Accessibility Skip to Top Navigation Skip to Main Content Home  |  Change Text Size  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 25. Special Topics

Chapter 15. Relief from Joint and Several Liability

Section 12. Appeals Procedures (Cont. 1)

25.15.12  Appeals Procedures (Cont. 1)

25.15.12.18 
How to Identify MFT 31 Accounts

25.15.12.18.2  (11-09-2007)
Mirrored Accounts

  1. MFT 31 accounts created on or after January 1, 2005 allows for the "mirroring" of the joint liability MFT 30 account.

  2. The mirroring process occurs through a series of transactions:

    1. Two TC 971s are input on the MFT 30 account. Each TC 971 contains a XREF-TIN field entry, one with the primary SSN and the second with the secondary SSN.

    2. The TC 971 action code of 100, 101, 104, or 106 on the MFT 30 account indicates the account is mirrored on MFT 31. The action code (AC) identifies the reason.

    3. A TC 971 AC 045 or 145 input on the MFT 30 account triggers the mirroring process, generates a TC 400 on the MFT 30 account, and copies all transactions on the MFT 30 account to the two MFT 31 accounts. An "M-" Freeze is generated on all three accounts. Credits are generated to all three accounts, making them appear to be in zero balance.

      Caution:

      The account is not full paid. Any balance due is re-established when the M- freeze is released.

    4. TC 971 AC 110 is generated to both MFT 31 modules and allows a systemic cross-referencing for payments unless the payment has a Designated Payment Code of 31.

    5. A pending TC 971 AC 10X on the MFT 30 joint account indicates an MFT 31 account(s) is being created.

25.15.12.18.3  (11-09-2007)
Exam/Appeals/AUR modules

  1. Exam/Appeals/AUR MFT 31 modules are created when only one spouse petitions Tax Court with regard to a proposed tax adjustment or agrees to a tax adjustment.

  2. The modules are systemically established but not mirrored.

  3. Exam/Appeals/AUR MFT 31 accounts are established using similar procedures as for mirrored accounts, except the account is not mirrored because only one TC 971 AC 102 or 103 is input. The non-petitioning spouse's SSN is input as the TC 971 cross-reference TIN.

25.15.12.19  (11-09-2007)
Settlement Computation Preparation

  1. This subsection discusses the procedures for settlement computations and the statutory provisions under IRC 6013(e),IRC 6015, and IRC 66(c).

25.15.12.19.1  (11-09-2007)
IRC 6013(e) Provisions

  1. Former IRC 6013(e) provided an "innocent spouse" could be relieved of part or all of the liability in certain situations. IRC 6013(e) was repealed and replaced by IRC 6015, which applies to any liability arising after July 22, 1998, and for any liability arising on or before July 22, 1998, but remaining unpaid as of that date. Any case with an unpaid liability being considered for relief under IRC 6013(e) is now considered for relief under IRC 6015. IRC 6013(e) only applies to the payments made toward an understatement on or before July 22, 1998. Thus, IRC 6013(e) and IRC 6015 may apply to different portions of the liability for one tax period.

  2. Since former IRC 6013(e) does not specify how to compute the relief of liability, the Service determined the method of allocating a deficiency under IRC 6015(c), discussed in IRC 6015(d), is used for computations required for any remaining IRC 6013(e). See IRM 25.15.12.1. This section provides a discussion of IRC 6015(c) cases.

  3. If it is determined IRC 6013(e) applies to a case in which the deficiency will be assessed against the culpable spouse only, and the "innocent spouse" is relieved of all liability, prepare the settlement computation showing both spouses name but showing only the computation for the culpable spouse. Prepare Form 3610, Audit Statement, as instructed in (4) below, showing the "innocent spouse" liability as zero ($0).

  4. Show the total deficiencies and penalties on Form 3610, with a breakdown inserted in the lower part of the form showing the limited liability of the "innocent spouse" . See Exhibit 25.15.12-2.

  5. See Exhibit 25.15.12-2 (Cont) for a completed Form 5278.

25.15.12.19.2  (11-09-2007)
IRC 6015 Provisions

  1. IRC 6015 provides an "innocent spouse" may be relieved of part or all of the liability in certain situations.

    1. Innocent spouse computations are discussed in detail in Compliance's Innocent Spouse Determinations, Student Guide, Course 8534-102, Catalog Number 85205X (available on the Electronic Publishing Catalog web site.

  2. Former IRC 6013(e) was repealed on July 22, 1998. IRC 6015 became effective for:

    1. Unpaid balances as of July 22, 1998, and

    2. Liabilities arising after July 22, 1998.

  3. Under IRC 6015 there are three kinds of relief from joint and several liability:

    1. IRC 6015(b) provides an election for relief from an understatement of tax liability.

    2. IRC 6015(c) provides an election to allocate a deficiency.

    3. IRC 6015(f) provides the IRS with discretion to grant equitable relief from deficiencies and underpayments, if the relief provisions under IRC 6015(b) or IRC 6015(c) do not apply.

  4. Under IRC 6015(b), relief is available only from an assessed deficiency or understatement, or one that has been determined under the deficiency procedures. IRC 6015(b) does not authorize relief from an underpayment of tax (tax reported on a joint return but not paid with the return). IRC 6015(f) permits equitable relief for an understatement or underpayment of income tax.

    1. The meaning of understatement is given in IRC 6662(d)(2)(A) and the regulations thereunder: the excess of the amount of the tax required to be shown on the return for the taxable year, over the amount of tax imposed, which is shown on the return, reduced by any rebate (within the meaning of IRC section 6211(b)(2)).

      Note:

      For IRC 6015 purposes, a deficiency and an understatement are the same.

    2. An underpayment is an unpaid amount due from self-assessed taxes on either an original or amended return.

      Note:

      For information on whether certain math errors are understatements or underpayments, see IRM 25.15.7.6.

  5. The innocent spouse provisions do not apply to household employment taxes. Household employment taxes, shown on Document 1040, U.S. Individual Income Tax Return, are employment taxes, not income taxes. Therefore, household employment taxes must be treated as a separate and distinct issue.

  6. Check NMF, as well as MFT 30 and MFT 31 accounts, to secure information relating to joint accounts in innocent spouse cases. See IRM 25.15.12.17.. See IRM 25.15.12.18. These sections explain mirrored accounts and MFT 31, and how to identify them on Master File.

  7. Understatement and underpayment allocation worksheets are available on the Appeals Tax Computation Specialist web site. See IRM 25.15.12.19.10. This section on Understatement and Underpayment Allocation Worksheets provides further discussion.

25.15.12.19.3  (11-09-2007)
IRC 6015(b)

  1. This provision allows the taxpayer to request relief from an understatement of tax liability.

  2. The taxpayer requesting relief has the right to petition the Tax Court for relief if the Service denies the request for relief or if the Service does not issue a determination within six (6) months from the date the request for relief is filed. In addition, a taxpayer may raise relief under IRC 6015 as a defense in a deficiency or CDP case.

  3. Procedures:

    1. If one or both of the spouses are granted relief under IRC 6015(b), use the method of allocating a deficiency under IRC 6015(d) for computations required for IRC 6015(b) cases. As IRC section 6015(b) does not specify how to compute the relief of liability, the Service determined the computation is a proportionate allocation consistent with the proportionate allocation used for IRC 6015(c) cases, which is outlined in IRC 6015(d). See IRM 25.15.12.1. This section provides discussion of IRC 6015(c) cases.

    2. Prepare a settlement computation as outlined in this IRM. See IRM 25.15.12.1.

    3. An IDRS allocation worksheet may need to be completed. See IRM 25.15.12.19.11. This section provides further information on IDRS Allocation Worksheets.

25.15.12.19.4  (11-09-2007)
IRC 6015(c)

  1. This provision allows either or both taxpayers to request the allocation of the deficiency attributable to a joint return.

  2. If one spouse requests allocation and the other does not, the non-requesting spouse remains liable for the entire deficiency.

  3. The taxpayer requesting relief has the right to petition the Tax Court for relief if the Service denies the request for relief or if the Service does not issue a determination within six (6) months from the date the request for relief is filed. In addition, a taxpayer may raise relief under IRC 6015 as a defense in a CDP or deficiency case.

  4. The allocation of items is made without regard to community property laws ( IRC 6015(a)).

  5. When one or both of the spouses elect the application of IRC 6015(c),IRC 6015(d) provides the procedures for allocating a deficiency between spouses.

    1. See Treas. Reg. section 1.6015-3 for information on how to allocate income, deductions, credits and payments.

    2. The allocation method is discussed in detail IRM 25.15.3.7, IRC Section 6015(c) - Election to Allocate a Deficiency.

    3. Also see Lesson 5 of Compliance's Innocent Spouse Determinations, Student Guide, Course 8534-102, Catalog Number 85205X, for comprehensive instructions on the allocation of items.

  6. Procedures:

    1. Prepare a settlement computation as outlined in this IRM.

    2. An IDRS allocation worksheet needs to be completed. See IRM 25.15.12.19.11.This section provides further information on IDRS Allocation Worksheets.

25.15.12.19.5  (11-09-2007)
Settlement Computations for IRC 6015(b) and IRC 6015(c) Cases

  1. Form 3610:

    1. Prepare Form 3610 and include footnoting or a computation to show the allocation of liability between the spouses.

    2. If the deficiency will be assessed against the non-requesting spouse only, and the requesting spouse will be relieved of all liability, the Form 3610 format shown for IRC 6013(e) cases in Exhibit 25.15.12-2 may be adapted for IRC 6015 cases. (The Form 3610 format in Exhibit 25.15.12-2 is for a case where the deficiency was not assessed.) See Exhibit 25.15.12-2. (The format used in Exhibit 25.15.12-8 is used when the tax was assessed and a request for relief filed. See Exhibit 25.15.12-8.)

    3. See paragraph (5) for discussion of IRM 25.15.12 exhibits that provide examples of sample Forms 3610 to use for innocent spouse cases. These examples are used for both mirrored and non-mirrored accounts.

  2. Computation of Tax and Explanations:

    1. In pre-assessment cases, prepare a Form 5278, Statement - Income Tax Changes, Form 4549, Income Tax Examination Changes, etc. and the usual explanations of adjustments.

    2. In post-assessment cases, Form 5278, Form 4549, etc. and the usual explanations of adjustments are usually not required since there is no change to the assessment.

  3. Understatement Allocation Worksheet:

    1. If the deficiency is allocated between the spouses, complete an understatement allocation worksheet and include it as part of the settlement computation.

    2. An Excel spreadsheet may be used for these computations and is available on the Appeals Tax Computation Specialist web site.

    3. See IRM 25.15.12.19.10. This section provides further information on Understatement and Underpayment Allocation Worksheets.

  4. Complete an IDRS allocation worksheet. See IRM 25.15.12.19.11.

  5. IRM Exhibits:

    1. See Exhibit 25.15.12-3. See Exhibit 25.15.12-4. See Exhibit 25.15.12-5. These exhibits provide sample formats to use for settlement computations prepared for understatement cases where the deficiencies were not assessed.

    2. See Exhibit 25.15.12-8. This is a sample format for Form 3610 if one spouse requests relief and the tax was assessed. This is only one possible format, and may be used for both mirrored and non-mirrored accounts. Any format that clearly presents the information is acceptable.

    3. See Exhibit 25.15.12-9. This is a sample format for Form 3610 when a case involves both an understatement and an underpayment. In this example, only one spouse petitioned Tax Court, and an MFT 31 account was created to assess the non-petitioning spouse. The account is not mirrored. This is only one possible format; any format that clearly presents the information is acceptable.

    4. See Exhibit 25.15.12-10. This is a sample format for a settlement computation with mirrored accounts. In this example, the understatement was assessed, both spouses requested relief, and the accounts are mirrored. This is only one possible format; any format that clearly presents the information is acceptable.

25.15.12.19.6  (11-09-2007)
IRC 6015(f)

  1. The Service has issued guidance ( Rev. Proc. 2003-61) for individuals seeking equitable innocent spouse relief under IRC 6015(f). Rev. Proc. 2003-61 supersedes Rev. Proc. 2000-15.

  2. Rev. Proc. 2003-61 is effective for requests for relief filed on or after November 1, 2003, or for requests for relief pending on November 1, 2003, for which no preliminary determination letter was issued as of that date.

  3. Relief requests filed where a preliminary determination was issued prior to November 1, 2003 are considered per Rev. Proc. 2000-15.

  4. IRC 6015(f) provides the IRS with discretionary authority to grant equitable relief from deficiencies and underpayments, if relief provisions under IRC 6015(b) or IRC 6015(c) do not apply.

  5. Rev. Proc. 2000-15 limited refunds. Refunds were only permitted for payments after July 22, 1998 made:

    • Between July 22, 1998 and April 15, 1999; or

    • Pursuant to an installment agreement made after the request for relief was filed, as long as the installment agreement was not defaulted.

  6. Per Rev. Proc. 2003-61 the rules for refund are shown below:

    • Deficiency - Refunds are allowed in a case involving a deficiency of certain payments made pursuant to an installment agreement after the request for relief had been filed, as long as the installment agreement was not defaulted.

    • Underpayment - Refunds are allowed in a case involving an underpayment of tax of payments made solely by the RS after July 22, 1998.

    • The RS must establish that he or she provided the funds used to make the payment for which he or she seeks a refund. A RS is not eligible for refunds of payments made with the joint return, joint payments made with the NRS, or payments made by the NRS.

