spouses who remain together where the electing spouse has the burden to show that she did not know or have reason to know in order to receive relief. A taxpayer may elect to have the liability for any deficiency limited to the portion of the deficiency that is attributable to items allocable to the taxpayer. The election is not available if it can be demonstrated that assets were transferred between individuals filing a joint return as part of a fraudulent scheme of the individuals or if both individuals had actual knowledge of the understatement of tax.
Examples: If H knew that W received $1,000 of dividend income and did not know that W received an additional $4,000 of dividend income, relief would not be available for the portion of the deficiency attributable to the $1,000 of dividend income of which H had actual knowledge. A requesting spouse’s actual knowledge of the proper tax treatment of an item is not relevant for purposes of demonstrating that the requesting spouse had actual knowledge of an erroneous item. For example, assume H did not know W’s dividend income from X Co. was taxable, but knew that W received the dividend income. Relief is not available under this provision. In addition, a requesting spouse’s knowledge of how an erroneous item was treated on the tax return is not relevant to a determination of whether the requesting spouse had actual knowledge of the item. For example, assume that H knew of W’s dividend income, but H failed to review the completed return and did not know that W omitted the dividend income from the return. Relief is not available under this provision.
Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. For example, assume H knew that W owned X Co. stock, but H did not know that X Co. paid dividends to W that year. H’s knowledge of W’s ownership in X Co. is not sufficient to establish that H had actual knowledge of the dividend income from X Co. In addition, a requesting spouse’s actual knowledge may not be inferred when the requesting spouse merely had reason to know of the erroneous item. Even if H’s knowledge of W’s ownership interest in X Co. indicates a reason to know of the dividend income, actual knowledge of such dividend income cannot be inferred from H’s reason to know.
Divorced, Separated or Living Apart
An individual is eligible to make the separate liability election only if at the time the election is filed he/she is no longer married to including widowed, or is legally separated from, the spouse from whom the joint return to which the election relates was filed; or he/she was not a member of the same household as the spouse with whom the joint return was filed at any time during the twelve month period ending at the date the election is filed. This provision allows additional relief when the IRS proposes a deficiency against a taxpayer who is no longer married or living with the person with whom he/she filed the joint return. The proponent may have had indication of a potential understatement but must have been without actual knowledge. If the understatement was not attributable to him/her, he/she may elect proportional liability. The provision does not apply to returns which were jointly filed showing a liability at the time of filing. It only applies to deficiencies as described in IRC §6662(d)(2)(a).
Expanded innocent spouse relief and the separate liability election must be elected no later than two years after the date on which the Secretary has begun collection activities with respect to the individual seeking the relief for §6015(b) and (c). IRS recently conceded the issue of an extended period for requesting relief for §6015(f) cases. The Act provides that the Tax Court has jurisdiction with respect to disputes about innocent spouse relief.
Allocation of Liability
The following examples illustrate the allocation rules. In each example, assume that the requesting spouse or spouses qualify to elect to allocate the deficiency, that any election is timely made, and that the deficiency remains unpaid. In addition, unless otherwise stated, assume that neither spouse has actual knowledge of the erroneous items allocable to the other spouse. The examples are as follows:
Example 1. Allocation of erroneous items
- H and W file a 2003 joint Federal income tax return on April 15, 2004. On April 28, 2006, a deficiency is assessed with respect to their 2003 return. Three erroneous items give rise to the deficiency:
- Unreported interest income, of which W had actual knowledge, from H and W’s joint bank account;
- A disallowed business expense deduction on H’s Schedule C;
- A disallowed Lifetime Learning Credit for W’s post-secondary education; and
- H and W divorce in May 2006, and in September 2006, W timely elects to allocate the deficiency. The erroneous items are allocable as follows:
- The interest income would be allocated 1/2 to H and 1/2 to W, except that W has actual knowledge of it. Therefore, W’s election to allocate the portion of the deficiency attributable to this item is invalid, and W remains jointly and severally liable for it.
- The business expense deduction is allocable to H.
- The Lifetime Learning Credit is allocable to W.
Example 2. Proportionate allocation
- W and H timely file their 2001 joint Federal income tax return on April 15, 2002. On August 16, 2004, a $54,000 deficiency is assessed with respect to their 2001 joint return. H and W divorce on October 14, 2004, and W timely elects to allocate the deficiency. Five erroneous items give rise to the deficiency:
- A disallowed $15,000 business deduction allocable to H;
- $20,000 of unreported income allocable to H;
- A disallowed $5,000 deduction for educational expense allocable to H;
- A disallowed $40,000 charitable contribution deduction allocable to W; and
- A disallowed $40,000 interest deduction allocable to W.
- In total, there are $120,000 worth of erroneous items, of which $80,000 are attributable to W and $40,000 are attributable to H.
- The ratio of erroneous items allocable to W to the total erroneous items is 2/3 ($80,000/$120,000). W’s liability is limited to $36,000 of the deficiency (2/3 of $54,000). The Internal Revenue Service may collect up to $36,000 from W and up to $54,000 from H (the total amount collected, however, may not exceed $54,000). If H also made an election, there would be no remaining joint and several liability, and the Internal Revenue Service would collect $36,000 from W and $18,000 from H.
The law authorizes the Secretary to relieve an individual of liability if relief is not available under the expanded innocent spouse rules set forth above, if it would be inequitable to hold the individual liable for any unpaid tax or any deficiency. A taxpayer who filed a joint balance due return may seek equitable relief.
Rev. Proc. 2003-61
This revenue procedure provides guidance for a taxpayer seeking equitable relief from income tax liability under section 66(c) or section 6015(f) of the Internal Revenue Code (a “requesting spouse”). It provides the threshold requirements for any request for equitable relief and sets forth the conditions under which the Internal Revenue Service ordinarily will grant equitable relief under section 6015(f) from an underpayment of income tax reported on a joint return. The revenue procedure provides a nonexclusive list of factors for consideration in determining whether relief should be granted under section 6015(f) because it would be inequitable to hold a requesting spouse jointly and severally liable for an underpayment of income tax on a joint return where the conditions of section for equitable relief are not met, or for a deficiency. The factors also will apply in determining whether to relieve a spouse from income tax liability resulting from the operation of community property law under the equitable relief provision of section 66(c).
Eligibility for equitable relief
A requesting spouse must satisfy all of the following threshold conditions to be eligible to submit a request for equitable relief under section 6015(f). With the exception of conditions (1) and (2), a requesting spouse must satisfy all of the following threshold conditions to be eligible to submit a request for equitable relief under section 66(c). The Service may relieve a requesting spouse who satisfies all the applicable threshold conditions set forth below of all or part of the income tax liability under section 66(c) or section 6015(f), if, taking into account all the facts and circumstances, the Service determines that it would be inequitable to hold the requesting spouse liable for the income tax liability. The threshold conditions are as follows:
(1) The requesting spouse filed a joint return for the taxable year for which he or she seeks relief.
(2) Relief is not available to the requesting spouse under section 6015(b) or (c).
(3) The requesting spouse applies for relief after the date of the Service’s first collection activity after July 22, 1998, with respect to the requesting spouse and prior to the expiration of the 10 year collection statute. See Treas. Reg. § 1.6015-5(b)(2)(i) for the definition of collection activity.
(4) No assets were transferred between the spouses as part of a fraudulent scheme by the spouses.
(5) The nonrequesting spouse did not transfer disqualified assets to the requesting spouse. If the nonrequesting spouse transferred disqualified assets to the requesting spouse, relief will be available only to the extent that the income tax liability exceeds the value of the disqualified assets. For this purpose, the term “disqualified asset” has the meaning given the term by section 6015(c)(4)(B).
(6) The requesting spouse did not file or fail to file the return with fraudulent intent.
(7) The income tax liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint return (the “nonrequesting spouse”), unless one of the following exceptions applies:
(a) Attribution solely due to the operation of community property law. If an item is attributable or partially attributable to the requesting spouse solely due to the operation of community property law, then for purposes of this revenue procedure, that item (or portion thereof) will be considered to be attributable to the nonrequesting spouse.
(b) Nominal ownership. If the item is titled in the name of the requesting spouse, the item is presumptively attributable to the requesting spouse. This presumption is rebuttable. For example, H opens an individual retirement account (IRA) in W’s name and forges W’s signature on the IRA in 1998. Thereafter, H makes contributions to the IRA and in 2002 takes a taxable distribution from the IRA. H and W file a joint return for the 2002 taxable year, but do not report the taxable distribution on their joint return. The Service later proposes a deficiency relating to the taxable IRA distribution and assesses the deficiency against H and W. W requests relief from joint and several liability under section 6015. W establishes that W did not contribute to the IRA, sign paperwork relating to the IRA, or otherwise act as if W were the owner of the IRA. W thereby rebutted the presumption that the IRA is attributable to W.
(c) Misappropriation of funds. If the requesting spouse did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by the nonrequesting spouse for the nonrequesting spouse’s benefit, the Service will consider granting equitable relief although the underpayment may be attributable in part or in full to an item of the requesting spouse. The Service will consider relief in this case only to the extent that the funds intended for the payment of tax were taken by the nonrequesting spouse.
(d) Abuse not amounting to duress. If the requesting spouse establishes that he or she was the victim of abuse prior to the time the return was signed, and that, as a result of the prior abuse, the requesting spouse did not challenge the treatment of any items on the return for fear of the nonrequesting spouse’s retaliation, the Service will consider granting equitable relief although the deficiency or underpayment may be attributable in part or in full to an item of the requesting spouse.