    • The availability of refunds is subject to the refund limitations of IRC 6511.

  7. IRC 6015(f) applies to both understatements (unpaid liabilities from understatement or deficiency assessments) and underpayments (self-assessed taxes reported on original or amended returns but not paid with the return).

    1. IRC 6015(f) provides equitable relief can be granted for a portion or the entire amount of the unpaid balance of the underpayment of the tax as reported by taxpayers.

    2. Thus, it is the only provision under IRC 6015 which provides for relief from self-assessed tax. The relief is granted on the underpayment and/or any related interest and penalties.

  8. IRC 6015(f) also applies to unpaid penalties and interest when relief is granted for the underlying item.

    1. In some cases, the tax may have already been paid after the return was filed, but the interest and penalties are still outstanding. In such cases, if the taxpayer would have been relieved of the tax had the tax been unpaid, then the taxpayer is relieved of the unpaid interest and penalties.

      Note:

      If the underlying tax was paid in full when the return was filed, but interest and/or penalties remained unpaid when the return was filed, then there is no underpayment for purposes of IRC 6015, so the taxpayer is not eligible for relief under IRC 6015 for the interest and/or penalty.

    2. However, if the taxpayer would not be relieved of the underlying tax (that constituted the underpayment), the taxpayer is not relieved of the unpaid interest and penalties.

  9. Overstated withholding is considered an underpayment of tax and qualifies for consideration under IRC 6015(f). It does not matter whether the overstated withholding was refunded or not.

25.15.12.19.7  (11-09-2007)
Settlement Computations for IRC 6015(f) Underpayment Cases

  1. Underpayment Computations:

    1. A computation is needed to determine the liability of the non-requesting spouse, as the relief granted is only available to the extent of the liability attributable to the non-requesting spouse.

    2. As IRC 6015(f) does not specify how to compute the amount of equitable relief, the Service has determined the computation of liability for any unpaid tax shown on the original return is a proportionate allocation consistent with the proportionate allocation used for IRC 6015(c) cases, which is outlined in IRC 6015(d). See IRM 25.15.12.1. This section contains a discussion of IRC 6015(d) allocations.

  2. Form 3610:

    1. Form 3610 is not required for underpayment computations, since we are not computing a deficiency or overassessment. Instead, we are allocating the unpaid balance of the underpayment for the requesting and non-requesting spouses.

    2. However, it may be helpful to prepare Form 3610 to summarize the information from the underpayment allocation worksheet and the transcript of account. See Exhibit 25.15.12-7. This is a sample format for an optional Form 3610 that may be prepared for underpayment cases. (Note that the heading on Form 3610 was modified in IRM Exhibit 25.15.12-7 since underpayment computations do not involve deficiencies or overassessments.)

    3. See Exhibit 25.15.12-9. This is a sample format for Form 3610 when a case involves both an understatement and an underpayment. In this example, only one spouse petitioned Tax Court, and an MFT 31 account was created to assess the non-petitioning spouse. The account was not mirrored. This is only one possible format; any format that clearly presents the information is acceptable.

  3. Form 5278, Form 4549, etc. and the usual explanations of adjustments are not required for underpayment cases. Since there is no change to the assessment on the return, no recomputation of the tax is required. We are merely allocating the underpayment between the spouses.

  4. Underpayment Allocation Worksheet:

    1. If the underpayment is allocated between the spouses, then an underpayment allocation worksheet must be completed. See Exhibit 25.15.12-6. Continuation 1 is an example of a completed underpayment allocation worksheet for a non-mirrored account.

    2. Excel spreadsheets may be used for IRC 6015(f) underpayment computations and are available on the Appeals Tax Computation Specialist web site.

    3. See IRM 25.15.12.19.10. This section provides further information on Understatement and Underpayment Allocation Worksheets.

  5. If penalties were assessed, it may be necessary to recompute the penalties based on the allocation of the payments. See Exhibit 25.15.12-6. Continuation 3 is an illustration of a suggested format.

  6. Complete an IDRS allocation worksheet. See IRM 25.15.12.19.11. This section provides further information on IDRS Allocation Worksheets.

25.15.12.19.8  (11-09-2007)
Settlement Computations for IRC 6015(f) Understatement Cases

  1. Understatement Computations:

    1. IRC 6015(f) is considered only if relief is not available under IRC 6015(b).

    2. As IRC 6015(f) does not specify how to compute the amount of equitable relief, the Service has determined that the computation of liability for any deficiency will be a proportionate allocation consistent with the proportionate allocation used for IRC section 6015(c) cases, which is outlined in IRC section 6015(d).See IRM 25.15.12.1.

  2. Prepare the settlement computation.

  3. An IDRS allocation worksheet may need to be completed. See IRM 25.15.12.19.11.

25.15.12.19.9  (11-09-2007)
IRC 66(c) Equitable Relief Provisions

  1. The Service has issued guidance ( Rev. Proc. 2003-61) for individuals seeking equitable innocent spouse relief under IRC 66(c). Rev. Proc. 2003-61 supersedes Rev. Proc. 2000-15.

  2. Rev. Proc. 2003-61 is effective for requests for relief filed on or after November 1, 2003, or for requests for relief pending on November 1, 2003, for which no preliminary determination letter was issued as of that date.

  3. Relief requests filed where a preliminary determination was issued prior to November 1, 2003 are considered under Rev. Proc. 2000-15.

  4. Section 3201(b) of RRA 98 amended IRC 66(c) to add an equitable relief provision similar to IRC 6015(f).

  5. IRC 66(c) applies to married individuals with community property income who do not file joint returns, and provides certain conditions under which an individual may be relieved of separate return liability for items of community income attributable to the individual’s spouse.

  6. IRC 66(c) is discussed in detail in Compliance's Innocent Spouse Determinations, Student Guide, Course 8534-102, Catalog Number 85205X, available on the Electronic Publishing Catalog web site, and also on the Innocent Spouse web site. Refer to LEM 25.15.1.6 for the web site address.

25.15.12.19.10  (11-09-2007)
Understatement and Underpayment Allocation Worksheets

  1. Worksheets for Non-Mirrored Accounts:

    1. Excel Innocent Spouse spreadsheets for all IRC 6013(e) and IRC 6015 understatement and underpayment allocation computations when the accounts are not mirrored are available on the Appeals Tax Computation Specialist web site. Instructions on how to complete the spreadsheets are included in the spreadsheet files. The completed allocation worksheet must be included as part of the settlement computation.

    2. Additional instructions for completing the allocation worksheets are found at the Innocent Spouse web site. Refer to LEM 25.15.1.6 for the web site address.

    3. Detailed instructions on completing the allocation worksheets are found in Compliance's Innocent Spouse Determinations, Student Guide, Course 8534-102, Catalog Number 85205X (available on the Electronic Publishing Catalog web site, and also on the Innocent Spouse web site).

    4. It may be necessary to add additional lines to the Excel spreadsheets to include penalty, interest, and payment information, if applicable.

  2. Worksheets for Mirrored Accounts:

    1. Excel Innocent Spouse spreadsheets used for all IRC 6015 understatement and underpayment allocation computations when the accounts are mirrored are also available on the Appeals Tax Computation Specialist web site. The spreadsheet files include separate tabs for mirrored and non-mirrored allocation worksheets.

    2. The completed allocation worksheet must be included as part of the settlement computation.

    3. See Exhibit 25.15.12-10. Continuation 3 shows a completed worksheet for a case with a mirrored account.

25.15.12.19.11  (11-09-2007)
IDRS Allocation Worksheets

  1. IDRS allocation worksheets for non-mirrored accounts:

    1. The Innocent Spouse understatement and underpayment allocation worksheet files available on the Appeals Tax Computation Specialist web site include separate tabs for mirrored and non-mirrored IDRS Allocation worksheets.

    2. For non-mirrored cases, the IDRS allocation worksheet is only necessary when assessed taxes must be moved from one module to another, such as when some or all of the MFT 30 assessment must be transferred to MFT 31 accounts.

  2. IDRS allocation worksheets for mirrored accounts:

    1. The Innocent Spouse understatement and underpayment allocation worksheet files available on the Appeals Tax Computation Specialist web site include separate tabs for mirrored and non mirrored IDRS Allocation worksheets.

    2. See Exhibit 25.15.12-10. Continuation 3 is an example of a completed IDRS allocation worksheet for an account that was mirrored. (Always check the Appeals Tax Computation Specialist web site for the most recent version of this worksheet before working a case.)

  3. The IDRS allocation worksheet is not included as part of the settlement computation, but is left in the administrative file to assist APS in processing Innocent Spouse cases. Attach the IDRS allocation worksheet to the inside, left flap of the administrative file folder.

25.15.12.20  (11-09-2007)
Notice of Determination Under IRC 6015

  1. If agreement with the requesting spouse is not reached, and the request for relief is denied in whole or in part, prepare and issue a Notice of Determination letter.

  2. Verify the address using ENMOD or INOLES.

  3. Prepare a "Notice of Determination" letter, Letter 3288, "Notice of Determination Concerning Your Request for Relief from Joint and Several Liability under Section 6015" , for the requesting spouse. APS sends this letter by certified mail if the RS lives within the U.S. or by registered mail if the RS lives outside the U.S. The notice letter is available on APGolf. Generally the Appeals Officer prepares this letter, however, the Tax Computation Specialist may also prepare this letter, if requested. This letter is similar to a Notice of Deficiency since the taxpayer can petition Tax Court. Although the requesting spouse has the option to petition Tax Court, there is no "Last Day to Petition Tax Court" date on the notice of determination letter. The Tax Court has jurisdiction to review denials of relief under IRC 6015(b),IRC 6015(c), and IRC 6015(f) (but for IRC 6015(f) denials only if the tax years were not full-paid prior to December 20, 2006).

    Note:

    If relief for a portion of the liability is granted, attach computations to the notice of determination letter showing how the "Amount of Relief We Could Allow" as shown on the letter is computed. See IRM 25.15.12.23. Use the procedures discussed in this section on Notice of Deficiency under IRC 6015, for guidelines to prepare these computations.

  4. Prepare a different notice of determination letter, Letter 3289, "Notice of Determination Concerning Relief from Joint and Several Liability under Section 6015" , for the non-requesting spouse. It is sent by regular mail by APS on the same date the determination letter is issued to the RS. This letter does not include Tax Court language because there are no provisions in IRC 6015 to allow the non-requesting spouse to petition Tax Court. This notice letter is available on APGolf. Generally the Appeals Officer prepares this letter, however, the Tax Computation Specialist may also prepare this letter, if requested.

  5. If both spouses request relief, prepare a notice of determination Letter 3288 for each spouse. Each letter is addressed only to the spouse that requested relief.

  6. The Appeals Officer must provide the information needed to update ISTS on the Innocent Spouse Customized Form 5402, i.e., the ADP Code, Code Section and Reason Code.

25.15.12.20.1  (11-09-2007)
APS Notice of Determination Procedures

  1. When issuing an innocent spouse notice of determination, APS uses procedures similar to those for issuing a notice of deficiency:

    1. Verify the address using ENMOD or INOLES.

    2. Send the letter by certified mail if taxpayer lives within the United States. Send the letter by registered mail if taxpayer lives outside the United States.

    3. Send the appropriate copies of the letter and schedules to the representative, if there is one.

    4. Put a copy of the letter and schedules in the administrative file, and keep a copy for the office file.

    5. Enter the taxpayer's name, mailing address as it appears on the envelope, and the mailing date in the mailing record.

      Reminder:

      APS mails Letter 3289 to the NRS by regular mail by on the same date the determination letter is sent by certified mail to the RS.

  2. Update ISTS:

    1. Update the Innocent Spouse Tracking System (ISTS) to stage 16, Appeals determination issued, using the date the letter was mailed as the stage date and input the required ADP Code, Code Section and Reason Code information provided by the Appeals Officer on the Customized Form 5402.

  3. Update the following fields on ACDS on both the RS and Joint records:

    • SNTYPE = 090A

    • SNDATE = date letter is mailed. The letter MUST be mailed on the date on the letter

    • On the return level screen, SND = Y

  4. Suspend the administrative file until the RS petitions or default the case at the end of the suspense period. The suspense period is 120 days. This is equal to the 90 days the RS has to petition plus an additional 30 days to allow sufficient time for Appeals to receive notification of the filing of a Tax Court petition.

    Note:

    The RS has 90 days to petition. There is no provision for extra days to file a petition if the RS lives outside the United States.

25.15.12.21  (11-09-2007)
Rescinding/Issuing a Second Final Determination Letter

  1. The Service cannot rescind a final determination letter issued under IRC 6015 because this section does not have a statutory provision comparable to IRC 6212(d), specifically providing for the rescission of a notice of deficiency.

  2. However, in very limited circumstances, the Service may issue a second final determination letter for the same request. Refer to LEM 25.15.1.4 for information on circumstances allowing issuance of a second final determination letter.

  3. If a Tax Court petition is filed in response to the final determination letter, no second final determination letter can be issued.

  4. If Appeals issues a second final determination letter, the Appeals Team Manager is authorized to sign.

25.15.12.22  (11-09-2007)
Notice of Deficiency Under IRC 6013(e)

  1. This section discusses the Notice of Deficiency procedures for "Innocent Spouses" under IRC 6013(e).

  2. In RRA ’98, Congress expanded the law with respect to relief from joint and several liability. IRC 6013(e) was repealed for liabilities arising after July 22, 1998, and for any liability arising on or before July 22, 1998, but remaining unpaid as of such date. IRC 6015 was enacted instead. Any ongoing IRC 6013(e) cases with unpaid liabilities are now considered for relief under IRC 6015. IRC 6013(e) only applies to the extent of any payment made toward an understatement on or before July 22, 1998.

  3. IRC 6013(e) provides that an "innocent spouse" may be relieved of part or all of the liability on a joint return in certain situations.

  4. When it is determined IRC 6013(e) applies to a case under examination and no deficiency is proposed against the spouses jointly, but only to the culpable spouse, the Notice of Deficiency is directed to the culpable spouse only.

    1. The Notice of Deficiency letter, Form 4089-A, Notice of Deficiency Statement, and the waivers, Form 4089, Notice of Deficiency - Waiver, and Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment include only the name and SSN of the culpable spouse.

    2. Include the following paragraph on Form 4089 or Form 4089-A:
       
      "The provisions of IRC 6013(e) are applicable to (Name of innocent spouse) for the taxable year ___, and accordingly (he) (she) is not liable for the deficiencies as set forth herein."
       

    3. Since the computations work from the joint return, Form 5278 must include the names of both spouses. It is recommended the language shown above at (b) be shown at the bottom of these computation forms.

    4. Include the names of both spouses on the explanations of adjustments and any computation schedules attached to Form 5278.

  5. If it is proposed to hold both spouses liable, but not to the same extent, with respect to the total deficiency, prepare the computation of tax using the allocation method discussed in IRC 6015(d).See Exhibit 25.15.12-3. See Exhibit 25.15.12-4. , See Exhibit 25.15.12-5. Use the setup in these exhibits when preparing the Form 5278 and allocation worksheet to include with the Notice of Deficiency. Since former IRC 6013(e) does not specify how to compute the relief of liability, the IRS has determined the method of allocating a deficiency under IRC 6015(c), discussed in IRC 6015(d), is used for computations required for any remaining IRC 6013(e) cases.

  6. Show the total deficiencies on the joint Notice of Deficiency letter and Form 4089 or Form 4089-A as usual. Below the deficiencies show a breakdown of the limited joint liability of the requesting spouse. Include this breakdown on both the Letter 894(cg) and Form 4089 or Form 4089-A (or a continuation sheet attached to those forms.) See example below. (For purposes of illustration, in this example it was determined that the requesting spouse’s joint liability was limited to $2,000.00 and the related IRC 6662(a) penalty of $400.00 for 1996, and that the requesting spouse was not liable for the IRC 6662(a) penalty for 1997.)

    Deficiency
        Penalties
    Tax Year Ended Tax IRC 6662(a)
    December 31, 1996 $2,223.00 $ 445.00
    December 31, 1997 $5,100.00 $ 1,020.00
         
    The joint liability of (Name of requesting spouse) is limited to the following deficiencies:
        Penalties
    Tax Year Ended Tax IRC 6662(a)
    December 31, 1996 $2,000.00 $ 400.00
    December 31, 1997 $5,100.00 $ 0.00

  7. Include one of the following paragraphs on Form 4089 and Form 4089-A, below the deficiencies:

    1. Relief allowed under IRC 6013(e):

      "Section 6013(e) of the Internal Revenue Code applies to (Name of requesting spouse), and (her)/(his) joint tax liability for the increase in tax is limited."

    2. Relief not allowed under IRC 6013(e):

      "Section 6013(e) of the Internal Revenue Code does not relieve either spouse of the joint liability."

  8. IRC 6013(e) and IRC 6015 may apply to different portions of the liability for the same tax period. IRC 6013(e) applies to payments made prior to July 22, 1998, while IRC 6015 applies to unpaid balances as of that date.

25.15.12.23  (11-09-2007)
Notice of Deficiency Under IRC 6015

  1. This section discusses the Notice of Deficiency procedures for "Innocent Spouses" under IRC 6015.

  2. Under IRC 6015 there are three kinds of relief from joint and several liability: innocent spouse relief under IRC 6015(b), allocation of liability under IRC 6015(c), and equitable relief under IRC 6015(f).

    1. Under IRC 6015, each spouse may be jointly and severally liable for all or a portion of the understatement, and/or individually liable for the portion attributable or allocable to him/her.

    2. IRM 25.15, Relief from Joint and Several Liability, provides technical and procedural guidance for innocent spouse cases.

  3. When a Notice of Deficiency must be issued when one or both spouses have requested relief from liability under IRC 6015, prepare the standard Notice of Deficiency Letter 894(cg).

  4. Follow normal procedures to verify the last known address. Follow procedures outlined in IRM 8.17.4 and related subsections for addressing and mailing the Notice of Deficiency.

  5. If Form 8857, Request for Innocent Spouse Relief, was filed and has a new name or address for the RS, the new name or address cannot be disclosed to the NRS. Read IRM 8.17.4.27.3 for information on how to address and mail the Notice of Deficiency letter, statement, and schedules in these cases.

  6. Household employment taxes included on Form 1040 are subject to normal employment tax procedures. Relief under IRC 6015 is not available as it applies only to income taxes under Subtitle A of the IRC. Any adjustment to these taxes cannot be included in a Notice of Deficiency. Assess these taxes prior to the issuance of the Notice of Deficiency.

  7. Check NMF, as well as MFT 30 and MFT 31 to secure information relating to joint accounts in innocent spouse cases. See IRM 25.15.12.17. See IRM 25.15.12.18. These sections explain MFT 31 accounts and how to identify them on Master File.

  8. If appropriate, prepare an IDRS allocation worksheet and include it in the administrative case file. See IRM 25.15.12.19.11. This section provides further information on IDRS Allocation Worksheets.

25.15.12.23.1  (11-09-2007)
Requesting Spouse Granted Total Relief From Liability

  1. Do not issue a Notice of Deficiency to a spouse who has been relieved from a determined joint liability under the provisions of IRC 6015. When it is determined the RS has no liability under the provisions of IRC 6015., the Notice of Deficiency is only sent to the NRS.

  2. The Notice of Deficiency letter, Form 4089-A, Notice of Deficiency Statement, and the waiver Form 4089, Notice of Deficiency - Waiver, and Form 870 include only the name and SSN of the NRS.

  3. Include the following paragraph on Form 4089 or Form 4089-A:

    "The provisions of IRC 6015 [insert applicable subsection; for example,(b), (c), or (f)] of the Internal Revenue Code are applicable to (Name of requesting spouse) for the taxable year ___, and accordingly (he) /(she) is not liable for the deficiencies as set forth herein."

  4. Since the tax computations start from the joint return, include the names of both spouses on Form 5278. It is recommended the language shown above in paragraph (3) be included at the bottom of Form 5278.

  5. The explanations of adjustment and any computational schedules attached to Form 5278 also include the names of both spouses.

25.15.12.23.2  (11-09-2007)
Requesting Spouse Granted Partial Relief From Liability

  1. When a deficiency remains attributable to both spouses, but each is liable for a different amount, show the total deficiency on the joint Notice of Deficiency letter and Form 4089 or Form 4089-A as usual.

  2. Below the deficiency show a breakdown of the limited joint liability of the requesting spouse. Include this breakdown on both the Letter 894(cg) and Forms 4089 or 4089-A (or a continuation sheet attached to those forms.) See example below.

    Note:

    For purposes of illustration, in this example it was determined that the requesting spouse’s joint liability was limited to $2,500.00 and the related IRC 6662(a) penalty of $500.00 for 2000, and that the requesting spouse was not liable for the IRC 6662(a) penalty for 2001.)

    Example:


    Deficiency
        Penalties
    Tax Year Ended Tax IRC 6662(a)
    December 31, 2000 $ 4,161.00 $ 832.00
    December 31, 2001 $ 5,000.00 $ 1,000.00
    The joint liability of (Name of requesting spouse) is limited to the following deficiencies, pursuant to IRC 6015 [insert applicable subsection; for example (b), (c), or (f)]:
        Penalties
    Tax Year Ended Tax IRC 6662(a)
    December 31, 2000 $ 2,500.00 $ 500.00
    December 31, 2001 $ 5,000.00 $ 0.00

    1. See Exhibit 25.15.12-11. This exhibit provides an example of a Letter 894(cg), and Exhibit 25.15.12-11 (Cont. 1) is an example of a completed Form 4089-A, modified as shown above.

  3. Also include the following paragraph on Form 4089, Form 4089-A, or a continuation sheet attached to these forms. List this paragraph below the deficiency amount.

    1. Use this paragraph when partial relief under IRC 6015 is allowed to the requesting spouse:

      "(Name of requesting spouse), SSN _____, requested IRC section 6015 [insert applicable subsection; for example (b), (c), or (f)] relief which has been partially granted. (Name of requesting spouse) is jointly and severally liable for $____ , and has been relieved of the liability for $____ . See attached understatement allocation worksheet for computations."

  4. If both spouses request relief, a paragraph must be included for each spouse.

    1. If both spouses are granted partial relief, use the following paragraph for each spouse.

      "(Name of requesting spouse), SSN _____, requested IRC 6015 [insert applicable subsection; for example (b), (c), or (f)] relief which has been partially granted. (Name of requesting spouse) is jointly and severally liable for $____ , and has been relieved of the liability for $____ . (Name of requesting spouse) is individually liable for $ _____See attached understatement allocation worksheet for computations."

    2. If one requesting spouse is granted partial relief, and the other requesting spouse is denied relief, use the paragraph shown in (3)(a) for the spouse granted partial relief, and use the paragraph below for the spouse denied relief:

      "(Name of requesting spouse), SSN _____, requested IRC 6015 [insert applicable subsection; for example (b), (c), or (f)] relief which has been denied. (Name of requesting spouse) is jointly and severally liable for $____ and individually liable for $ _____. See attached understatement allocation worksheet for computations."

    3. See Exhibit 25.15.12-11. Exhibit 25.15.12-11 (Cont. 2) provides an example of these paragraphs on a continuation sheet to Form 4089-A.

  5. Prepare Form 5278 as follows:

    1. Prepare Form 5278 and include all adjustments made to the return.

    2. Use an allocation worksheet to compute the allocation of the deficiency shown on Form 5278. (See details in paragraph (6), below.) Footnote Form 5278 to show the allocation of the deficiency.

    3. For completed Form 5278 examples:
      See Exhibit 25.15.12-3 (Cont. 2);
      See Exhibit 25.15.12-4 (Cont. 2); and
      See Exhibit 25.15.12-5 (Cont. 2).

  6. Complete the Innocent Spouse allocation worksheet as outlined below:

    1. If the deficiency is allocated between the spouses, complete an allocation worksheet and include it as part of the Notice of Deficiency. An Innocent Spouse allocation spreadsheet that can be used for these computations is available on the Appeals Tax Computation Specialist web site.

    2. IRC 6015(b) - If relief under IRC 6015(b) is granted, the computation of the tax is prepared using the allocation method discussed in IRC 6015(d).

    3. IRC 6015(c) - If either or both taxpayers request allocation of the deficiency under IRC 6015(c), and relief is granted, prepare the computation of the tax using the allocation method discussed in IRC 6015(d).

    4. IRC 6015(f) - IRC 6015(f) is considered only if relief is not available under IRC 6015(b) or IRC 6015(c), For computations of IRC 6015(f) relief in deficiency cases, the method of allocation discussed in IRC 6015(d). is used to allocate the understatement.

    5. The IRC 6015(d). allocation method is discussed in Compliance's Innocent Spouse Determinations, Student Guide, Course 8534-102, Catalog Number 85205X.

    6. Additional instructions on completing the allocation worksheets are found at the Innocent Spouse web site.

    7. See IRM 25.15.12.19.10. This section contains information about completing the Innocent Spouse Understatement and Underpayment Allocation Worksheets.

    8. For examples of completed allocation understatement worksheets:
      See Exhibit 25.15.12-3. (Cont. 3);
      See Exhibit 25.15.12-4. (Cont. 3); and
      See Exhibit 25.15.12-5. (Cont. 3) .

25.15.12.23.3  (11-09-2007)
Requesting Spouse Not Relieved of Liability

  1. The Notice Letter:

    1. When innocent spouse relief is requested, but not allowed to either spouse, (so both spouses are liable for the entire deficiency), prepare the Letter 894(cg) as usual.

    2. See IRM 25.15.12.23.2.This format is not included on the letter.

  2. Form 4089/Form 4089-A:

    1. Form 4089 or Form 4089-A is prepared as usual, except as noted below in paragraphs (2)(b) and (2)(c).

    2. Include the following paragraph on Form 4089, Form 4089-A, or a continuation sheet attached to these forms to indicate IRC 6015 relief was requested and denied:

      "(Name of requesting spouse), SSN _____, requested IRC 6015 [insert applicable subsection; for example (b), (c), or (f)] relief which has been denied. (Name of requesting spouse) is jointly and severally liable for the entire deficiency for taxable year(s) ____."

    3. If both spouses requested relief, include a separate paragraph for each spouse denying the IRC 6015 relief.

    4. Include the paragraph(s) below the deficiencies.

25.15.12.23.4  (11-09-2007)
Fraud Penalty Under IRC 6663(c)

  1. IRC 6663(c) provides that in the case of a joint return, the fraud penalty does not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse. (For returns with a due date after 12/31/88 and before 1/01/90 (determined without regard to extensions), the code section used to be IRC 6653(b)(3).)