Evolution of Change in 6015(f)
The 2010 National Taxpayer Advocates Report to Congress, Legislative Recommendations, includes discussion of the most controversial issue in the 6015 arena. “Neither IRC § 6015(f) nor IRC § 66(c) limits the time within which a taxpayer must request equitable relief from joint and several liability or from the operation of community property rules. The Tax Court, in Lantz v. Commissioner, held the regulation imposing the two-year period invalid, and although the decision was reversed by the United States Court of Appeals for the Seventh Circuit, the Tax Court adheres to its position in cases appealable to other Courts of Appeals. The IRS maintains that the regulation imposing the two-year rule is valid and has appealed the issue to other Courts of Appeals. In addition, IRC § 6015 (e)(1)(A) permits an individual to seek relief from joint liability by petitioning the Tax Court “in addition to any other remedy provided by law.” Other statutory provisions and judicial precedent make clear that taxpayers may raise IRC § 6015 in a variety of contexts.”
“The National Taxpayer Advocate recommends that Congress amend IRC §§ 6015 and 66 to specify that (1) taxpayers may request equitable relief for as long as the IRS could collect affected liabilities (i.e., any time before expiration of the collection statute of limitations period) and (2) taxpayers may raise innocent spouse relief as a defense in a proceeding brought under any provision of title 26 (including §§ 6213, 6320, 6330, 7402, and 7403) or any case under title 11 of the United States Code.”
Discussion: Time within which a taxpayer may request relief under IRC § 6015(f) (from the NTA Report)
“Not all actions that involve collection will trigger the two-year limitations period. Under the regulations, only the following four events constitute “collection activity” that will commence the two-year period: (1) an IRC § 6330 notice; (2) an offset of an overpayment of the requesting spouse against the joint income tax liability under IRC § 6402; (3) the filing of a suit by the United States against the requesting spouse for the collection of the joint tax liability; and (4) the filing of a claim by the United States to collect the joint tax liability in a court proceeding in which the requesting spouse is a party or which involves property of the requesting spouse. Treas. Reg. § 1.6015-5(b)(2).
“The regulations under IRC § 6015(f) require the taxpayer to make an election for relief under IRC § 6015(f) within two years after the IRS initiates collection activity with respect to the taxpayer. The Tax Court, however, held in Lantz v. Commissioner, infra, that this regulation is invalid, and the government has appealed this decision to the United States Court of Appeals for the Seventh Circuit. [132 T.C. No. 8 (2009), 2009 WL 928241 (U.S. Tax Ct. Apr. 7, 2009), appeal docketed No. 09-3345 (7th Cir. Sept. 17, 2009).]
“In Lantz v. Commissioner, the Tax Court considered the validity of Treas. Reg. § 1.6015-5(b)(1), which requires the requesting spouse to make an election for relief under IRC § 6015(f) within two years after the IRS initiates collection activity against the requesting spouse. The court held that the regulation was not entitled to judicial deference because it failed the test articulated by the Supreme Court in Chevron, noting:
[T]he Supreme Court created a two prong test: (1) If Congress has directly spoken to the precise question at issue, the court is to give effect to the unambiguously expressed intent of Congress: If the statute is ambiguous, then the court is to continue to the second prong: (2) If the statute is ambiguous with respect to the specific issue, the court is to determine whether the regulation is a permissible construction of the statute.
The Tax Court, applying the first prong, found that IRC § 6015 is not ambiguous because while IRC § 6015 (b) and (c) both contain the two-year limitation at issue, IRC § 6015(f) does not; Congress had “spoken” by its silence in not including the two-year limitation in IRC § 6015(f). Congress’ intent in enacting IRC § 6015(f) was to address inequitable situations not addressed by subsections (b) and (c); adoption of the timing rule that Congress had imposed on subsections (b) and (c) but had specifically omitted from subsection (f) ran directly contrary to the nature of the relief provided by Congress, and for that reason was invalid. For argument’s sake, the Tax Court also considered the second prong of the Chevron analysis and found the regulation’s one-size-fits-all approach for both traditional and equitable relief was an invalid interpretation of IRC § 6015(f).
Because the request for IRC § 6015(f) was not time-barred, the court concluded it would need to conduct further proceedings to determine whether the taxpayer is entitled to relief on the merits. In response to the Lantz opinion, the IRS issued Chief Counsel Notice 2009-012, which directs Chief Counsel attorneys not to file motions for summary judgment in other docketed Tax Court cases arguing that the petitioner’s claim for relief under IRC § 6015(f) was untimely, but to raise the issue during litigation whenever appropriate (e.g., in the pre-trial memo, at trial, and on brief), noting the IRS’s disagreement with the holding in Lantz. Where the IRS’s denial of IRC § 6015(f) relief was based solely on the two-year rule, without consideration of the merits of the claim for relief, Chief Counsel attorneys are directed to refer the case to the Cincinnati Centralized Innocent Spouse Operations (CCISO) unit for consideration of the merits of the IRC § 6015(f) claims, and to proceed in newly-docketed cases only after CCISO had made a determination on the merits. On June 26, 2009, pursuant to the parties’ agreement, the Tax Court entered its decision in Lantz that no income tax was due from the taxpayer after application of IRC §6015(f) and that she had overpaid her tax for the year in issue. As discussed supra, the IRS appealed that decision.
Shortly after the Lantz decision, the Tax Court decided Mannella v. Commissioner, in which it allowed the taxpayer’s IRC § 6015(f) claim made after the two-year period in the regulation. The Tax Court also held, however, that taxpayer’s request for IRC § 6015(b) and (c) relief began when the IRS properly sent separate notices (i.e., IRC § 6330 notices) to the taxpayer and to her husband that included information about how to request relief under IRC § 6015.27 The taxpayer was precluded from electing relief under IRC § 6015(b) or (c) even if her husband signed for the IRC § 6330 notice addressed to her and did not inform her of it, and even if she did not actually receive the notice. As the court noted, according to the regulations pertaining to notice and opportunity for hearing (a collection due process or CDP hearing) prior to levy, “Actual receipt is not a prerequisite to the validity of the CDP Notice [also known as the IRC § 6330 notice].” The court concluded: “Once the required notice was mailed to petitioner’s last known address, nothing in the Internal Revenue Code, regulations, or public law required that respondent take additional steps to effect delivery.”
Practice Pointer! Currently this issue has been or is being appealed by the Commissioner in the 2nd, 3rd, 4th, 6th, 7th and 9th Circuits.
On June 13, 2011 the Fourth Circuit, reversing the Tax Court, held that reg. section 1.6015-5(b)(1), which establishes a two-year statute of limitations to request equitable innocent spouse relief under section 6015(f), is a valid regulation. (Appeal from the United StatesTax Court, Octavia C. Jones v. Commissioner (Tax Ct. No. 17359-08)). The Judges wrote:
The Tax Court’s judgment is based solely on the reasons it gave in Lantz I, where it found Treasury Regulation 1.6015-5(b)(1) invalid, concluding that Congress, in failing to provide a limitations period for relief under § 6015(f), communicated unambiguously its intent not to provide a limitations period for such relief, and therefore any regulation providing one was inconsistent with Congress’ intent. In Lantz I, the Tax Court explained:
We find that by explicitly creating a 2-year limitation in subsections (b) and (c) but not subsection (f), Congress has “spoken” by its audible silence. Because the regulation imposes a limitation that Congress explicitly incorporated into subsections (b) and (c) but omitted from subsection (f), it fails the first prong of Chevron.
* * *
Had Congress intended a 2-year period of limitations for equitable relief, then of course it could have easily included in subsection (f) what it included in subsections (b) and (c). However, Congress imposed no deadline, yet the Secretary prescribed a period of limitations identical to the limitations Congress imposed under § 6015(b) and (c).
Arguing that the Tax Court erred, the Commissioner contends that § 6015 is ambiguous because silence is inherently ambiguous and that when Congress gave the Secretary discretion under § 6015(f) to grant relief as a matter of equity, it also directed the Secretary to adopt, through regulations, procedural requirements, including time limitations, governing the presentment of § 6015(f) claims. The Commissioner also argues more broadly that when Congress specifies no limitation period for making a claim, the administering agency or the courts are traditionally free to supply one.
A closer look: IRS Abandons Two-Year Limitations Period for Requesting Equitable Relief (IR-2001-80 and Notice 2001-70)
On July 25, 2011 The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
- A taxpayer, whose equitable relief request was previously denied solely due to the two-year limit, may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired.
- The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.
The change to the two-year limit was effective at date of notice; additional details are in Notice 2011-70, posted on IRS.gov. IRS expects the policy change will become operational in the fall 2011 and more guidance will be forthcoming.
Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit. By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.
Circumstances under which the Service ordinarily will grant equitable relief under section 6015(f) with respect to underpayments on joint returns
(1) If an income tax liability reported on a joint return is unpaid, the Service ordinarily will grant equitable relief under section 6015(f) (subject to the limitations of paragraph (2) below) in cases in which all of the following elements are satisfied:
(a) On the date of the request for relief, the requesting spouse is no longer married to, or is legally separated from, the nonrequesting spouse, or has not been a member of the same household as the nonrequesting spouse at any time during the 12-month period ending on the date of the request for relief.
(b) On the date the requesting spouse signed the joint return, the requesting spouse had no knowledge or reason to know that the nonrequesting spouse would not pay the income tax liability. The requesting spouse must establish that it was reasonable for the requesting spouse to believe that the nonrequesting spouse would pay the reported income tax liability. If a requesting spouse would otherwise qualify for relief under this section, except for the fact that the requesting spouse’s lack of knowledge or reason to know relates only to a portion of the unpaid income tax liability, then the requesting spouse may receive relief to the extent that the income tax liability is attributable to that portion.