  2. When it is determined a spouse is not liable for the fraud penalty due to the provisions of IRC 6663(c), prepare two computations within one Notice of Deficiency statement directed to the joint taxpayers.

    Note:

    IRC 6015 does not provide relief for penalties and interest separate from the tax.

    1. Prepare a separate Form 5278 for each spouse showing the adjustments, deficiency and penalties applicable to each.

    2. Any other computational method that clearly shows the computation of the fraud penalty for each taxpayer may be used.

  3. Show the total deficiency on the joint Notice of Deficiency letter and Form 4089 or Form 4089-A as usual. Below the deficiency show a breakdown of the requesting spouse's remaining liability. Include this breakdown on both the Letter 894(cg) and Form 4089 or Form 4089-A (or a continuation sheet attached to those forms.)

    Example:

    Deficiency
        Penalties
    Tax Year Ended Tax IRC 6663(a)
    December 31, 2001 $ 2,223.00 $ 1,667.00
    December 31, 2002 $ 5,100.00 $ 3,825.00
         
    Liability of ______limited to the following deficiencies:
     
        Penalties
    Tax Year Ended Tax IRC 6663(a)
    December 31, 2001 $ 2,223.00 $ 1,667.00 
    December 31, 2002 $ 5,100.00 $ 0.00

  4. Add an additional statement to the fraud penalty language regarding the applicability of IRC 6663(c) in cases where it is an issue. Use one of the following paragraphs on Form 4089, Form 4089-A, or a continuation sheet attached to these forms.

    1. Section 6663(c) of the Internal Revenue Code applies to ____, and (his)(her) liability for the fraud penalty is $____, OR

    2. Section 6663(c) of the Internal Revenue Code does not relieve either spouse of liability for the fraud penalty.

25.15.12.24  (11-09-2007)
Form 8857 Filed During the 90/150-Day Period

  1. In cases where Appeals issued the notice of deficiency for a joint return, and during the 90/150-day period a spouse mails a Form 8857 to Appeals requesting Relief from Joint and Several Liability, APS returns the case to the assigned Appeals Officer. The AO notifies the taxpayer who filed the request for relief, either by letter or telephone, that the period to file a petition with the United States Tax Court is not extended by the filing of the request for relief from joint and several liability, and if they choose to file a Tax Court petition to include the Innocent Spouse issue in the petition. Take this action as soon as possible and return the administrative file to APS as soon as the notification is made. The AO documents the notification in the Case Activity Record.

    Note:

    APS monitors the case while it is in the hands of the AO, either by using LACTION and LTODATE or PEAs.

  2. If no petition is filed by either taxpayer in response to the notice of deficiency, APS will:

    1. Assess the deficiency reflected on the notice.

    2. Close the case on ACDS and AIMS, if it is controlled on AIMS.

    3. Recharge the administrative file and forward it and the Form 8857 to CCISO for consideration of the relief issue.

      Note:

      The RS and/or NRS have appeal rights depending on CCISO's determination.

  3. If a petition is filed in response to the notice of deficiency, APS will:

    1. Close the case to Counsel for trial preparation with closing code 43 on ACDS.

    2. Send a copy of the Form 8857 to CCISO for consideration of the relief issue, and provide CCISO with the name and address of the Counsel attorney, if known, or the Counsel office, if the name of the attorney is not known. Retain a copy of the transmittal in the administrative file for Counsel's information.

    3. Forward the administrative file to Counsel for Answer/Trial Preparation.

25.15.12.25  (11-09-2007)
Docketed Innocent Spouse Cases

  1. The RS may petition the Tax Court to determine the appropriate relief available if such petition is filed during the 90-day period beginning on the day after the final determination for relief under IRC 6015 is mailed or, if the IRS has not issued a determination after 6 months of filing the request. See IRC 6015(e)(1)(A).

  2. A docketed Innocent Spouse case may also result when the taxpayer raises the Innocent Spouse issue in a petition to the Tax Court filed in response to a Notice of Deficiency or CDP Notice of Determination.

25.15.12.25.1  (11-09-2007)
Petition Filed in Response to Final Determination Letter

  1. A Tax Court petition may be filed in response to a Final Determination Letter. The Final Determination Letter is issued by either SB/SE's Technical Services function, CCISO, or Appeals.

25.15.12.25.2  (11-09-2007)
Innocent Spouse Issue Raised in Petition

  1. If IRC 6015 relief is raised for the first time in a docketed case, treat it in the same manner as any other affirmative issue raised in a docketed case. Jurisdiction is retained by either Appeals or Counsel, and a request is sent to CCISO to consider the request for relief.

  2. When a request for relief under IRC 6015(b)IRC 6015(c)IRC 6015(f) is raised for the first time in a petition to the Tax Court and the taxpayer simultaneously files a Form 8857 with the Service, the petition to the court takes precedence, since the court has jurisdiction over the tax year(s) at issue.

  3. Counsel (or Appeals under Rev. Proc. 87–24) has functional jurisdiction over the matter and handles the case and request for relief, and either settles or litigates the issue on its merits, as appropriate. Counsel and Appeals may ask CCISO or Field Examination for assistance in developing a previously unaudited issue, while retaining jurisdiction.

  4. In the event a Form 8857 is filed simultaneously with the filing of the petition or subsequent to the filing of the petition while Counsel (or Appeals) has functional jurisdiction over the matter, the receiving function forwards the form to the appropriate Associate Area Counsel handling the litigation as determined from TL CATS or the Docket List. (The module typically shows a litigation freeze code TC 520).

25.15.12.25.3  (11-09-2007)
NRS Notice and Intervention

  1. In response to IRC 6015(e)(4), the Tax Court wrote Tax Court Rule 325, Notice and Intervention.

  2. Counsel must file a Notice of Filing of Petition and Right to Intervene (Notice of Filing) in all cases involving IRC 6015 (including deficiency cases, stand-alone cases, and collection due process cases) on the NRS on or before 60 days from the date of service of a petition raising IRC 6015 relief, unless the NRS is already a party to the case. This Notice of Filing advises the NRS of the right to intervene by filing a notice of intervention with the Court, no later than 60 days after the date the Notice of Filing was served on the NRS. In addition, Counsel must simultaneously file with the Court a copy of the Notice of filing with an attached certificate of Service. Please note that if each spouse files a separate petition from a notice of deficiency and one spouse raises relief under IRC 6015, or only one spouse files a petition, then the Notice of Filing must be sent to the other spouse because that spouse is not a party to the IRC 6015 case. If each spouse raises IRC 6015 relief in separate petitions, then a Notice of Filing must be sent to each spouse regarding the right to intervene in the other spouse's case. See IRM 35.2.2.12 for additional guidance.

  3. If the NRS desires to intervene, the NRS files a notice of intervention with the Court no later than 60 days after service of the Notice of Filing of the petition by Counsel, unless the Court directs otherwise.

  4. If the NRS intervenes, Counsel provides Appeals with a copy of the notice of intervention. Counsel and Appeals must coordinate with each other regarding the NRS's right to intervene and/or intervention.

25.15.12.25.4  (11-09-2007)
Preparation of Settlement Documents

  1. Appeals is responsible for preparing the necessary computations for docketed cases settled by either Appeals or Counsel.

  2. Counsel generally prepares the settlement documents for docketed Innocent Spouse cases. Appeals generally mails the settlement documents to be executed by the taxpayer or counsel of record.

  3. Where unusual or complex circumstances exist, proposed settlements of regular docketed cases are reviewed by the Appeals Area Director or Appeals Team Manager before the settlement documents are forwarded to the taxpayer for signing.

25.15.12.26  (11-09-2007)
APS Closing Procedures

  1. This section contains instructions for the processing of Innocent Spouse cases after the request is determined to be disallowed, partially disallowed, nonqualifying, or allowed in full and the modules are not mirrored. For instructions on processing mirrored modules see IRM 25.15.15.

  2. Allocation of liability could apply to either allowed or partially allowed requests. A partial allowance occurs when the taxpayer does not qualify for full relief but is entitled to some, but not full, relief. Partial allowance does not include a situation where a taxpayer is eligible for full relief under IRC 6015(c), but the taxpayer does not qualify for a refund of payments/offsets made against the liability because refunds are not allowed under IRC 6015(c). This determination is made by the Appeals Officer.

  3. Assessments against only one spouse of a joint return were made

    1. Prior to January, 2001, on the separate Non-Master File (NMF) MFT 20 account.

      Note:

      If NMF was used to assess one spouse, NMF is used to assess the other spouse.

    2. Effective January 2001, assessments against only one spouse of a joint return were made on the separate Master File MFT 31 account.

25.15.12.26.1  (11-09-2007)
APS Routing for Closing

  1. Covington APS closes and processes Innocent Spouse cases in Appeals. This includes closing ACDS, processing account adjustments, and updating ISTS. Covington APS processes these types of cases when:

    1. Form 870-IS agreement is received,

    2. Taxpayer sends in a request to withdraw innocent spouse consideration,

    3. Request for relief is unprocessable or does not meet the basic requirements,

    4. There is an invalid joint election,

    5. The final determination letter defaults,

    6. Tax Court enters a decision.

  2. If a final determination letter was issued, and by the 121st day, no notification is received that the RS has petitioned the Tax Court, APS purges within seven (7) calendar days and closes the case as a defaulted determination letter.

  3. If a petition with the Tax Court is filed in response to the final determination letter, the issuing APS office updates ACDS and sends the administrative file to Counsel for trial preparation no later than two days after notification is received the case is docketed.

25.15.12.26.2  (11-09-2007)
Preliminary Closing Procedures

  1. Upon receipt of an administrative file for closing, APS assigns the Innocent Spouse case to an APS employee on PEAs. That employee is responsible for closing ACDS, processing account adjustments, and update of appropriate systems including IDRS and ISTS.

  2. First, the assigned employee reviews the closing instructions. The instructions must address:

    1. Transaction codes: which transactions are to be transferred to MFT 31 or state the Entire Account must be transferred. Entire Account means the TC 150 and all subsequent transactions must be transferred to MFT 31.

    2. Payments: which payments must be transferred to MFT 31 and which payments must be refunded. Allocation of any payments and credits must be identified. If this information is not available on the closing instructions, reject back to the AO.
      See IRM 25.15.9.16, Credit and Payment Disposition, for additional information.
      See IRM 25.15.9.1.17 for instructions on credit transfers.
      See IRM 25.15.9.1.18 for instructions on manual refunds.

    3. Freeze codes: -L- (AIMS), -Z, and Z- (all are Criminal Investigation (CI) freezes). The AO must have contacted CI and documented the conversation or the case must be rejected to the AO.

  3. The assigned employee reviews the file to:

    1. Verify the appropriate closing documents are in the administrative file, i.e, agreement form, a final determination letter, or an entered decision. Verify any current Power of Attorney(s) (POA(s)).

    2. Verify Transaction Code (TC) 971, Action Code (AC) 065 is posted correctly. See IRM 25.15.2.4.2 for TC 971 AC 065 instructions.

    3. Verify TC 130 is posted correctly on Command Code (CC) ENMOD. See IRM 25.15.2.4.3 for additional information on TC 130 and TC 131.

      Note:

      If TC 130 is incorrect and must be re-input, input TC 131. Then input new TC 130 using a posting delay code of 1 cycle.

    4. Check for freeze codes (-A, -L, -Y, -Z, Z-) which could change prior closing instructions. See IRM 25.15.9.1(5).

    5. Identify and review the account for transactions involving levies, liens, OICs, IAs, missing payments, and collection statute expiration dates. Any problems with these transactions must be coordinated with the AO for resolution.

    6. Identify whether any payments and credits must be allocated. If this information is not available on the closing instructions, reject back to the AO.

    7. Resolve account problems. (See IRM 25.15.9.1(3) and IRM 25.15.9.1.1 for guidance in resolving account problems.)

  4. Refer to paragraph in IRM 25.15.9.1(10) for a number of additional IRM resources to use when processing Innocent Spouse cases.

  5. Refer to IRM 25.15.7.11 for instructions on Form 12412, Operations Assistance Request.

25.15.12.26.3  (11-09-2007)
Innocent Spouse ACDS Closing

  1. Close the key case account on ACDS following general closing instructions and follow the additional instructions described below:

    • CLOSINGCD — Enter the appropriate closing code for the innocent spouse determination which includes 03, 05, 08, 10, 11, 12, 17 or 21 (See general closing instructions for closing code description)

    • Paycode — enter appropriate pay code for each tax period on the key case account

    • Revised Tax Def/-OA — See Figure 25.15.12-3.

    • Revised Pen Def/-OA — See Figure 25.15.12-3.

    • APPEALS AMTCLM — See Figure 25.15.12-3.

    • APPEALS AMTDIS — See Figure 25.15.12-3.

      Figure 25.15.12-3

      Revised Dollars

        Pre-assessment Post-assessment
      Revised Tax Enter the revised deficiency of tax as shown on the appeals report Leave blank
      Revised Penalty Enter the revised penalty amount, if any, as shown on the appeals report Leave blank
      APPEALS AMTCLM Add the ISTS stage 17 allowed amount plus the ISTS stage 18 disallowed amount and input the total amount claimed per ISTS Add the ISTS stage 17 allowed amount plus the ISTS stage 18 disallowed amount and input the total amount claimed per ISTS
      APPEALS AMTDIS Enter the disallowed amount, if any, as entered in ISTS stage 18 Enter the disallowed amount, if any, as entered in ISTS stage 18

  2. Close the non-key cases on ACDS:

    1. CLOSINGCD - 45

    2. Paycode - enter 7, not applicable, on each tax period.

    3. Revised Tax Def/-OA - Leave blank.

    4. APPEALS AMTCLM - Leave blank.

    5. APPEALS AMTDIS - Leave blank.

25.15.12.26.4  (11-09-2007)
Unprocessable Requests for Relief and Requests Not Meeting Basic Requirements (No Consideration)

  1. When the AO determines the request for relief is unprocessable or does not meet the basic requirements, APS will:

    1. Input TC 290 .00, Blocking Series (BS) 00 (with original return) or 05 (without original return) or 99 (if tax period is more than 10 years earlier and the original return has been destroyed), Reason code (RC) 97, Source Documents (SD) Y, Source Code (SC) 2, and Hold Code (HC) 3. If relief is nonqualifying for multiple years, input one TC 290 on the latest nonqualifying year. See IRM 21.5.2 for additional instructions on posting the TC 290. See IRM 25.15.9.1.25 for case assembly instructions for forwarding the case to Files.

    2. If TC 971 AC 065 is on the account, reverse it by inputting TC 972 AC 065. See IRM 25.15.2.4.2 and IRM 25.15.9.1.23 for additional information.

    3. Reverse TC 130, if appropriate. See IRM 25.15.9.1.

    4. Update ISTS to Stage 29 including the appropriate activity code and Stage 30, Activity NOACCTP. See IRM 25.15.14 for information on the ISTS.

    5. Send the case to Files.

25.15.12.26.5  (11-09-2007)
Invalid Joint Election

  1. When it is determined the secondary taxpayer is not liable because of an invalid joint election, APS will:

    1. Correct the entity to remove the secondary taxpayer's name, social security number, and change the filing status to 1, 3, 4, or 6 as applicable. To remove the secondary taxpayer's social security number (SSN), input 000-00-0001 in the SPOUSES-SSN field on ENREQ if filing status is changed to 6. Filing Status 6 applies to forgery cases only.

    2. Process any adjustment, if needed, such as a credit transfer or manual refund.

    3. Input TC 290 .00, BS 00 (with original return) or 05 (without original return) or 99 (if tax period is more than 10 years earlier and the original return has been destroyed, RC 03/97 (unless the AO specifies another reason code), SC 2, and HC 3.

    4. If TC 971 AC 065 is on the account, reverse it by inputting TC 972 AC 065. See IRM 25.15.2.4.2 and IRM 25.15.9.1.23 for additional information.

    5. Reverse TC 130, if appropriate. See IRM 25.15.9.1.5.

    6. Update ISTS to Stage 29, Activity INVA and Stage 30, Activity ACCTCORR.

    7. Close the IDRS control base.

    8. Send case to Files.

  2. When it is determined the primary taxpayer is not liable because of an invalid joint election, APS will:

    1. Update ISTS to Stage 29 with activity "INVA" and then to Stage 27.

    2. Request a transfer to Master File Tax (MFT) Code 31 for the secondary spouse.

    3. Transfer any credits and/or issue refunds as instructed. IRM 25.15.9.1.17 and IRM 25.15.9.1.18 for additional instructions.

    4. Prepare Form 12810, Transfer Request Checklist. See IRM 25.15.9.1.22 for detailed instructions.

    5. Update ISTS to Stage 28.

    6. Document PEAs activity record with actions taken and suspense the case on PEAs.

  3. Refunds due a taxpayer for payments made with respect to a tax liability stemming from invalid joint elections are available if the claim was received within 3 years of the date the return was filed, or 2 years from the payment date, whichever is later, and a married filing separate (MFS) return was filed, or the taxpayer was not required to file a return.

25.15.12.26.6  (11-09-2007)
Innocent Spouse Relief Allowed in Full

  1. Instructions are provided for closing a fully allowed innocent spouse case when the tax was assessed on the joint account (either from the tax on the return not being paid or from an additional assessment).

  2. Claims are considered fully allowed when the RS is granted full relief of the entire balance due and/or is entitled to receive refunds requested. This includes cases where the RS is granted full relief under IRC 6015(c) but is not eligible to receive a refund because refunds are not allowed under IRC 6015(c).

  3. APS will:

    1. Review the case and account information to make sure the TC 971 AC 065, TC 971 AC 104 and TC 130 is posted correctly whether the case is partially allowed or fully allowed. If not, make the appropriate changes. See IRM 25.15.2.4.2 and IRM 25.15.9.1.23 for additional instructions.

      Note:

      If TC 971 AC 104 has been input:
      with an incorrect date - do not make a correction to correct the date. A programming problem has been identified and an attempt to re-input the TC 971 AC 104 will unpost. If this does occur and the MFT 31 account was established with the first input, the transfer can still be done.
      in error - a TC 972 AC 104 must be input on both MFT 30 and MFT 31 accounts to reverse the TC 971 AC 104.

    2. Input TC 290 .00, BS 00 or 05, RC 98, SD Y , SC 2, and HC 3 on the primary master file account, for each year the request was allowed; see IRM 21.6.7 for additional instructions on posting the TC 290. See IRM 25.15.9.1.25 for case file assembly instructions.

    3. On the joint account, use command code REQ77/FRM77 to input TC 971, AC 104, XREF TIN = non-requesting spouse TIN (this will create an MFT 31 account).

      Note:

      If a TC 971 AC 104 has been input and an account has been established on MFT 31 in error, a TC 972 AC 104 must be input on both MFT 30 and MFT 31 accounts to reverse the TC 971 AC 104.

    4. Research to determine if the TC 130 is still needed on the account. Do not remove if there are other Innocent Spouse years open. Check ISTS to ensure all Innocent Spouse years are in Stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 DLN are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the TC 971 AC 065.

      Note:

      Do not remove if a "2" is in the ninth digit of the TC 130 DLN. This means the TC 130 was input by NMF and they will reverse it when required

    5. Prepare and process Form 12810, Transfer Request/Checksheet List, to the campus (this will move the liability to the nonrequesting spouse's account).

    6. After the liability has been transferred, if a TC 470 is on the account, use command code REQ77/FRM77 to input TC 472 to start collection activity.

    7. Mail the appropriate closing letters.

    8. Update ISTS. See IRM 25.15.14 and the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    9. Close ACDS.

    10. Send case to Files. See IRM 25.15.9.1.25 for case file assembly.

  4. Do not reverse the IDRS transaction codes until the TC 402 posts.

25.15.12.26.7  (11-09-2007)
Innocent Spouse Relief Denied in Full

  1. Instructions are provided for closing a fully denied innocent spouse case when the tax was assessed on the joint account (either from the tax on the return not being paid or from an additional assessment).

  2. APS will:

    1. Adjust the account(s) as required.

    2. Input TC 290 .00, BS 98 or 99, SD Y, RC 97, SC 2, and HC 3 on the primary master file account, for each year the request was disallowed; see IRM 21.6.7 for additional instructions on posting the TC 290. See IRM 25.15.9.1.25 for case file assembly.

    3. Input TC 972 AC 065. See IRM 25.15.2.4.2 and IRM 25.15.9.1.23 for additional instructions.

    4. Research to determine if the TC 130 is still needed on the account. Do not remove if there are other Innocent Spouse years open. Check ISTS to ensure all Innocent Spouse years are in Stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 DLN are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the TC 971 AC 065.

      Note:

      Do not remove if a "2" is in the ninth digit of the TC 130 DLN. This means the TC 130 was input by NMF and they will reverse it when required.

    5. Update ISTS. See the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    6. Send case to Files.

25.15.12.26.8  (11-09-2007)
Innocent Spouse Relief Partially Allowed

  1. A claim is considered to be a partial if the RS is granted relief so MFT 30 does not have a balance due, but RS is not entitled to a refund of any overpayment that results from relief being granted because of IRC 6511 or Rev. Proc. 2003–61, 2003–2 C.B. 296, Section 4.04

    Note:

    This is not the case when a RS is entitled to full relief under IRC 6015(c) but any refund is barred because refunds are not allowed under IRC 6015(c). This is because when "partial" relief is allowed, relief may be considered under IRC 6015(f) for the amount disallowed. This is NOT the case when the only thing disallowed is a refund because refunds are not allowed under IRC 6015(c). See Treas. Reg. § 1.6015-4(b).


    Any remaining liability is transferred to the NRS and the MFT 30 is in zero balance after transfer. There is another type of partial described in the next paragraph.

  2. A claim is considered to be a true partial if any part of a tax assessment (including EITC reversal, withholding credit, accuracy-related penalty, etc.) is allocated between MFT 30 and MFT 31 and results in a balance due on MFT 30, after transfer.

  3. APS will:

    1. Input TC 971 AC 104 to establish MFT 31 for the NRS.

    2. Input TC 290 .00, BS 98 or 99, SD Y, RC 97, SC 2, and HC 3 on the primary master file account, for each year the request was disallowed; see IRM 21.6.7 for additional instructions on posting the TC 290.

    3. Input TC 972 AC 065. See IRM 25.15.2.4.2 and IRM 25.15.9.1.23 for additional instructions.

    4. Research to determine if the TC 130 is still needed on the account. Do not remove if there are other Innocent Spouse years open. Check ISTS to ensure all Innocent Spouse years are in Stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 DLN are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the TC 971 AC 065.

      Note:

      Do not remove if a "2" is in the ninth digit of the TC 130 DLN. This means the TC 130 was input by NMF and they will reverse it when required.

    5. Mail the appropriate closing letters.

    6. Update ISTS. See IRM 25.15.14 and the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    7. Close ACDS.

    8. Send case to Files. See IRM 25.15.9.1.25 for case file assembly.

25.15.12.26.9  (11-09-2007)
Pre-Assessment Cases

  1. The following instructions are provided for when the assessment has NOT been made and innocent spouse is allowed in part or in full.

  2. If Innocent Spouse relief is granted on a pre-assessment case, APS processes the case using normal procedures for making an assessment to MFT 31. Pay particular attention to the other information section of the Form 5278, and Form 5402, for instructions on how the tax is to be assessed to the taxpayers. Examples of situations that can occur:

    • An assessment against the NRS only.

    • An assessment against the NRS and an assessment against the joint account.

    • An assessment against the NRS and an assessment against the RS.

    • An assessment against the NRS and an overassessment against the RS.

25.15.12.26.10  (11-09-2007)
AIMS Closings

  1. If Appeals denies relief and no account adjustment is needed, and the case is on AIMS, APS prepares/inputs a Form 5403, TC 300 $0.00 for the joint account when:

    1. the determination letter defaults,

    2. the taxpayer sends in a request to withdraw innocent spouse consideration, or

    3. the Tax Court determines that innocent spouse does not apply.

  2. If an account adjustment is needed, and the case is on AIMS, APS will:

    1. Process Form 3177 using REQ77/FRM77 to release the L– innocent spouse freeze on the account with TC 972 ( See IRM 25.15.12.26.12. This section provides procedures for determining the correct transaction date).

    2. Use command code REQ77/FRM77 to input TC 971, AC 104, XREF-TIN = TIN of non-requesting spouse (this will establish the MFT 31 account).

    3. Process Form 5403 for each account with AMCLSS.

    4. Process Form 5403 with AMCLSA after MFT 31 assessment posts.

    5. After the MFT 31 assessment posts, use command code REQ77/FRM77 to input TC 472 on the MFT 31 account (this will resume collection).

    6. Mail the appropriate closing letters.

    7. Update ISTS. See IRM 25.15.14 and the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    8. Close ACDS.

    9. Send case to Files. See IRM 25.15.9.1.25 for case file assembly.

  3. If the case is on AIMS, close the case through AIMS using Form 5403. Prepare the first Form 5403 for joint account. Prepare a second Form 5403 for the non-requesting spouse: If both spouse's are granted innocent spouse relief, prepare a third Form 5403 for the other spouse.

  4. Additional Form 5403 instructions are provided in the tables below:

    Form 5403 Instructions
    Joint Account:
    Check AMCLSA At the top of Form 5403
    TIN TIN of joint account
    MFT 30
    Item 12 TC 300 = amount for which both spouse's are liable
    Item 14 Enter statute date
    Item 800 or Item 801 Amount Appeals Results/Counsel Results
    Item A Note: "TPW (or TPH) is innocent spouse – Transfer liability of $__ to MFT 31 account."
    Nonrequesting spouse:
    Check AMCLSS At the top of Form 5403
    TIN TIN of joint account
    MFT 30
    Item 12 TC 300 = tax to be assessed against this spouse only
    Item 14 Enter statute date
    Item 800 or Item 801 Amount Appeals Results/Counsel Results
    Item 56 Check PA if nonrequesting spouse is the primary SSN OR check SA if nonrequesting spouse is the secondary SSN. Checking PA or SA will determine where the assessment is made.
    Other spouse (if both spouse's are granted relief):
    Check AMCLSS At the top of Form 5403
    TIN TIN of joint account
    MFT 30
    Item 12 TC 300 = tax to be assessed against this spouse
    Item 14 Enter statute date
    Item 800 or Item 801 Amount Appeals Results/Counsel Results
    Item 56 Check PA if nonrequesting spouse is the primary SSN OR check SA if nonrequesting spouse is the secondary SSN. Checking PA or SA will determine where the assessment is made.