(c) The requesting spouse will suffer economic hardship if the Service does not grant relief. For purposes of this revenue procedure, the Service will base its determination of whether the requesting spouse will suffer economic hardship on rules similar to those provided in Treas. Reg. § 301.6343-1(b)(4). After the requesting spouse is deceased, there can be no economic hardship. See Jonson v. Commissioner, 118 T.C. 106, 126 (2002), appeal docketed, No. 02-9009 (10th Cir. May 24, 2002) (taxpayer appeal filed on other grounds).
(2) Relief under this section 4.02 is subject to the following limitation: If the Service adjusts the joint return to reflect an understatement of income tax, relief will be available only to the extent of the income tax liability shown on the joint return prior to the Service’s adjustment.
Factors for determining whether to grant equitable relief
The following is a nonexclusive list of factors that the Service will consider in determining whether, taking into account all the facts and circumstances, it is inequitable to hold the requesting spouse liable for all or part of the unpaid income tax liability or deficiency, and full or partial equitable relief under section 66(c) or section 6015(f) should be granted. No single factor will be determinative of whether to grant equitable relief in any particular case. Rather, the Service will consider and weigh all relevant factors.
(a) Factors that may be relevant to whether the Service will grant equitable relief include, but are not limited to, the following:
(i) Marital status. Whether the requesting spouse is separated (whether legally separated or living apart) or divorced from the nonrequesting spouse. A temporary absence, such as an absence due to incarceration, illness, business, vacation, military service, or education, shall not be considered separation for purposes of this revenue procedure if it can be reasonably expected that the absent spouse will return to a household maintained in anticipation of his or her return. See Treas. Reg. § 1.6015-3(b)(3)(i) for the definition of a temporary absence.
(ii) Economic hardship. Whether the requesting spouse would suffer economic hardship (within the meaning of section 4.02(1)(c) of this revenue procedure) if the Service does not grant relief from the income tax liability.
(iii) Knowledge or reason to know.
(A) Underpayment cases. In the case of an income tax liability that was properly reported but not paid, whether the requesting spouse did not know and had no reason to know that the nonrequesting spouse would not pay the income tax liability.
(B) Deficiency cases. In the case of an income tax liability that arose from a deficiency, whether the requesting spouse did not know and had no reason to know of the item giving rise to the deficiency. Reason to know of the item giving rise to the deficiency will not be weighed more heavily than other factors. Actual knowledge of the item giving rise to the deficiency, however, is a strong factor weighing against relief. This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. In those limited situations, it may be appropriate to grant relief under section 66(c) or section 6015(f) even though the requesting spouse had actual knowledge of the item giving rise to the deficiency.
(C) Reason to know. For purposes of (A) and (B) above, in determining whether the requesting spouse had reason to know, the Service will consider the requesting spouse’s level of education, any deceit or evasiveness of the nonrequesting spouse, the requesting spouse’s degree of involvement in the activity generating the income tax liability, the requesting spouse’s involvement in business and household financial matters, the requesting spouse’s business or financial expertise, and any lavish or unusual expenditures compared with past spending levels.
(iv) Nonrequesting spouse’s legal obligation. Whether the nonrequesting spouse has a legal obligation to pay the outstanding income tax liability pursuant to a divorce decree or agreement. This factor will not weigh in favor of relief if the requesting spouse knew or had reason to know, when entering into the divorce decree or agreement, that the nonrequesting spouse would not pay the income tax liability.
(v) Significant benefit. Whether the requesting spouse received significant benefit (beyond normal support) from the unpaid income tax liability or item giving rise to the deficiency. See Treas. Reg. § 1.6015-2(d).
(vi) Compliance with income tax laws. Whether the requesting spouse has made a good faith effort to comply with income tax laws in the taxable years following the taxable year or years to which the request for relief relates.
(b) Factors that, if present in a case, will weigh in favor of equitable relief, but will not weigh against equitable relief if not present in a case, include, but are not limited to, the following:
(i) Abuse. Whether the nonrequesting spouse abused the requesting spouse. The presence of abuse is a factor favoring relief. A history of abuse by the nonrequesting spouse may mitigate a requesting spouse’s knowledge or reason to know.
(ii) Mental or physical health. Whether the requesting spouse was in poor mental or physical health on the date the requesting spouse signed the return or at the time the requesting spouse requested relief. The Service will consider the nature, extent, and duration of illness when weighing this factor.
Factors weighing against relief include, but are not limited to, the following:
(i) Attributable to the requesting spouse. The unpaid liability or item giving rise to the deficiency is attributable to the requesting spouse.
(ii) Knowledge, or reason to know. A requesting spouse knew or had reason to know of the item giving rise to a deficiency or that the reported liability would be unpaid at the time the return was signed. This is an extremely strong factor weighing against relief. Nonetheless, when the factors in favor of equitable relief are unusually strong, it may be appropriate to grant relief under S 6015(f) in limited situations where a requesting spouse knew or had reason to know that the liability would not be paid, and in very limited situations where the requesting spouse knew or had reason to know of an item giving rise to a deficiency.
(iii) Significant benefit. The requesting spouse has significantly benefitted (beyond normal support) from the unpaid liability or items giving rise to the deficiency. See S 1.6013-5(b).
(iv) Lack of economic hardship. The requesting spouse will not experience economic hardship (within the meaning of section 4.02(1)(c) of this revenue procedure) if relief from the liability is not granted.
(v) Noncompliance with federal income tax laws. The requesting spouse has not made a good faith effort to comply with federal income tax laws in the tax years following the tax year or years to which the request for relief relates.
(vi) Requesting spouse’s legal obligation. The requesting spouse has a legal obligation pursuant to a divorce decree or agreement to pay the liability.
(1) Deficiency cases. In a case involving a deficiency, a requesting spouse is eligible for a refund of certain payments made pursuant to an installment agreement that the requesting spouse entered into with the Service, if the requesting spouse has not defaulted on the installment agreement. Only installment payments made after the date the requesting spouse filed the request for relief are eligible for refund. Additionally, the requesting spouse must establish that he or she provided the funds for which he or she seeks a refund. For purposes of Rev. Proc. 2003-61, a requesting spouse is not in default if the Service did not issue a notice of default to the requesting spouse or take any action to terminate the installment agreement.
(2) Underpayment cases. In a case involving an underpayment of income tax, a requesting spouse is eligible for a refund of separate payments that he or she made after July 22, 1998, if the requesting spouse establishes that he or she provided the funds used to make the payment for which he or she seeks a refund. A requesting spouse is not eligible for refunds of payments made with the joint return, joint payments, or payments that the nonrequesting spouse made.
The availability of refunds is subject to the refund limitations of section 6511. In addition, the separate liability election may not be used to create a refund or to direct a refund to a particular spouse.
Tax Court Gets Authority to Review Equitable Innocent Spouse Relief
The Tax Relief and Health Care Act of 2006 gave the Tax Court authority to review IRS denials of equitable innocent spouse relief. (Act Sec. 408 of Title IV of Division C) Before a 2001 law change, the Tax Court, in Fernandez, (2000) 114 TC No. 324, held that it had jurisdiction to review a denial of equitable relief in a stand-alone proceeding. In that case, IRS argued that the Tax Court did not have jurisdiction to review denials of equitable relief because the language of Code Sec. 6015(e)(1) (‘in the case of an individual who elects to have subsection (b) or (c) apply’) limited the Tax Court’s jurisdiction to the review of an election made under Code Sec. 6015(b) or Code Sec. 6015(c) . However, the Tax Court rejected IRS’s argument, essentially viewing the election language as imposing procedural requirements. Subsequently, IRS agreed that the Tax Court had jurisdiction in these situations.
Since the Fernandez case was decided, Code Sec. 6015(e)(1) was amended in 2001 to provide that, effective on Dec. 31, 2000, an individual can get Tax Court review only if a deficiency has been asserted. That language was added because Congress was concerned that individuals were making premature requests for innocent spouse relief.
Despite the 2001 amendment, the Tax Court in Ewing over a strong dissent, held that it had jurisdiction under Code Sec. 6015(e) to review IRS’s denial of equitable innocent spouse relief even though IRS had not asserted a deficiency. In early 2006, the Court of Appeals for the Ninth Circuit reversed the Tax Court on this issue. Then in July 2006, in David Bruce Billings, the Tax Court reversed itself and held that it lacks jurisdiction to review IRS’s denial of equitable innocent spouse relief where IRS has not issued a deficiency notice.
New law: The Act amends Code Sec. 6015 to provide that the Tax Court may review claims for equitable innocent spouse relief and to suspend the running of the period of limitations while such claims are pending. Specifically, the Act amends Code Sec. 6015(e)(1) by inserting ‘or in the case of an individual who requests equitable relief under subsection (f)’ after ‘who elects to have subsection (b) or (c) apply.’ It also makes conforming changes to other provisions in Code Sec. 6015. The changes apply to requests for equitable relief with respect to liability for taxes that are unpaid after the enactment date.
Other recent guidance:
Disclosing Joint Tax Return to Spouse: Upon written request, a joint income tax return may be inspected by either spouse (i.e., by either individual “with respect to whom the return is filed”) under IRC Sec. 6103(e)(1)(B) . The question in this IRS chief counsel advice is whether that authority remains viable when one spouse claims not to have signed the purported joint return. The IRS attorney believes that it does: “because there has been no final determination as to the spouse’s tax liability stemming from the purported joint return, the spouse remains an individual with respect to whom the return is filed.”
ISSUES & PERSPECTIVES
Distinction Between Should Have Known and Actually Knew Gives Rise to 6015(c) Relief.
Charlton v. Commissioner, 114 T.C. No. 22; 2000U.S. TaxCt. LEXIS 29 (May 16, 2000).
A former husband was entitled to section (f) equitable relief where he knew of his wife’s self-employment income, but did not actually know of the amount of the omitted income.
In connection with a 1994 joint income tax return, the IRS determined a $15,000 deficiency arising from denial of deductions related to rental cabins and reallocation of self-employment income from a physician transcription service which the wife, Sarah Hawthorne, operated. Hawthorne and ex-husband, Fredie Charlton, who divorced in 1995, separately asserted that they qualified for innocent spouse relief. The Tax Court consolidated the petitions.
Citing Butler v. Commissioner, 114 T.C. No. 19 (2000), the Tax Court rebuffed the government’s contention that it lacked jurisdiction to decide whether Hawthorne was entitled to equitable relief pursuant to section 6015(f). Because Hawthorne and the IRS suspended any activity relating to her claim while Charlton’s case is pending, the court indicated she could file a motion to seek Tax Court review if her application is denied. Meanwhile, the court would delay entry of decision.
With respect to Charlton, the court held that he did not qualify for relief pursuant to section 6015(b). Though Charlton asserted that he did not know and had no reason to know of the $22,000 understatement of the transcription service’s income, the court observed that he had prepared the income tax return based on summary information his wife provided to him, and that he had “unfettered access” to the service’s financial records which were maintained in their home.
Non-electing Spouse Entitled to Challenge Grant of Innocent Spouse Relief to Former Wife
Corson v. Commissioner, 114 T.C. No. 24; 2000 U.S. Tax Ct. LEXIS 30 (May 18, 2000).
The Tax Court allowed one former spouse to challenge the other electing spouse’s claim for relief under section 6015 where both spouses were before the court in the same deficiency case. Under present law, Tax Court jurisdiction to review innocent spouse claims arise either as an affirmative defense in a 6213(a) deficiency proceeding or as review of administrative determination regarding relief (or failure to rule) in a “stand alone” matter. Because taxpayer spouse’s claim was raised as an amendment to the couple’s petition for deficiency redetermination, the court considered her claim within the framework of deficiency jurisdiction.
Non-electing Ex-Spouse May Intervene in Deficiency Case Where Other Spouse is Claiming 6015 Relief
King v. Commissioner, 115 T.C. No. 8; 2000U.S. TaxCt. LEXIS 52 (Aug. 10, 2000).
The Tax Court held non-electing spouses are allowed to intervene in any proceeding in which the other spouse is claiming section 6015 relief.
“Item Giving Rise to Deficiency” in Omitted Income Case Disputed
Cheshire v. Commissioner, 115 T.C. No. 16; 2000 U.S. Tax Ct. LEXIS 61 (Aug. 30, 2000); affirmed Cheshire CIR 282 F. 3rd 326 (5th 2002).
In a split decision, the Tax Court held that in omitted income cases, section 6015(c)(3)(C) does not require actual knowledge on the part of the electing spouse as to whether the entry on the return is or is not correct. Pointing to legislative history, three judges dissented.
Taxpayer Spouse was also not entitled to section 6015(c) relief. Here, the parties disputed whether she had actual knowledge, at the time the joint return was signed, of “any item giving rise to the deficiency (or portion thereof).” With respect to the knowledge component of the analysis, the court held that “the statute mandates only a showing that the electing spouse knew of the item on the return that gave rise to the deficiency,” but not that knowledge of the tax consequences arising from the item or that the item reported on the return is incorrect. Further, the knowledge standard is an “actual and clear awareness (as opposed to reason to know)” of the item’s existence. To the extent that legislative history arguably suggests otherwise, the court stressed that nowhere does the statutory language “explicitly state or reasonably imply that relief is denied only where the electing spouse has actual knowledge that the item giving rise to the deficiency is incorrectly reported on the return.”
Turning to the meaning of the word “item,” the court held that “in omitted income situations ‘item’ refers to the item of income that should have been reported on the return.” This definition is consistent with that used in other sections of the Code. Additionally, the court was troubled that acceptance of an ignorance of the tax consequences (aka law) defense would lead to “potentially any spouse who is not a certified public accountant or tax attorney would be allowed to escape paying income tax.”
The petitioner was entitled to section 6015(f) relief with respect to a portion of the accuracy-related penalty. The court was satisfied that she believed that the portion of retirement distribution proceeds used to pay off the mortgage on the family residence would be nontaxable. Further, she acted in good faith inasmuch as she trusted and relied upon her husband when it came to the preparation of the tax returns, she asked him about the potential tax ramifications, had no reason to doubt the truthfulness of his statements, and in fact believed him. The court concluded that “[u]nder these circumstances, we do not believe petitioner had an obligation to inquire further.” Accordingly, she was entitled to relief as to the omitted retirement distribution proceeds, but not as to the omitted interest income.
Concurrences: There were two concurrences. Judge Chiechi concurred in the result only. In his concurrence, Judge Thornton construed the majority opinion to reject the Service’s argument that actual knowledge of an “item” means actual knowledge merely of the event or transaction giving rise to the deficiency. Five of the majority judges joined in this concurrence.
Dissents: There were two dissenting opinions. The first, authored by Judge Parr, stressed that 6015 is a remedial statute intended to provide broader relief than that provided by section 6013(e). Though agreeing that it was not inequitable to hold the petitioner liable for the deficiency pursuant to section (f), Judge Parr was troubled that the majority construed both the term “understatement” in 6015(b) and the word “item” in 6015(c) as synonymous with “transaction.”
In a lengthy dissent, Judge Colvin (joined by Judges Marvel and Parr) protested that the majority’s construction of 6015(c)(3)(C) “squarely conflicts” with the legislative history of 6015(c). Unlike the majority, he found the phrase “item giving rise to a deficiency” to be ambiguous because it could refer to a transaction or activity or to knowledge that an entry on a tax return was incorrect. Because of the sweeping changes to the innocent spouse provisions in 1998, Judge Colvin advocated caution in applying interpretations of the prior law to section 6015(c). Under his reading of legislative history (including four separate items for support), “Congress intended ‘actual knowledge’ to be knowledge that the return is incorrect.” Consequently, the majority disregarded this requirement inasmuch as it held with respect to section (f) relief that the petitioner thought the reporting of the distributions on her tax return was correct.
Finally, the dissent disparages the majority’s treatment of prior authority. First, reliance on Wiksell v. Commissioner, 215 F.3d 1335 (9th Cir. 2000)(unpub.), was inappropriate inasmuch as that opinion does not discuss whether the actual knowledge of any item giving rise to a deficiency refers to incorrect reporting. Second, the majority’s failure to reconcile Charlton v. Commissioner (see above) with Cheshirewill “inevitably cause confusion because, both here and in Charlton, we found that the putative innocent spouse knew of the activity which gave rise to the deficiency.” If the majority intends to promulgate a new standard such that knowledge of an income-producing transaction does not cause a putative innocent spouse to fail to qualify for the separate liability election unless the putative innocent spouse knew the amount of income involved, then it should so state.
Issues from a selection of 2010 & 2011 Cases
- Tax Court Grants Abused Wife Innocent Spouse Relief
The Tax Court has held that an individual, whose abusive ex-husband controlled their finances, is entitled to equitable innocent spouse relief from a joint tax liability, finding that most of the factors considered to determine relief weigh in her favor and it would be inequitable to hold her liable for the tax liability.
According to the opinion, Stephenson suffered physical and verbal abuse by her husband and in 2007 left and ultimately divorced him. Stephenson started filing tax returns with the IRS but learned of a 1999 joint tax liability she had with her ex-husband that had not been paid and that her ex-husband had not filed a 2005 income tax return. She then filed her own 2005 return and asked the IRS for relief from joint and several liability for the 1999 and 2004 tax years. The IRS granted relief for 2004 but not 1999, saying the request was untimely.
Stephenson challenged the denial in court. The court concluded, based on several factors, that Stephenson was entitled to equitable relief. One factor, articulated in Rev. Proc. 2003-61, which favored her request is the abuse she suffered at the hands of her husband, according to the court. It rejected the IRS’s position that her testimony that she had been abused was not credible because she had not documented it, pointing out that her testimony had been corroborated by a friend who had seen bruises on her body.
- Taxpayer worked in the construction industry while his spouse worked as a cardiology technician, and later as a medical transcriber. Throughout their marriage, the spouse controlled family finances, forced taxpayer to give her his paychecks, denied him access to their bank account, and paid the expenses. She allowed him to see their federal tax returns (which were prepared by her mother) when she presented them for his signature. The spouse often abused taxpayer, and he was injured on several occasions. In allowing equitable relief under IRC Sec. 6015(f) , the Tax Court reviewed the factors listed in Rev. Proc. 2003-61 (2003-2 CB 296) , noting that four factors favored relief (marital status, lack of knowledge or reason to know, lack of significant benefit, and spousal abuse), two weighed against relief (lack of economic hardship and lack of good-faith effort to comply with tax laws), and two were neutral (nonrequesting spouse’s legal obligation and mental or physical health).