    Form 5403 Disposal Codes for Innocent Spouse Cases
    Description Disposal Code
    Allowed in full 01
    Disallowed in full - Agreement or no response to 30-day letter 02
    Defaulted on final determination letter 10
    Petitioned 11

25.15.12.26.11  (11-09-2007)
NMF Account Processing

  1. Accounts were assessed on NMF prior to January 2001. The following instructions are provided for tax assessed on NMF and innocent spouse relief is allowed for all or part of the tax.

  2. Prepare Form 5403 to abate the tax/penalty on the innocent spouse:

    1. TIN = innocent spouse TIN with an "N"

    2. MFT = 20

    3. TC 301 = amount of tax to be abated

    4. Note in ITEM A:"TPW (or TPH) is deemed to be innocent spouse for this liability"

  3. Attach a copy of the NMF transcript to the Form 5403.

  4. Prepare a Form 1331, Notice of Adjustment, and forward it to the campus with the Form 5403 to process the abatement.

  5. Mail the appropriate closing letter to the requesting spouse. Mail a separate letter to the non-requesting spouse.

  6. Process Form 3177 using REQ77/FRM77 to release the L– innocent spouse freeze on the account with TC 972. See IRM 25.15.12.26.12. This section provides information on determining the correct transaction date.

  7. Do not input a reversal of IDRS transaction codes until the TC 402 posts.

  8. Update ISTS.

  9. Close ACDS.

25.15.12.26.12  (11-09-2007)
Inputting TC 972

  1. See IRM 25.15.2.4.2 for TC 971 AC 065 instructions.

  2. When a Form 8857, Request for Innocent Spouse Relief, is received, a TC 971 AC 065 is input in the account to represent the beginning of the CSED suspension period. A TC 972 AC 065 needs to be input before the AIMS closing. The TC 972 AC 065 represents the ending date of the CSED suspension period.

  3. The Collection statute is suspended on innocent spouse cases when relief is requested under:

    1. IRC 6015(b)

    2. IRC 6015(c)

    3. IRC 6015(f) - for claims filed before, on or after December 20, 2006 relating to liabilities paid in full before December 20, 2006.

    Caution:

    Although the Service is not prohibited from collecting in these three situations, a policy decision was made to suspend collection, but only as to the requesting spouse, in these instances, unless the expiration of the collection statute is imminent. See IRM 25.15.1.7.

    Note:

    For purposes of determining whether the collection statute is suspended, generally the election on the Form 8857 controls. For example, if a taxpayer filed a Form 8857 on 01/01/2006, requesting relief for an understatement under IRC 6015(b) and IRC 6015(c), but the only liability is an underpayment, then the collection statute is suspended from 01/01/2006. Form 8857 was revised June 2007. On the revised form, taxpayers do not request relief under specific subsections of IRC 6015 but instead request relief under IRC 6015 generally. Thus, the statute is suspended from the date the Form 8857 is filed, unless it is clear from the form or accompanying attachments that the taxpayer is only requesting relief under IRC 6015(f) and the liability at issue was paid in full before December 20, 2006.

  4. The Collection statute is NOT suspended on innocent spouse cases under:

    1. IRC 6013(e);

    2. IRC 66(c); and

    3. IRC 6015(f) - for claims filed before, on or after December 20, 2006 relating to liabilities paid in full before December 20, 2006.

      Note:

      A policy decision was made to suspend collection, but only as to the requesting spouse, in these instances, unless the expiration of the collection statute is imminent. See IRM 25.15.1.7. For purposes of determining whether the collection statute is suspended, the election on the Form 8857 controls. For example, if a taxpayer filed a Form 8857 on 01/01/2006, requesting relief for an understatement under IRC 6015(b) and IRC 6015(c), but the only liability is an underpayment, then the collection statute is suspended from 01/01/2006.

  5. The TC 972 AC 065 transaction date for IRC 6015(b), IRC 6015(c) and IRC 6015(f) is -

    1. Notice of Final Determination date + 150 days (for cases for which the RS didn't petition the Tax Court)

    2. Tax Court Decision + 150 days (for cases in which the RS did petition the Tax Court)

      Note:

      See IRM 25.15.2.4.2(7) for further information.

    See IRM 25.15.12.26.12.

  6. The TC 972 AC 065 transaction date for IRC 6013(e)IRC 66(c)IRC 6015(f) is -

    1. Same transaction date used for TC 971 AC 065.

    See IRM 25.15.12.26.12.

  7. See IRM 25.15.2.4.2 for more information on the tolling of the Collection Statute Expiration Date (CSED) during the pendency of innocent spouse cases.

  8. Follow special closing procedures for IRC 6015(f) only claims pending on December 20, 2006 for liabilities not paid in full on that date. For these cases, the collection statute is only suspended from December 20, 2006 and not the date the claim was filed, as noted above in IRM 25.15.12.26.12(3)(c). In such cases input TC 971 AC 065 with the transaction date of the date the Form 8857 was filed when opening the case, as usual; however, when closing the case, use the following procedures:

    1. Input TC 972 AC 065 with the transaction date of the date the Form 8857 was filed.

    2. Input a new TC 971 AC 065 with a posting delay code of 1 and with the transaction date of December 20, 2006.

    3. Input TC 972 AC 065 with the appropriate transaction date as described in paragraph (5) above. If inputting this transaction at the same time as you input the TC 971 AC 065 you must use a posting delay code of 1.

25.15.12.26.13  (11-09-2007)
Form 12810 Procedures

  1. Use Form 12810 to request transfer of part or all of a tax assessment to MFT 31 or NMF 20. See IRM 25.15.9.1.22, Form 12810 - Special Considerations. See IRM 25.15.9-5 and IRC 25.15.9-6 for detailed instructions on line item entries.

  2. When the TC 400 and TC 402 post on the account and the completed Form 12810 is received from the Credit and Account Transfer Unit, the case is ready for closing. Follow the instructions contained in IRM 25.15.9.1.22 Form 12810 - Special Considerations, IRM 25.15.9.1.22.1, Routing Form 12810 to Account Transfer Team, and IRM 25.15.9.1.23, Final Purge/Transfer Complete.

25.15.12.26.14  (11-09-2007)
IRC 6015(f) Collection Statute Expiration Date (CSED) Concerns

  1. This section provides guidance on processing IRC 6015(f) cases full paid prior to December 20, 2006 and that:

    • have a CSED that expires within 10 months, or

    • have an expired CSED.

  2. If a module is going to be mirrored there only needs to be one month left on the CSED. If a module is going to be transferred to NMF there must be at least 10 months remaining on the CSED.

  3. Refer to IRM 25.15.9.1.9 for guidance on determining the last CSED. Check CC IMFOLT for the last CSED. CC IMFOLT will show the next, last and first CSED to expire. CC TXMOD only shows the current CSED.

  4. See IRM 25.15.9.1.9 for procedures to follow if the CSED has expired; when the CSED will expire in 10 months or less and the module will not be mirrored; and, if the CSED on TXMOD is blank

  5. See IRM 25.15.7.11.15.3.1 if the CSED expired on the underpayment but not the understatement.

  6. Also see IRM 25.15.7.11.15.3 if the CSED will expire in 10 months or less.

25.15.12.26.14.1  (11-09-2007)
CSED Will Expire in 10 Months

  1. If the CSED expires in less than 10 months, and the account will not be mirrored, before the CSED expires, the AO will:

    1. Check CC IMFOLT to verify the last CSED.

    2. Request input by Covington APS of ISTS Stage 26 Activity CSED and comment CSED to expire within 10 months.

    3. Input CARATS action code SU-PI to place the case in suspense.

    4. Hold the case in suspense and wait for the CSED to expire and TC 608 to post to the account.

    5. Follow-up after the CSED expires.

25.15.12.26.14.2  (11-09-2007)
CSED Expired

  1. After the CSED expires, the AO will:

    1. Review the transcript of account for any new activity. If no new activity and the CSED has expired and TC 608 has posted, prepare Closing Letter 913. Check the "Other" box and state the following or similar statement, "Your request for relief cannot be processed because your collection statute date has expired. No further action will be taken on your account."

    2. Update the ACDS statute code to "EXCSED" to indicate an expired CSED. Verify that the STATDATE is equal to the expired Collection Statute Date (CSED).

    3. Input CARATS action code SU-TO to take the case out of suspense.

    4. Close the case to APS. APS will follow the procedures outlined below. See IRM 25.15.12.26.14.2.

  2. After the CSED expires and the TC 608 posts, if the RS is not entitled to any refunds, APS will close the case as follows:

    1. Reverse TC 971 AC 065 and TC 971 AC 104.

    2. Reverse the TC 130 if appropriate. For TC 130 information, see IRM 25.15.9.1.5.

    3. Input TC 290 .00, BS 00 (original return) 05 (no original return), or 99 ( if tax period is more than 10 years and the original return has been destroyed), RC 98 (fully accepted) or 97 & 98 (partially accepted), HC 3, SC 2, SD, Remarks: IS Claim, CSED expired.

    4. Update ISTS:

      ISTS Stage Input:
      Stage 16 Reason Code = C
      Stage 17 Relief Amount Allowed = $0
      Stage 30 Activity NOACCTPcomment TC 608/CSED

    5. Prepare the closed office file. Include copies of:

      Closed Office File Contents:
      Customized Form 5402 and Appeals Case Memorandum
      Form 8857
      Determination letter, if any
      Audit statement, if any
      Current transcript of account indicating the expired CSED or a copy of the CSED computation
      Any other pertinent documents relative to the disposition of the case

    6. Close the work unit on ACDS.

    7. Follow these additional guidelines to update the related cases on ACDS:

      ACDS Field: Input:
      Closing Code 45
      Paycode 7
      REVSDTAX $0

    8. Follow these additional guidelines to update the key case on ACDS:

      ACDS Field: Input:
      Closing Code 03 - Agreed — use if no determination letter was issued; or
      05 - Defaulted Determination Letter — use if a determination letter was issued.
      STATCODE EXCSED - Verify EXCSED was input to identify this as an expired CSED case.
      STATDATE MM/DD/YYYY - Verify the STATDATE is equal to the expired CSED and update it if needed.
      Paycode 7
      REVSDTAX $0

    9. Refile the case at the Campus under the latest DLN using Form 3210. See IRM 25.15.9.1.25 for case file assembly instructions.

25.15.12.26.15  (11-09-2007)
Special Processing Instructions

  1. IRM 25.15.9 contains processing instructions for cases needing special processing consideration. This list is not all inclusive.

    • Barred Statute One Signature (BSOS) — See IRM 25.15.9.1.4, Barred Statute One Signature (BSOS), for the procedures APS should follow in these cases.

    • Bankruptcy — See IRM 25.15.9.1.10, Bankruptcy -V/-W Freeze.

    • Offer in Compromise — See IRM 25.15.9.1.11, Offer in Compromise (OIC) -Y Freeze.

    • Decedents — See IRM 25.15.9.1.12, Decedents.

    • Penalty Considerations — See IRM 25.15.9.1.13, Penalty Considerations.

    • Interest Considerations — See IRM 25.15.9.1.14, Interest Consideration, and IRM 25.15.9.1.15, Non-restricting TC 340.

    • Liability Application — See IRM 25.15.9.1.19.

    • Processing Fully Allowed and Partially Allowed (Payment Only) Requests — See IRM 25.15.9.1.20.

    • Processing Partially Allowed Requests - True Partials — See IRM 25.15.9.1.21.

    • Accounts Already on Non-Master File — See IRM 25.15.9.2.5.

    • Manual Refunds — See IRM 25.15.9.2.6.

25.15.12.27  (11-09-2007)
Validation Reports

  1. Validation reports may be generated from either the ACDS AMATCH sub-system or ISTS.

  2. APS is responsible for working the validation reports.

  3. The ACDS AMATCH sub-system matches ACDS information against data received from the Innocent Spouse Tracking System (ISTS) to ensure cases are received and in the proper status on ISTS. There are four ACDS/ISTS AMATCH report listings available:

    1. On ISTS Not on ACDS Open

    2. On ACDS Open Not on ISTS

    3. ISTS Stage 07 List

    4. Mismatched Data

  4. Validation reports generated from ISTS may be periodically sent to Appeals to be worked. IRM 25.15.14.5, Validating the Inventory Validation Listing, contains the procedures to follow when an ISTS inventory listing is received that must be validated.