- While the IRS conceded that taxpayer is entitled to relief under the “separate liability election” rules of IRC Sec. 6015(c) , her ex-husband intervened and argued that she did not qualify for relief because she had “actual knowledge of the items giving rise to the deficiencies” when she signed the joint tax returns. The Tax Court noted that under IRC Sec. 6015(c)(3)(C) , the test is “an actual and clear awareness (as opposed to reason to know) of the existence of an item that gives rise to the deficiency.” The items giving rise to the deficiencies in this case were disallowed deductions, not unreported income. Taxpayer did not know that any items giving rise to the deficiencies were not incurred or could not be substantiated because the ex-husband kept the records for the business, only showed taxpayer his summaries of the records, taxpayer had no role in managing the business, and she was not involved in maintaining the business records.
- To contest the IRS’s denial of innocent spouse relief in Tax Court, the taxpayer must request review within 90 days of the IRS sending a Notice of Final Determination to the taxpayer’s last known address. In reversing the Tax Court’s dismissal of taxpayer’s petition (as untimely), the 5th Circuit noted that the IRS was aware that its address on file was incorrect because the U.S. Postal Service had returned three prior mailings to taxpayer as undeliverable. The IRS had a duty to exercise reasonable diligence to search for her correct address, but failed to do so. The Notice sent on 4/6/07 became null and void when it was returned as undeliverable. Taxpayer’s 90 day period began to run after the IRS re-sent the Notice to her correct address on 5/14/07. Because taxpayer filed her petition with the Tax Court within 90 days of the 5/14/07 Notice, her Tax Court petition was timely.
- Taxpayer’s wife embezzled money from her employer from 4/01 until 6/02, when she was caught. In determining whether taxpayer is entitled to equitable innocent spouse relief under IRC Sec. 6015(f) , the Tax Court looked to the “facts and circumstances test” in Rev. Proc. 2003-61 (2003-2 CB 296) . The Tax Court found that four of the ten factors are neutral, two favor relief (compliance with the federal tax laws and economic hardship), and two weigh against relief (significant benefit and knowledge). Faced with a seeming tie, the Tax Court denied relief in part because taxpayer waited until the IRS started the audit to file amended joint returns reflecting the embezzlement proceeds that he had “long known about.
APPLYING FOR RELIEF
IRS’ Wage and Investment (W & I) Division has overall responsibility for managing the innocent spouse program. W & I has an agreement with SB/SE whereby SB/SE field staff work innocent spouse cases requiring face-to-face contact with taxpayers. IRS designated theCincinnatiServiceCenteras a central processing site for innocent spouse cases. IRS officials believed that this centralization would facilitate more rapid and consistent processing of cases because staff in the service center would specialize in the innocent spouse cases and follow consistent procedures and processes in resolving cases.
When an innocent spouse case is received, IRS screens the case to determine whether it meets basic eligibility requirements before thoroughly investigating it. IRS created an innocent spouse integrated case processing (ICP) system specifically for such cases. The ICP uses algorithms that direct examiners through a series of questions leading to a decision about what, if any, relief is due to the taxpayer. The ICP also automatically prompts the examiner to create a documented case file.
The ICP is intended to increase the accuracy and consistency of determinations since it is designed to help ensure that examiners consider all pertinent aspects of a taxpayer’s case in accordance with the law. This program holds promise in helping IRS further improve accuracy and uniformity in applying the innocent spouse provisions because it standardizes the questioning process for determining eligibility and better ensures that all appropriate documentation is considered.
Form 8857 & Publication 971
A taxpayer seeking innocent spouse relief should file form 8857 with the IRS. If the taxpayer is the subject of an on-going audit you should raise the innocent spouse issue as soon as possible with the examining officer. Review IRS Publication 971 prior to raising an innocent spouse defense.
Practice Pointer! Beware of potential conflicts of interest which will arise when you represent both parties. You may not be able to represent either if you originally prepared the return in question.
Notice to Putative Guilty Spouse
When you file an innocent spouse claim for one taxpayer the IRS will notify the other spouse filing the joint return. They will send that spouse a letter and ask if he/she will verify the statements of the taxpayer seeking innocent spouse status.
Practice Pointer! Be sure your client is aware of this requirement. Imagine the response of some ex-spouses after a bitter divorce.
The Tax Court
To get Tax Court review of a deficiency, a taxpayer must file a petition with the Tax Court at Washington, D.C., in response to a notice of deficiency (90-day letter, from IRS, within 90 days (150 days if the notice is addressed to a person outside the U.S.) after the notice is mailed (i.e., postmarked). For 90-day letters mailed after Dec. 31, ’98, a petition is treated as timely if it’s filed with the Tax Court on or before the last date specified by IRS in the 90-day letter for filing it. The Tax Court’s jurisdiction generally is limited to the review (without a jury) of deficiencies asserted by IRS (and not paid when the 90-day letter is issued). It can order payment of a refund if it determines the taxpayer overpaid. But it can’t grant equitable relief. The Tax Court has jurisdiction to order a refund of any amount collected while IRS was prohibited from collecting a deficiency by levy or court proceeding but only if a timely petition for a re-determination of the deficiency has been filed and only with respect to the deficiency at issue.
Notice and Intervention
If the IRS denies an innocent spouse claim he/she may file a Tax Court petition pursuant to IRC §§ 6320(c) and 6330(d), added by §3401 of the Internal Revenue Service Restructuring and Reform Act of 1998, but the statutes provide that upon judicial review of determinations made by IRS appeals, notice must be given the putative “guilty spouse” as follows:
- “Notice: The Commissioner shall serve notice of the filing of the petition on the other individual filing the joint return.
- Intervention: If the other individual filing the joint return desires to intervene, then such individual shall file a notice of intervention with the Court not later than 60 days after service of the notice by the Commissioner of the filing of the petition, unless the Court directs otherwise, and attach to the notice of intervention a copy of such notice of filing. All new matters of claim or defense in a notice of intervention shall be deemed denied.”
IRC § 66 – TREATMENT OF COMMUNITY INCOME
Community Property and Community Income
Federal income tax law recognizes the principle of community income in community property states, under which community income is treated as going half to each spouse even if one spouse earns all the community income and the couple files separate returns. Under specified conditions, however, the Code relieves a “separated,” or “innocent” spouse from the above 50-50 allocation rule by allocating all the community income to the earner-spouse. IRS may also disallow the benefits of community property laws to certain spouses. The laws of the taxpayer’s state (or country) of domicile (generally referred to as “local law,” determine whether two individuals are married and thus subject to a state’s or country’s community property laws. Local law also determines whether a taxpayer has community property or community income.17 However, while local law determines a person’s rights to income or property, federal tax law determines the tax on those rights.18 Federal taxes are affected by community property laws only if married taxpayers file separate returns while living in a community property state.19
Section 66 contains four exceptions to the general rule that community income is taxed in equal shares to the husband and the wife.
- Section 66(a) provides rules for the treatment of community income when the spouses live apart and do not share income for the entire taxable year.
- Section 66(b) authorizes the Secretary to disregard community property laws where one spouse is not notified of the nature and amount of items of community income.
- Section 66(c) directs the Secretary to prescribe regulations regarding relief from the operation of community property law in certain other cases. This provision is analogous to the relief provision in section 6015(b) relating to joint filers.
- Section 66(c) also authorizes the Secretary to grant equitable relief from the operation of community property laws where the other requirements of section 66(c) are not met. This provision is analogous to the equitable relief provision in section 6015(f) relating to joint filers.
The four exceptions in section 66 apply to community income that spouses receive while they are married. Thus, community income that is received during any taxable year in which the spouses are married at any time during that taxable year, including the taxable year during which the spouses divorce, may be subject, in whole or in part, to the provisions of section 66. If spouses file a joint return for a taxable year, section 66 does not apply to their community income for that taxable year. If a spouse files a joint return with a new spouse in the same year that the spouse divorces his or her former spouse, section 66 may be applicable to any community income of the spouse and former spouse earned prior to their divorce.
Where Spouses Live Apart
Section 879(a) provides that under certain circumstances, community income is taxed to the spouse who earned the income rather than according to community property laws. Under section 66(a), a spouse may report community income in accordance with the rules provided by section 879(a) if the following requirements are satisfied:
- The spouses must have been married to each other at some time during the calendar year;
- the spouses must have lived apart at all times during the calendar year;
- the spouses must not have filed a joint return under section 6013 for a taxable year beginning or ending in the calendar year;
- at least one of the spouses must have earned income during the taxable year that is community income; and
- the spouses must not have transferred any of the income (directly or indirectly) to each other before the close of the calendar year. Proposed regulations provide that de minimis amounts are not considered transfers for purposes of section 66(a). In addition, proposed regulations provide that amounts that are transferred or paid to, or on behalf of, the couple’s child are not considered indirect transfers to one spouse merely because such transfers satisfy a support obligation of that spouse.
Section 66(b) Where Spouse Not Notified of Community Income
Section 66(b) provides the Secretary with the authority to deny the benefits of community property law to a spouse who does not notify the other spouse of the nature and amount of an item of community income and who acts as if solely entitled to such income. Proposed regulations provide that in such a case, the item of community income will be included in the gross income of the spouse for whom the benefits of community property law were denied.
Section 66(c) directs the Secretary to prescribe regulations regarding relief from the operation of community property law (specific relief) if:
- The requesting spouse files a separate return for a taxable year;
- the requesting spouse does not include in gross income for the taxable year an item of community income properly includible therein, which, in accordance with the rules contained in section 879(a), would be treated as the income of the non-requesting spouse;
- the requesting spouse establishes that he or she did not know, and had no reason to know, of the item of community income; and
- taking into account all of the facts and circumstances, it is inequitable to include the item of community income in the gross income of the requesting spouse.