Exhibit 25.15.12-1  (11-09-2007)
Innocent Spouse — ACDS Statute Date/Code Table

NON-DOCKETED
  Joint Return
(Key Case)		 Requesting Spouse
(Related Case)		 Nonrequesting Spouse
(Related Case)
PRE-ASSESSMENT
Proposed Deficiency      
6015(b), (c) & (f) STATDATE Assessment Statute Date Assessment Statute Date Assessment Statute Date
  STATCODE Blank Blank Blank
POST-ASSESSMENT
Both Spouses Assessed on Mirrored MFT 31 Accounts  
Both Spouses Assessed Jointly on MFT 30 Account  
6015(b) & (c), & 6015(f) CSED suspended STATDATE Blank Blank Blank
STATCODE N/A SUSP ASESD
6015(f) CSED not suspended STATDATE N/A Collection Statute Blank
STATCODE N/A CSED ASESD
6015(b) & (c), & 6015(f) CSED suspended STATDATE Blank Blank Blank
STATCODE ASESD SUSP ASESD
6015(f) CSED not suspended STATDATE Collection Statute N/A N/A
STATCODE CSED N/A N/A
DOCKETED
  Joint Return
(Key Case)		 Requesting Spouse
(Related Case)		 Nonrequesting Spouse
(Related Case)
PRE-ASSESSMENT
Both Spouses Petition Notice of Deficiency – Same Docket Number  
6015(b), (c) & (f) STATDATE Blank Blank Blank
STATCODE DOCKT DOCKT DOCKT
Both Spouses Petition Notice of Deficiency – Separate Docket Numbers  
6015(b), (c) & (f) STATDATE Blank Blank (See Note, below) Blank (See Note, below)
STATCODE DOCKT DOCKT (See Note, below) Blank (See Note, below)
 

Note:

Each separate Docket Number must be controlled as a key case record on ACDS.
RS Petitions Notice of Deficiency – NRS is a Non-petitioning Spouse (NPS) Not Yet Assessed  
6015(b),(c) & (f) STATDATE Blank Blank Assessment Statute Date
STATCODE DOCKT DOCKT Blank
RS Petitions Notice of Deficiency – NRS is a NPS - Assessed per NPS procedures  
6015(b),(c) & (f) STATDATE Blank Blank Statute Date = 23C plus 8 years)
STATCODE DOCKT DOCKT ASESD
POST-ASSESSMENT
RS Petitions Determination Letter – Both Spouses Assessed on Mirrored MFT 31 Accounts  
6015(b) & (c), & 6015(f) CSED suspended STATDATE Blank Blank Blank
STATCODE DOCKT ASESD ASESD
6015(f) CSED not suspended STATDATE Blank Collection Statute Blank
STATCODE DOCKT CSED ASESD
RS Petitions Determination Letter – Both Spouses Assessed Jointly on MFT 30 Account  
6015(b) & (c), & 6015(f) CSED suspended STATDATE Blank Blank Blank
STATCODE DOCKT ASESD ASESD
6015(f) CSED not suspended STATDATE Blank Collection Statute Blank
STATCODE DOCKT CSED ASESD
Separate Return Work Unit (For Married Taxpayers Who Filed Separate Returns in Community Property States)
NONDOCKETED
    Requesting Spouse
(Key Case)		 Nonrequesting Spouse
(Related Case)
66(c) STATDATE Enter the separate assessment statute date, if not assessed or Blank, if assessed Enter the separate assessment statute date, if not assessed or Blank, if assessed
STATCODE Blank, if not assessed, or SUSP, if assessed N/A
DOCKETED
66(c) STATDATE Blank Blank
STATCODE DOCKT N/A

Exhibit 25.15.12-2  (11-09-2007)
Innocent Spouse — IRC Section 6013(e)

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-2 Form 3610 — Innocent Spouse — IRC 6013(e)

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-2 (Cont.) Form 5278 — Innocent Spouse — IRC 6013(e)

Exhibit 25.15.12-3  (11-09-2007)
Innocent Spouse — Allocation of a Deficiency Computation under IRC 6015(c) — Both Spouses Request Relief; No Joint and Several Liability

Facts for Exhibit 25.15.12-3
Jim and Jan Teal filed a joint return for 1996. They were divorced in January 1998. There was a deficiency attributable to $70,000.00 of unreported self-employment income for Jim and the disallowance of $30,000.00 of a miscellaneous itemized deduction for Jan. The $30,000.00 itemized deduction is the amount of the disallowed deduction without regard to the limitation based on two percent of the adjusted gross income, and is the amount to be used in the allocation of deficiency computations. (The amount of miscellaneous itemized deductions claimed after deducting two percent of adjusted gross income was $27,606.00, and this is the adjustment shown on Form 5278.) The joint deficiency of $36,400.00 consists of $6,400.00 of self employment tax attributable to Jim and $30,000.00 of regular income tax. Both Jim and Jan request relief under IRC 6015(c). Neither had knowledge of the other’s deficiency when they signed the return. Since all the self-employment tax adjustment was allocated to Jim, the self-employment tax deduction adjustment of ($3,200.00) has also been allocated to Jim on the allocation worksheet.
Jim is liable for $27,100.00 of the deficiency and Jan is liable for $9,300.00 of the deficiency.
The $27,100.00 will be assessed to Jim’s individual MFT 31 account, and $9,300.00 will be assessed to Jan’s individual MFT 31 account. There will be no assessment to the joint Master File account (MFT 30).
Exhibit 25.15.12-3 (Cont. 1), (Cont. 2) and (Cont. 3) show the completed Form 3610, Form 5278, and allocation worksheet for this example.

Note:

The discussion above assumes that the deficiency has not yet been assessed. If the total deficiency had been assessed on the joint Master File account, then Jim and Jan’s individual liability amounts of $27,100.00 and $9,300.00 would need to be transferred to their separate MFT 31 accounts. This would leave zero assessed on the joint Master File account.

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-3 (Cont. 1) Form 3610 — Innocent Spouse — Allocation of a Deficiency Computation under IRC 6015(c) — Both Spouses Request Relief; No Joint and Several Liability

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-3 (Cont. 3) Understatement Allocation Worksheet — Innocent Spouse — Allocation of a Deficiency Computation under IRC 6015(c) — Both Spouses Request Relief; No Joint and Several Liability

Exhibit 25.15.12-4  (11-09-2007)
Innocent Spouse — Allocation of a Deficiency Computation under IRC 6015(c) — Only One Spouse Requests Relief; Joint Allocation

Facts for Exhibit 25.15.12-4
 
John and Mary Smith file a joint return for 1996. They are now divorced. Upon examination, it was discovered that Mary did not report $19,000.00 of gambling winnings and John did not report $5,000.00 for a prize he won as the best dancer in a dance contest. The total deficiency was $4,200.00. John was aware that Mary had won a jackpot of $10,000.00 playing the slots, but he had no knowledge of the other $9,000.00. John has filed a request for relief under IRC 6015(c). Exhibit 25.15.12-4 (Cont. 1), (Cont. 2), and (Cont. 3) show the completed Form 3610, 5278, and allocation worksheet for this example.
 
Completion of Allocation Worksheet, shown in Exhibit 25.15.12-4 (Cont. 3)
 
1) Column A shows the total tax liability and total adjustments to allocate.
 
2) Column B is used to show the adjustments allocated individually to the husband. Since Mary did not request relief, John has no individual liability. Therefore, Column B is not used in this instance.
 
3) Column C is used to show the adjustments allocated individually to the wife. Mary is individually liable for the tax on $9,000 of her gambling winnings.
 
4) Column D is used to show the adjustments to the spouses’ joint and several liabilities. Since John has no individual liability, his liability is equal to the joint liability. John is liable for the tax on $5,000 in prizes and $10,000 of Mary’s gambling winnings he knew about.
 
Discussion
 
1) John is jointly and severally liable for $2,625.00. The amount of $2,625.00 will be assessed on the joint Master File account (MFT 30).
 
2) Mary’s total income tax liability is $4,200.00. Since Mary did not file a request for relief, she is individually liable for $1,575.00 (which will be assessed to Mary’s individual MFT 31 account) and jointly liable for $2,625.00.
 
$1,575.00 (Mary’s sole liability) + $2,625.00 (joint and several liability) = $4,200.00 (total liability)
 

Note:

The discussion above assumes that the deficiency has not yet been assessed. If the total deficiency had been assessed on the joint Master File account, then Mary’s sole liability amount of $1,575.00 would need to be transferred to her individual MFT 31 account. This would leave the joint and several liability amount of $2,625.00 assessed on the joint Master File account.

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-5  (11-09-2007)
Innocent Spouse — IRC 6015(c) — Both Spouses Request Relief — Joint and Several Liability

Facts for Exhibit 25.15.12-5
Using the same facts as in Exhibit 25.15.12-4, if both John and Mary requested relief, Exhibit 25.15.12-5 (Cont. 1), (Cont. 2) and (Cont. 3) show the completed Form 3610, Form 5278, and allocation worksheet for this example. In this example, the accuracy related penalty applies for both taxpayers.
Discussion
Since John was aware of $10,000.00 of Mary’s gambling income, he is jointly and severally liable for the deficiency on that income. Remember: When both spouses request relief, any portion that both spouses are responsible for should not be included in Columns B or C of the allocation worksheet. It is to be included in Column D.
John is solely liable for $875.00 and the related penalty of $175.00. This will be assessed to his individual MFT 31 account using his SSN only.
Mary is solely liable for $1,575.00 and the related penalty of 315.00. This will be assessed to her individual MFT 31 account using her SSN only.
John and Mary are jointly and severally liable for $1,750.00 and the related penalty of $350.00. This will be assessed on the joint Master File account (MFT 30).

Note:

The discussion above assumes that the deficiency has not yet been assessed. If the total deficiency had been assessed on the joint Master File account, then John and Mary’s individual liability amounts would need to be transferred to their individual MFT 31 accounts, leaving the joint liability amount of $1,750.00 tax and $350.00 penalty assessed on the joint Master File account.

This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-6  (11-09-2007)
Innocent Spouse — Allocation of Unpaid Liabilities Under IRC 6015(f) — Only One Spouse Requests Relief

Facts for Exhibit 25.15.12-6
 
1) George and Betty Doe filed a joint return for 1996. The return was filed 2/14/98, and a balance due remains on the account. Failure to file, failure to pay, and estimated tax penalties were computed and assessed using a computation date of 2/14/98. Betty Doe requested and was granted equitable relief under IRC 6015(f). Betty Doe will receive relief to the extent the unpaid liability as reported on the return is attributable to George, the non-requesting spouse.
 
2) The Schedule C income of $10,000.00 is attributable to Betty Doe. Self-employment tax of $1,413.00 is shown on the return, and the related self-employment tax deduction of $707.00. Betty Doe has $5,000.00 in wage income. George Doe has $45,000.00 in wage income.
 
3) $8,500.00 Schedule A expenses were deducted: $6,000.00 home mortgage interest, $2,186.00 real estate taxes, and $314.00 miscellaneous business expenses. The interest and taxes were paid jointly. The miscellaneous business expenses were incurred and paid by Betty Doe.
 
4) Two exemptions were claimed — a total of $5,100.00.
 
5) Taxable income per the return is $45,693.00, and tax based on $45,693.00 is $7,576.00. Self-employment tax is $1,413.00, so total tax liability per the return is $8,989.00.
 
6) George Doe had $1,800.00 withheld from his wages, and Betty Doe had $200.00 withheld from her wages. A payment of $1,000.00 (paid out of joint funds) was made on 4/15/97, with the request for extension of time (until 8/15/97) to file the return. No additional extension was filed. Therefore, when the return was filed on 2/14/98, a failure to file penalty of 1,347.52 was assessed for 5 months. A failure to pay penalty of $299.45 was assessed (computed to 2/14/98), and an estimated tax penalty of $360.16.
 
Underpayment Worksheet General Discussion
 
1) See Exhibit 25.15.12-6 (Cont. 2) for an example of the underpayment allocation worksheet.
 
2) Column B represents the individual liability for the husband. It is used when the wife is the requesting spouse, and qualifies for relief. Items attributable to the husband are entered in this column. Assessments are made to the husband’s individual master file account 31.
 
3) Column C represents the individual liability for the wife. It is used when the husband is the requesting spouse, and qualifies for relief. Items attributable to the wife are entered in this column. Assessments are made to the wife’s individual master file account 31.
 
4) Column D represents the master file account. This is the joint and several liability account. Items attributable to the requesting spouse are entered in this column.
a) If both the husband and the wife request, and qualify for relief, columns B and C only are used. Column B reflects items attributable to the husband and column C items attributable to the wife. Nothing would be entered in column D.
Discussion of Exhibit 25.15.12-6 (Cont. 2) and (Cont. 3)
 
1) The tax liability before credits and additional tax is allocated based on the allocation ratio, which is a ratio of taxable income of the spouse to the total taxable income.
 
2) Payments that can be attributed solely to one spouse are allocated to that spouse. Therefore, the withholding amounts are allocated separately to each spouse. The $1,000.00 payment made with the extension was made jointly, so is allocated equally to each spouse.
 
3) The IRC 6651(a)(2) penalty amount was not computed for the IRC 6015(f) allocation computation, since the amount assessed was only computed to 2/14/98, and this penalty will be recomputed as of the date of payment. If the maximum IRC 6651(a)(2) penalty has been assessed, then this penalty can be recomputed and included in the allocation computations.
 
4) The non-requesting spouse is fully liable for the entire underpayment. Therefore, in this example the income and expense items attributable to Betty Doe (the requesting spouse) are not shown in column (C) of the allocation worksheet. Betty will have no individual liability to be assessed on her individual MFT 31 account. She is only liable for the joint liability amounts shown in column (D). If only one spouse requests relief, all of the income, deduction, and payment item of the requesting spouse are shown in column (D) of the allocation worksheet. These amounts remain assessed on the joint Master File account (MFT 30).
 