Proposed regulations provide that if a requesting spouse is relieved of the operation of community property law under section 66(c) for an item of community income, the item will be included in the gross income of the non-requesting spouse, and not in the gross income of the requesting spouse. In addition, the proposed regulations provide that when a requesting spouse is granted relief from the operation of community property law under section 66(c), community income will be treated in accordance with the rules provided by section 879(a). The proposed regulations also provide that relief under section 66(c) is not available if one spouse transferred assets to the other spouse as part of a fraudulent scheme, or if the requesting spouse signed a closing agreement or offer in compromise for the taxable year for which relief from the operation of community property law is sought.
Request for Equitable Relief Under Section 66(c)
Section 66(c) also authorizes the Secretary to grant equitable relief from the operation of community property law to requesting spouses who do not otherwise meet the qualifications for relief set forth in section 66(c). This provision, which was added by section 3201(b) of the Internal Revenue Service Restructuring and Reform Act of 1998, is only available for liabilities that were unpaid as of July 22, 1998, or that arise after July 22, 1998. Section 66(c) directs the Secretary to prescribe procedures regarding when equitable relief may be granted. Such procedures are detailed in Revenue Procedure 2000-15 (2000-1 C.B. 447). The proposed regulations provide general information on the equitable relief provision in section 66(c) and refer individuals seeking more detailed guidance to the relevant revenue rulings, revenue procedures, or other published guidance issued on this topic.
Time and Manner of Requesting Relief
Under the proposed regulations, a spouse seeking specific relief from the operation of community property law under section 66(c) generally may only seek relief after a deficiency for such year has been asserted. A deficiency is considered “asserted” on the date that the requesting spouse either receives a notification of an audit or a letter or notice from the Secretary indicating that there may be an outstanding liability with regard to that year. The requesting spouse must notify the Secretary of the spouse’s request for treatment under section 66(c) in a timely manner so that the Secretary can assess the tax on the community income against the non-requesting spouse before the statute of limitations on making such an assessment under section 6501 expires. Thus, the proposed regulations provide that a requesting spouse seeking relief from the operation of community property law under section 66(c) must request such relief no later than 6 months before the statute of limitations on assessment of section 6501 expires with regard to the non-requesting spouse. The proposed regulations further provide that if the examination of the requesting spouse’s return commences during that 6 month period, the latest time for requesting relief under this section is 30 days after the commencement of the examination.
Procedures for Equitable Relief
A spouse seeking equitable relief from the operation of community property law under section 66(c) for a liability that was properly reported but not paid may seek relief on or after the date the return for such year is filed. In order to request either specific or equitable relief from the operation of community property law under section 66(c), the requesting spouse must file Form 8857, “Request for Innocent Spouse Relief” (or other specified form), or a written statement, signed under penalties of perjury, with the Secretary indicating why such treatment or relief is appropriate. The statement must also include the name of the non-requesting spouse and the taxpayer identification number of the non-requesting spouse, as well as any other information reasonably requested by the Secretary that will help the Secretary identify and locate the non-requesting spouse.
California Community Property
Income of married taxpayers domiciled in Californiais generally taxed as community income—i.e., one half to each spouse when filing separate returns. However, income from separate property, income from property in non-community property jurisdictions treated by Californiaas separate property, income that the spouses previously agreed would be treated as income from separate property, and income after divorce or legal separation is taxed as separate income from the spouse’s separate property. A wife domiciled in Californiahas a vested interest in community property. For tax purposes, community property income is divided equally between husband and wife.20 This is true even if the community income is derived from illegal sources (e.g., drug trafficking) by one spouse without the knowledge of the other.21 Otherwise allowable deductions paid out of community income are generally deductible one-half by each spouse.
Earnings Included as Community Income.
Under then applicable Californialaw, there was a statutory presumption that a husband’s earnings were community property. Clear and satisfactory proof was required to contradict this presumption. That proof included persuasive evidence of the existence of an agreement between a husband and wife changing the status of the earnings from community property to separate property.22
The tax advantage in filing separate returns, where it exists, is seldom large. Many tax cases on community status in recent years involve separate returns of husband and wife living apart rather than united couples filing separately for a tax benefit. In one case, married taxpayers who had always filed joint returns tried unsuccessfully to take advantage of the community property laws. The issue involved cancellation of debt (COD) income that passed through from a partnership interest that was community property. Taxpayers excluded most of the COD income under the insolvency exception, Sec. 108, but maintained that the wife shouldn’t have to reduce her allocated portion of an NOL carryover by any of the excluded income because COD income wasn’t considered “income” under local (TX) community property law. The Tax Court rejected the argument, pointing out that federal law defines what is “income” for federal tax purposes.23
§ 66 Treatment of Community Income
The IRS may disallow the benefits of any community property law to any taxpayer with respect to any income if the taxpayer acted as if solely entitled to the income and failed to notify the taxpayer’s spouse before the due date (including extensions) for filing the return for the taxable year in which the income was derived of the nature and amount of the income.
§ 66 Standards
A married individual who doesn’t file a joint return,24 and omits from his or her gross income his or her share of community income (determined under the allocation rules of IRC § 879(a), is relieved from income tax liability on the omitted income if both of these two requirements are met:
- The individual must establish lack of knowledge or reason to know of the omitted item,25
- Under all the facts and circumstances it would be inequitable to include the item of community income in the individual’s gross income.26 In this case, the item will be included only in the other spouse’s gross income (and not in the gross income of the individual).27
Benefit From Income
In determining whether it would be inequitable to include the item in the gross income of the spouse lacking knowledge, the determination may include whether that spouse benefited from the untaxed income, and whether the defense was promptly raised to prevent the statute of limitations from running on the other spouse. Congress is concerned about the inequity of taxing an individual on community earned income of the other spouse where the individual received no benefit from the earnings.28
Example of Benefiting From Income
A taxpayer benefited from the income that was paid to and/or earned by her spouse during the years at issue where at least a portion of that income was used to pay at least some of the couple’s living expenses for those years. These living expenses included expenses for groceries, gasoline, maintenance of the trailer house where they lived, utilities, and meals at restaurants, as well as expenses attributable to their respective children, and taxpayer’s parents, who lived with them at various periods during the years at issue. Thus, the Tax Court, affirmed by the Ninth Circuit, concluded it would not be inequitable for the taxpayer to include one-half of that income in her gross income.29
Proving Lack of Benefit
Where a Californiahousewife didn’t benefit from her former husband’s income beyond normal support, the Tax Court determined that it would be inequitable to include unreported community income in her gross income to the extent that she lacked knowledge of her husband’s income. When she lived with her former husband, she rented her dwellings, drove an old car, and had no credit cards. She took nothing away from the marriage except an older, used car. Moreover, 16 years passed between the time that she and her former husband separated and the time that she received a notice of deficiency from IRS about his earnings, of which she knew little or nothing even at the earlier date. 30
Knowledge of Amount
A taxpayer’s knowledge of an item of community income must be determined with reference to her knowledge of the particular income-producing activity. The exact amount of the item isn’t determinative.31 Thus, a claim that the innocent spouse didn’t know the specific amount of the unreported community income was irrelevant in meeting the above two requirements.32
No Reason to Know
The “no reason to know” prerequisite wasn’t met where the taxpayer-wife actively participated (as a bookkeeper) in her husband’s businesses that generated the unreported community income.33 The requirement also wasn’t satisfied where a music teacher knew and participated in her husband’s real estate activities. Her participation consisted of acting as a nominee on her husband’s behalf in various real estate transactions, attending real estate closings, and signing various documents. The couple’s move from a moderate residence to a home costing more than $300,000 should have made the wife aware of the improvement of their living conditions and therefore the income from the community real estate.34
Lack of Knowledge
The lack of knowledge requirement also wasn’t met where the taxpayer-wife knew that the husband was a full-time employee,35 or was engaged in income-producing business activities.36 Thus, where a taxpayer/wife knew about her husband’s income from his steel business, the requirement wasn’t met. Contrary to her testimony that she believed that the business was having financial difficulties, the wife knew that her husband, whose sole source of income was his steel business, was able to make $2,000 a month child support payments to her and mortgage payments on her property during the entire year in issue.37
However, where the taxpayer-wife believed that her husband was only in a legitimate occupation but the husband’s unreported community income was derived from illegal activities (such as narcotic trafficking or embezzlement), the Tax Court won’t attribute knowledge of the illegal activity or a portion of the income from the illegal activity to the taxpayer-wife without evidence that either the marital community or the taxpayer-wife benefited from the unreported community income.38 The same rule was applied to relieve a taxpayer-wife from tax liability on unreported interest income from secret certificate of deposits of her husband.39
Income of Separated Spouses under Community Property Laws
Separated couples treat their income according to the statutes of their state, unless they meet the conditions of spouses living apart all year, In some states, income earned after separation continues to be community income before a decree of divorce. In other states, it’s separate income.40 Depending upon the state, a decree of separate maintenance may not dissolve community interest. On the other hand, the court in the state issuing the decree may terminate the marital community and divide the property between the spouses.41
Separation Agreement vs. Separation
A separation agreement dividing the community property between the spouses and providing that this property along with future accumulations and the earnings of each spouse is to be separate property might, in some states, end the marital community. In other states, the marital community will end when the husband and wife permanently separate, even without a formal agreement42 Even if a taxpayer cannot qualify under § 66, he/she might qualify for innocent spouse protection.
Denial of Community Property Law Benefits to Certain Spouses
If a spouse acts as if he or she is solely entitled to the community income and fails to notify the other spouse of the nature and amount of the income before the return due date (including extensions), IRS may deny any benefit of community property laws to such spouse.43 In other words, IRS may charge the spouse with the tax on his or her entire income.44 The Tax Court applied this rule to attribute to (and thus tax) a husband the entire community investment income where the wife wasn’t notified of her share of such income and the husband treated the entire investment income as his own.45 However, the rule didn’t apply where taxpayer hand-delivered to his wife (from whom he was separated) various tax documents, including his Forms W-2 and 1099, before the due date of her return.46 And the Tax Court refused to permit IRS to disallow the benefits of the (Arizona) community property laws to a married taxpayer who didn’t act as if she were solely entitled to her wage income, and didn’t fail to notify her husband of that income, and where IRS was unable to offer any persuasive reason for disregarding those community property laws. Thus, taxpayer, who didn’t file a joint return (but whose return as filed reflected “a fanciful approach to her Federal income tax responsibilities,” including a negative number for wages) was taxed on only one-half of her actual wages, not the entire wages that IRS asserted in its deficiency notice.47 The Tax Court also rejected IRS’s attempt to disallow the benefits of Arizona community property laws to another taxpayer who lived separate from his wife, but who had provided substantial income for the benefit of the marital community and had done so despite the fact that he wasn’t under a court order compelling him to. It didn’t matter that the amounts he sent to his wife had fluctuated; the fluctuations were due to the changing employment situations of the taxpayer and his wife.48
IRC §66(b) Only Available To IRS
IRC § 66(b) (footnote 42) can be used only by IRS in order to disallow the benefits of community property laws to a taxpayer under certain prescribed conditions. By its plain language, it’s not a relief provision that can be used by a taxpayer to avoid his or her liability for tax on community income paid to and/or earned by the taxpayer’s spouse. IRC § 66(b) doesn’t afford an “innocent spouse” remedy; a taxpayer can’t rely on it to claim innocent spouse relief. Where a taxpayer argued that because IRS had previously determined deficiencies and assessed tax against her spouse with respect to income earned by and/or paid to the spouse, IRC § 66(b) relieved her from including any part of that income, the Ninth Circuit affirmed the Tax Court’s decision that her argument was misdirected.49
Theft Loss Deduction for Appropriated Spouse’s Community Income Share.
Where a spouse—usually the wife—has no control over her husband’s community income and the husband appropriates his wife’s share of the community income, may the wife take a theft loss deduction for the share she never received but nevertheless was required to report on her separate return? The Tax Court and the Fifth Circuit say “yes” but the wife must first prove that her share was stolen (i.e., that the husband was a thief).50 This wasn’t proven in a case arising under the then Louisiana law where the husband was deemed “head and master” of the marital partnership,51 and in a case arising under the then Texas law.52
Observation: Because of the current Code relief provisions: one for spouses living apart; the other for “innocent spouses”, the much harder-to-prove theft loss deduction issue is little used. However, in appropriate cases it is still available.
Texas Community Property.
Under the community property laws of Texas, spouses have an equal interest in the marital community. Texasmarital community includes income from most separate property. Where separate federal income tax returns are filed, each spouse is taxed on one-half of their community income. A wife domiciled in Texas has a present vested interest in community property, equal and equivalent to that of her husband, and one half of the Assertion of spousal relief in refund claim. The spouse of a partner can assert the spousal relief rules of IRC § 6015, i.e., innocent spouse relief, the separate liability election, and equitable relief), in a claim for refund on the ground that IRS failed to relieve the spouse from liability for an adjustment of a partnership item, including liability for a penalty relating to such an adjustment.53 The refund claim has to be filed within six months after the day on which IRS mails to the spouse the notice of computational adjustment.54 If the claim is not allowed, the spouse can file a refund suit. The suit must be brought within the refund suit limitations period specified in IRC § 6532(a).55 For purposes of any claim or suit under this provision, the treatment of the partnership items (and the applicability of any penalties) under the settlement or administrative or judicial determination (whichever is appropriate) that gave rise to the liability in question is conclusive.56
Characteristics of Relief Provisions
Innocent Spouse Relief
Allocation of Liability § 6015(c)*
Community Property States** § 66(c)*
Type of Return
Married filing separate
Type of Liability
Deficiency or underpayment
Deficiency or underpayment
Relief under § 6015(b) and
§ 6015(c) not available ****
Liability remains unpaid except for amounts meeting requirements for refunds listed here ****
(Normal refund statute (RSED) controls)
Refunds available for amounts paid between 7/22/98 and 4/15/99, & for amounts paid under an installment agreement (if not defaulted) after the later of 7/22/98 or date Form 8857 filed
Marital status considered as an equitable factor
Must be divorced, widowed; legally separated; OR not living together for at least 12 months prior to the election
Marital status considered as an equitable factor
TP must establish had no knowledge OR reason to know
IRS must establish TP had actual knowledge of deficiency items
Knowledge considered as an equitable factor
Inequitable to hold TP liable: consider all facts & circumstances
Inequitable to hold TP liable: consider all facts & circumstances
Tier I Cases (Relief ordinarily granted if all 4 factors met)
2) No longer married, legally separated, OR not living together for 12 months prior to request
3) No knowledge or reason to know when return signed
4) TP will suffer economic hardship if relief not granted
List of Partial Factors – Tier II
Tier II Cases – Underpayment and Deficiency
Factors Weighing in Favor of Relief
1) Marital status (same as 6015(c))
2) Economic Hardship (defined in Regs. § 301.6343-1(b)(4))
3) Abuse (but not duress)
4) No knowledge or reason to know (that liability would not be paid (for underpayment) or of item ( for deficiency)
5) Non-requesting spouse’s legal obligation (not positive factor if knowledge NRS would not pay at time decree/agreement signed)
6) Liability solely attributable to non-requesting spouse
Factors Weighing Against Relief
1) Attributable to requesting spouse
2) Knowledge or reason to know (extremely strong factor)
3) Significant benefit
4) Lack of economic hardship
5) Noncompliance with federal income tax laws
6) Requesting spouse’s legal obligation
Fraud is a consideration in equity determination
Election invalid if IRS shows TP transferred assets as part of a fraudulent scheme
Relief not available if
1) Fraudulent return or ****
2) Assets transferred as part of fraudulent scheme ****
Disqualified Assets Transferred for Avoidance of Tax or Payment of Tax
Transfer of disqualified assets is a consideration in equity determination
Amount of allocation is increased by value of disqualified assets
Relief not available to extent of value of any disqualified
Time for Filing
2 years from 1st collection activity*** after 7/22/98
2 years from 1st collection activity *** after 7/22/98
2 years from 1st collection activity*** after 7/22/98 ****
Consideration in Courts
Tax Court; if full- paid, District Court or Court of Federal Claims
Tax Court review under IRS’s “abuse of discretion” standard
(Note: § 66(c) cases may go to Tax Court only through deficiency proceedings)
Explanations for Page 1 of this chart:
* Relief only for amounts unpaid as of 7/22/98 and amounts arising after 7/22/98. For amounts paid prior to July 22, 1998, § 6013(e) applies. (§ 6013(e) criteria is similar, but more restrictive than § 6015(b) criteria.)
** AZ, CA, ID, LA, NV, NM, TX, WA, WI
*** Collection activities that put the taxpayer on notice that IRS intends to collect the tax from the taxpayer. (Levy, seizure, refund offset, judicial suit or claim, etc.)
**** Part of 7 threshold conditions for § 6015(f) relief. Part of 5 threshold conditions for § 66(c) relief.
Possible Prohibitions from Receiving Relief from Joint and Several Liability under IRC §§ 6015 and 66
- A Joint Return Was Not Filed
a) Married Filing Separate in Community Property State – Relief may be available even if a joint return was not filed as long as the spouses resided in one of the following states: AZ, CA, ID, LA, NV, NM, TX, WA, WI.
b) Validity of Joint Return Filing – Relief is not available if an examiner determines that no joint return was filed because the joint election is invalid due to missing signature, a forged signature, or if the return was signed under duress. In these cases, the examiner should secure a married filing separate return or a head of household return, if the requesting spouse has a filing requirement.
- Year Closed with Finality
Relief is not available when the requesting spouse is a party to any of the following:
- Prior final decision of Tax Court for the tax year at issue. Consider res judicata and collateral estoppel
- Prior acceptance of an Offer-in-Compromise by the Service for the tax year at issue.
- A Closing Agreement is in effect for the year at issue:
a) Form 866, Agreement as to Final Determination of Tax Liability
b) Form 906, Closing Agreement on Final Determination Covering Specific Matters – examination adjustments included in the agreement cannot be items for which relief is requested. (Exception: TEFRA flow-through adjustments)
- Injured Spouse – Relief is not available if injured spouse applies. If injured spouse applies, secure Form 8379.
- Collection Statute Expiration Date (CSED) Expired – If the CSED has already expired, the spouse is no longer liable for the tax. If the requesting spouse is seeking a refund, consider whether § 6015 will apply.
Exhibit: Petition in response to Notice of Determination
UNITED STATES TAX COURT
PHYLLIS E. TRADER, )
Petitioner, ) Docket No.:
COMMISSIONER OF INTERNAL REVENUE, )
PETITION FOR REDETERMINATION OF DECISION
UNDER INTERNAL REVENUE CODE SECTION 6015 (b) & 6015(f)
Petitioner, Phyllis E. Trader, through her attorneys, hereby petitions for redetermination of the decision set forth by the Commissioner of Internal Revenue in the Notice of Determination Concerning Your Request for Relief under the Equitable Relief Provision of Section 6015(f), dated January 23, 2004. As the basis of her request, Petitioner alleges as follows:
1. Petitioner, Phyllis E. Trader (hereinafter “Petitioner”), Social Security Number: 999-00-0000, resides at74 Pleasant Cove Lane,Middleclass,Illinois60056. The return for the period here involved was filed with the Office of the Internal Revenue Service inKansas City,Missouri.