5) The amounts shown in column (B) are the individual liability of the nonrequesting spouse, George Doe. These amounts will be transferred to his individual MFT 31 account. The liability that is transferred to his MFT 31 account will be subtracted from the liability on the joint Master File account. The remaining liability on the joint Master File account will be the joint and several liability for both spouses. Therefore, George Doe remains liable for the entire underpayment.
This image is too large to be displayed in the current screen. Please click the link to view the image.
Betty Doe and George Doe Schedule 2
 
Computation of Penalties
  George's
Separate
Liability		 Joint
Liability
Failure to File Penalty, IRC 6651(a)(1)    
Allocated tax liability 6360.05 2628.95
Less withholding (1,800.00) (200.00)
Less allocated payments (500.00) (500.00)
Net underpayment 4,060.05 1,928.95
Rate 0.225 0.225
Failure to file penalty * 913.51 434.01
 
* George Doe is liable for the entire penalty amount of $1,347.52. This computation shows that Betty Doe is only liable for $434.01 of the $1,347.52 total amount. $434.01 is the joint and several liability, and $913.51 is George's separate liability for the penalty.
 
Failure to Pay Penalty, IRC 6651(a)(2)
The IRC section 6651(a)(2) penalty cannot be computed at this time. A penalty of .5 percent will be imposed for each month from the due date of the return, up to a maximum of 25 percent, based on the amount of unpaid tax.
 
Estimated Tax Penalty, IRC 6654
See Schedule 3 for computation. The penalty was computed using withholding of $1,800.00 for George Doe and withholding of $200.00 for Betty Doe.
 

Note:

The Schedule 3 referred to above could be any computation schedule such as provided by RGS, the Excel penalty worksheets on the TCS web site, etc.
Schedule 3 is not part of this exhibit. RGS or other computational schedules can also be used to show the penalty computations instead of the format shown here.

Exhibit 25.15.12-7  (11-09-2007)
Form 3610 Modified for IRC Section 6015(f) Underpayment

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-8  (11-09-2007)
Form 3610 — One Spouse Requested Relief — Tax Assessed

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-9  (11-09-2007)
Form 3610 for both Understatement and Underpayment; One Spouse Requested Relief

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-10  (11-09-2007)
Innocent Spouse — Both Spouses Request Relief; Joint and Several Liability — Mirrored Account

Facts for Exhibit 25.15.12-10
This exhibit uses the same facts as in Exhibit 25.15.12-5, but the deficiencies have been assessed and the accounts mirrored. Exhibit 25.15.12-10 (Cont. 1), (Cont. 2), (Cont. 3) (Cont. 4) and (Cont. 5) show the completed Form 3610’s, understatement allocation worksheet and IDRS allocation worksheets for this example.
 
Discussion
1) Tax of $4,200.00 and an accuracy related penalty of $840.00 was assessed on mirrored MFT 31 accounts for both the husband and the wife.
 
2) Separate Form 3610’s were prepared for the husband and wife, to show the amounts each was liable for and how the amounts were computed.
 
3) A Form 5278 is not necessary because the tax has already been computed and assessed, and there will be no change to the assessment.
 
4) The understatement allocation worksheet in this exhibit is the same as Exhibit 25.15.12-5 (Cont. 3), except the column headings have been changed due to the accounts being mirrored.
 
5) The IDRS allocation worksheets in this exhibit show the decrease in tax and penalty to be made to the mirrored MFT 31 account for each spouse, to reflect the determination made in Appeals.
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-10 (Cont. 1) Form 3610 for Husband — Mirrored Account

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-10 (Cont. 2) Form 3610 for Wife — Mirrored Account

This image is too large to be displayed in the current screen. Please click the link to view the image.

APS Processing Worksheet for Husband - Mirrored Accounts

TAX PERIOD - 1996
TPH John Smith TPH SSN XXX-XX-XXXX
TPW Mary Smith TPW SSN XXX-XX-XXXX
HUSBAND'S ACCOUNT
(A) (B) (C) (D) (E) (F) (G) (H)
MF
TC		 DATE AMOUNT
ASSESSED
ON
MIRRORED
MFT 31
ACCOUNT		 TPH'S
JOINT
LIABILITY		 TPH'S
SEPARATE
LIABILITY		 TOTAL
OF
COLUMNS
(D) & (E)		 (F) LESS (C)
EQUALS (DECREASE)
INCREASE
TO MFT 31		 REMAINING
IN MFT 31
MIRRORED
ACCOUNT
TAXES
150 04/15/97 3,110.00 3,110.00   3,110.00 0.00 3,110.00
290 06/15/04 4,200.00 1750.00 875.00 2,625.00 (1,575.00) 2,625.00
PENALTIES & FEES
240 06/15/04 840.00 350.00 175.00 525.00 (315.00) 525.00
PAYMENTS & CREDITS
806 04/15/97 3,110.00 3,110.00   3,110.00 0.00 3,110.00

Note:

Add rows as needed.

APS Processing Worksheet for Wife - Mirrored Accounts

TAX PERIOD - 1996
TPH John Smith TPH SSN XXX-XX-XXXX
TPW Mary Smith TPW SSN XXX-XX-XXXX
WIFE'S ACCOUNT
(A) (B) (C) (D) (E) (F) (G) (H)
MF
TC		 DATE AMOUNT
ASSESSED
ON
MIRRORED
MFT 31
ACCOUNT		 TPW'S
JOINT
LIABILITY		 TPW'S
SEPARATE
LIABILITY		 TOTAL
OF
COLUMNS
(D) & (E)		 (F) LESS (C)
EQUALS (DECREASE)
INCREASE
TO MFT 31		 REMAINING
IN MFT 31
MIRRORED
ACCOUNT
TAXES
150 04/15/97 3,110.00 3,110.00   3,110.00 0.00 3,110.00
290 06/15/04 4,200.00 1,750.00 1,575.00 3.325.00 (875.00) 3,325.00
PENALTIES & FEES
240 06/15/04 840.00 350.00 315.00 665.00 (175.00) 665.00
PAYMENTS & CREDITS
806 04/15/97 3,110.00 3,110.00   3,110.00 0.00 3,110.00

Note:

Add rows as needed.

Exhibit 25.15.12-11  (11-09-2007)
Notice of Deficiency - IRC 6015

Department of the Treasury
Internal Revenue Service		 Letter Number: 894(cg)-c

Appeals Office
(Address) 		Person to Contact:
Appeals Officer’s name
Employee ID
Number Tel: (XXX) XXX-XXXX
Fax: (XXX) XXX-XXXX

Date: 		Refer Reply to:
AP:XX:XX:XX
  In Re:
Income Tax
JOHN SMITH AND MARY SMITH
200 MAIN STREET 		Form Number:
1040
ANYTOWN CA 90000-1111 SSN/EIN Number:
XXX-XX-XXXX
  Last Day to File a Petition with the United States Tax Court:
 
 
Certified Mail
Notice of Deficiency
Tax Year(s) Ended Tax Penalties or Additions to Tax
    IRC 6662(a)    
December 31, 1995 $4,161.00 $832.00    
December 31, 1996 $5,000.00 $1,000.00    
The joint liability of Mary Smith is limited to the following deficiencies, pursuant to IRC 6015(b):
         
Tax Year(s) Ended Tax Penalties or Additions to Tax
    IRC 6662(a)    
December 31, 1995 $2,500.00 $500.00    
December 31, 1996 $5,000.00 $0.00    
         
Dear Mr. and Mrs. Smith:
 
We have determined that you owe additional tax or other amounts, or both, for the tax year(s) identified above. This letter is your NOTICE OF DEFICIENCY as required by law. The enclosed statement shows how we figured the deficiency.
 
If you want to contest this determination in court before making any payment, you have 90 days from the date of this letter (150 days if this letter is addressed to you outside of the United States) to file a petition with the United States (U.S.) Tax Court for a redetermination of the deficiency. You can get a copy of the rules for filing a petition and a petition form you can use by writing to the address below:
 
  United States Tax Court
400 Second Street, NW
Washington DC 20217 		 
 
The Tax Court has a simplified procedure for small tax cases when the amount in dispute for each tax year is $50,000 or less. If you intend to file a petition for multiple tax years and the amount in dispute for any one or more of the tax years exceeds $50,000, this simplified procedure is not available to you. If you use this simplified procedure, you cannot appeal the Tax Court's decision. You can get information pertaining to the simplified procedure for small cases from the Tax Court by writing to the court at the above address or from the court's internet site at www.ustaxcourt.gov.
 
Send the completed petition form, a copy of this letter, and copies of all statements and/or schedules you received with this letter to the Tax Court at the above address. The court cannot consider your case if you file the petition late. The petition is considered timely filed if the postmark date falls within the prescribed 90 or 150 day period and the envelope containing the petition is properly addressed with the correct postage.
 
The time you have to file a petition with the court is set by law and cannot be extended or suspended. Thus, contacting the Internal Revenue Service (IRS) for more information, or receiving other correspondence from the IRS won't change the allowable period for filing a petition with the Tax Court.
 
As required by law, separate notices are sent to husbands and wives. If this letter is addressed to both husband and wife, and both want to petition the Tax Court, both must sign and file the petition or each must file a separate, signed petition. If only one spouse petitions the Tax Court, the full amount of the deficiency will be assessed against the non-petitioning spouse. If more than one tax year is shown above, you may file one petition form showing all of the years you are contesting.
 
If you decide not to file a petition with the Tax Court, please sign the enclosed waiver form and return it to us at the IRS address on the top of the first page of this letter. This will permit us to assess the deficiency quickly and can help limit the accumulation of interest. The enclosed envelope is for your convenience.
 
If you decide not to sign and return the waiver, and you don't file a petition with the Tax Court within the time limit, the law requires us to assess and bill you for the deficiency after 90 days from the date of this letter (150 days if this letter is addressed to you outside the United States).
 
If you are a C corporation, under Internal Revenue Code Section 6621(c), large corporate underpayments may be subject to a higher rate of interest than the normal rate of interest for underpayments.
 
If you have questions about this letter, you may write to or call the contact person whose name, telephone number, and IRS address are shown on the first page of this letter. If you write, please include your telephone number, the best time for us to call you if we need more information, and a copy of this letter to help us identify your account. Keep the original letter for your records. If you prefer to call and the telephone number is outside your local calling area, there will be a long distance charge to you.
 
The contact person identified on the front of this letter can access your tax information and help you get answers. You also have the right to contact the office of the Taxpayer Advocate. You can call 1-877-777-4778 and ask for Taxpayer Advocate assistance. Or you can contact the Taxpayer Advocate for the IRS office that issued this notice of deficiency by calling ___(Note: ACDS will insert appropriate Taxpayer Advocate’s phone number) or writing to ___(Note: ACDS will insert appropriate Taxpayer Advocate’s address). Taxpayer Advocate assistance is not a substitute for established IRS procedures such as the formal appeals process. The Taxpayer Advocate is not able to reverse legally correct tax determinations, nor extend the time fixed by law that you have to file a petition in the U.S. Tax Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling.
 
Thank you for your cooperation.
 
      Sincerely,
(Name of Commissioner)
Commissioner
By
 
      Appeals Team Manager
         
Enclosures:
Statement
Waiver
Envelope 		   
This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.15.12-11 (Cont. 1) Form 4089-A — Notice of Deficiency – IRC Section 6015

Form 4089-A Continuation Sheet – Notice of Deficiency – IRC 6015

John Smith and Mary Smith Continuation Sheet
  Form 4089-A
Accuracy Related Penalty - IRC 6662(a)
It is determined that you are liable for the accuracy-related penalty imposed under Section 6662(a) of the Internal Revenue Code for the tax years ended December 31, 1995 and December 31, 1996 because you were negligent (or disregarded rules or regulations) and you have not shown you had reasonable cause for the underpayment of tax and that you acted in good faith. The penalty is 20 percent of the portion of the underpayment of tax which is attributable to negligence (or disregard of rules or regulations).
Liability under IRC 6015
Mary Smith, SSN xxx-xx-xxxx, requested IRC 6015 (b) relief which has been partially granted. Mary Smith is jointly and severally liable for $2,500.00 in tax and $500.00 IRC 6662(a) penalty for 1995, and is jointly and severally liable for $5,000.00 in tax and $0.00 IRC 6662(a) penalty for 1996. Mary Smith is individually liable for zero tax and penalties for both 1995 and 1996. See attached understatement allocation worksheet for computations.
   
John Smith, SSN xxx-xx-xxxx, requested IRC 6015 (b), IRC 6015(c) and IRC 6015(f) relief which has been denied. John Smith is jointly and severally liable for $2,500.00 in tax and $500.00 IRC 6662(a) penalty for 1995, and is jointly and severally liable for $5,000.00 in tax and $0.00 IRC 6662(a) penalty for 1996. John Smith is individually liable for $1,661.00 in tax and $332.00 IRC 6662(a) penalty for 1995, and is individually liable for $0.00 in tax and $1,000.00 IRC 6662(a) penalty for 1996. See attached understatement allocation worksheet for computations.
   
Note to Tax Computation Specialist:
Facts for this case are as follows:
   
1) John is liable for the entire deficiency in tax and penalties for both years. None of Mary’s limited liability amounts are due to her individual liability. (So none of the amounts are her separate liability.)
   
2) The accounts have not been mirrored. Therefore, joint and several liability amounts are assessed on Master File using MFT 30. The individual liability amounts are assessed on Master File using MFT 31. See IRM 8.17.3.1.8 and 8.17.3.1.9 for additional details.
   
3) The joint and several liability is the amount both spouses are liable for. Since Mary has no individual liability in this case, Mary’s liability amounts are what both spouses are liable for. Therefore, the amounts shown for Mary are also the joint and several liability amounts. They will be assessed to the joint Master File account.
   
4) The difference between what Mary is liable for and the total deficiencies is John’s individual liability. These amounts will be assessed on Master File under John’s SSN using MFT 31.

More Internal Revenue Manual