2. Petitioner filed Form 8857, Request for Innocent Spouse Relief on April 20, 1999 (hereinafter referred to as the “Request”). Within this Request, Petitioner asked for “Innocent Spouse Relief” and “Equitable Relief”. A copy of the Request is attached hereto and incorporated herein as Exhibit “A”.
3. Petitioner received Letter 3277 from the Service denying her original Request for relief under IRC § 6015(b). Letter 3277 does not directly address Petitioner’s alternative request for relief under 6015(f), although Form 886-A attached to Letter 3277 does address, and deny, Petitioner’s request for relief under 6015(f). A copy of Letter 3277 with Form 886-A is attached hereto and incorporated herein as Exhibit “B”.
4. Petitioner appealed the decision of Letter 3277 in her Protest, a copy of which is attached hereto and incorporated herein as Exhibit “C”. The Protest assumes that relief was denied under IRC §§ 6015(b) and (f) (see Exhibit C, FN1).
5. A Notice of Determination Concerning Your Request for Relief under the Equitable Relief Provision of Section 6015(f) dated January 23, 2004 (hereinafter referred to as the “Notice”) was issued to the Petitioner by the Internal Revenue Service, Illinois Appeals Office,Chicago,Illinoisin response to Petitioner’s Request for Innocent Spouse Relief, and the Protest to the original Request. A copy of the Notice is attached hereto and incorporated herein as Exhibit “D”. The Notice was mailed to Petitioner at her residence.
6. The relief requested, per the January 23, 2004, Notice of Determination is as follows:
7. The Determination issued against Petitioner, as set forth in the Notice for tax year 1983, is based upon the following errors:
a. The Commissioner erred in denying Petitioner’s request for relief under IRC § 6015(b).
b. The Commissioner erred in denying Petitioner’s request for relief under IRC § 6015(f).
8. Petitioner relies on the following as the basis of this Petition:
a. Phyllis and Ronald Trader were married in 1968 and remain married today.
b. Ronald Trader was and is a commodities trader and broker, and in 1983 engaged in numerous complex transactions in the commodities markets. Petitioner was not involved in the commodity trading business activities of her husband Ronald Trader in 1983.
c. Petitioner filed a joint return with Ronald Trader for 1983 that had an understatement of tax due to erroneous items. The principal erroneous item with respect to this return was a fictitious loss deduction related solely to the business transactions of Ronald Trader.
d. Petitioner neither knew nor had any reason to know that the 1983 return showed an understatement of tax. Petitioner had no knowledge of the details surrounding Ronald Trader’s business activities, or the fictitious loss transactions. Petitioner believed that the losses reflected on the 1983 return were genuine and had no reason to believe otherwise.
e. It would be unfair and inequitable to hold Petitioner liable for the understatement of tax which resulted from the business affairs of Ronald Trader.
WHEREFORE, Petitioner prays that in connection with her income tax liability for tax year 1983, this Court determine that:
Petitioner is entitled to innocent spouse relief under the provisions of IRC § 6015(b), or alternatively, under 6015(f).
Petitioner is entitled to such other relief as may be appropriate.
___________________________ Robert E. McKenzie
Tax Court Bar No. XXXXXXXX
PORTIONS REPRINTED WITH PERMISSION OF
REPRESENTATION BEFORE THE COLLECTION DIVISION OF THE IRS
ROBERT E. McKENZIE
ARNSTEIN & LEHR
120 SOUTH RIVERSIDE PLAZA, SUITE 1200
CHICAGO, ILLINOIS 60656
 In addition, special innocent spouse relief applies to a spouse of a partner in a partnership subject to unified partnership audit procedures ( IRC §6230(a)(3), IRC § 6230(c)(5))
 Temp. Reg Sec. 1.6015-3
 IRC §6015(c)(3)(A)(i)
 Temp. Reg. Sec. 1.6015-3
 Rev. Proc. 2003-61, SECTION 4. GENERAL CONDITIONS FOR RELIEF
 Rev. Proc. 2003-61, SECTION 4. GENERAL CONDITIONS FOR RELIEF
 Rev. Proc. 2003-61, SECTION 4. GENERAL CONDITIONS FOR RELIEF
 S Rept No. 105-174 (PL 105-206) p. 59.
 Ewing, (2002) 118 TC No. 494
 Ewing, (CA 9 2006) 97 AFTR 2d 2006-554
 Billings (2006) 127 TC No. 2
 Stephenson, T.C. Memo. 2011-16 (Jan. 20, 2011)
 Timothy Schultz , TC Memo 2010-233 (Tax Ct.)
 Toni Lynette Knight , TC Memo 2010-242 (Tax Ct.)
 Terrell v. Comm. , 106 AFTR 2d 2010-XXXX (9th Cir.)
Robert McGhee , TC Memo 2010-259 (Tax Ct.)
17 Purdy, Sue Ann, (1979) TC Memo 1979-521, PH TCM ¶79521, 39 CCH TCM 808.
18 Burnet v. Henry Harmel, (1932, S Ct) 11 AFTR 1085, 287 US 103, 77 L Ed 199, 3 USTC ¶990; Blair, Edward v. Com., (1937, S Ct) 18 AFTR 1132, 300 US 5, 81 L Ed 465, 37-1 USTC ¶9083; U.S. v. Mitchell, Anne, (1971, S Ct) 27 AFTR 2d 71-1457, 403 US 190, 29 L Ed 2d 406, 71-1 USTC ¶9451, revg Mitchell, Anne v. Com, (1970, CA5) 26 AFTR 2d 70-5127, 430 F2d 1, 70-2 USTC ¶9482.
20 U.S. v. Malcolm, Robert, (1931, S Ct) 9 AFTR 956, 282US 792, 75 L Ed 714, 2 USTC ¶650.
23 Brickman, James R., (1998) TC Memo 1998-340, RIA TC Memo ¶98340.
29 Hardy, Cathy Miller, (1997) TC Memo 1997-97, RIA TC Memo ¶97097, 73 CCH TCM 2105, affd(1999, CA9) 1999 WL 446530.
30 Trout, Joy, (1992) TC Memo 1992-696, RIA TC Memo ¶92696, 64 CCH TCM 1474.
31 Hardy, Cathy Miller, (1997) TC Memo 1997-97, RIA TC Memo ¶97097, 73 CCH TCM 2105, affd(1999, CA9) 1999 WL 446530.
32 Roberts, Bobbie, (1987) TC Memo 1987-391, PH TCM ¶87391, 54 CCH TCM 94, affd(1988, CA5) 63 AFTR 2d 89-356, 860 F2d 1235, 88-2 USTC ¶9610; McGee, Dorothy D., (1991) TC Memo 1991-510, PH TCM ¶91510, 62 CCH TCM 976, affd(1992, CA5) 71 AFTR 2d 93-530, 979 F2d 66, 93-1 USTC ¶50015.
33 Rimple, Lucy, (1985) TC Memo 1985-245, PH TCM ¶85245, 49 CCH TCM 1533
34 Berenbeim, Phyllis, (1992) TC Memo 1992-272, RIA TC Memo ¶92272, 63 CCH TCM 2975.
35 Watts, Martha, (1988) TC Memo 1988-407, PH TCM ¶88407, 55 CCH TCM 1747; Baldwin, Kristine, (1986) TC Memo 1986-342, PH TCM ¶86342, 52 CCH TCM 22.
36 McGee, Dorothy D., (1991) TC Memo 1991-510, PH TCM ¶91510, 62 CCH TCM 976, affd(1992, CA5) 71 AFTR 2d 93-530, 979 F2d 66, 93-1 USTC ¶50015; Butler, Juniel, (1991) TC Memo 1991-40, PH TCM ¶91040, 61 CCH TCM 1767; Roberts, Bobbie, (1987) TC Memo 1987-391, PH TCM ¶87391, 54 CCH TCM 94, affd(1988, CA5) 63 AFTR 2d 89-356, 860 F2d 1235, 88-2 USTC ¶9610.
37 Lytle, Sondra, (1992) TC Memo 1992-185, RIA TC Memo ¶92185, 63 CCH TCM 2578.
38 Costa, Sandra, (1990) TC Memo 1990-572, PH TCM ¶90572, 60 CCH TCM 1178; Hilton, Donna, (1990) TC Memo 1990-379, PH TCM ¶90379, 60 CCH TCM 217.
39 Roberts, Bobbie, (1987) TC Memo 1987-391, PH TCM ¶87391, 54 CCH TCM 94, affd(1988, CA5) 63 AFTR 2d 89-356, 860 F2d 1235, 88-2 USTC ¶9610.
41 IRS Pub No. 555, (1998), pg. 3.
45 Rutledge,Rome, (1992) TC Memo ¶92052, 63 CCH TCM 1926, TC Memo 1992-52, affd without op(1993, CA5) 4 F3d 990.
50 Bagur, Aimee, (1976) 66 TC 817, later op(1977) TC Memo 1977-163, PH TCM ¶77163, 36 CCH TCM 684, remd(1979, CA5) 44 AFTR 2d 79-5713, 603 F2d 491, 79-2 USTC ¶9607; Bagur, Aimee, (1976) 66 TC 817, remd on other issue(1979, CA5) 44 AFTR 2d 79-5713, 603 F2d 491, 79-2 USTC ¶9607.