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Part 4. Examining Process

Chapter 11. Examining Officers Guide (EOG)

Section 34. Innocent Spouse

4.11.34  Innocent Spouse

4.11.34.1  (12-15-2004)
References - Innocent Spouse

  1. References for Innocent Spouse:

    • IRC 6013(e) - Spouse Relieved of Liability in Certain Cases (prior law)

    • IRC 6015 - Relief from Joint and Several Liability on Joint Return

    • Treas. Regs. 1.6015 (26 CFR 1.6015-1) - Relief from joint and several liability on a joint return

    • Rev. Proc. 2003-19 - Administrative appeal rights for the non-requesting spouse

    • Rev. Proc. 2003-61 - Guidance on equitable relief under IRC 6015(f) and 66(c)

    • IRM 4.4.15 - AIMS Processing Handbook (Innocent Spouse)

    • IRM 4.11.32 - Community Property

    • IRM 25.15 - Relief form Joint and Several Liability

    • S-W DO 4-33 - The authority to sign Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases on behalf of the Commissioner for claims filed under Section 6015 of the Internal Revenue Code is delegated to: W&I Cincinnati Centralized Innocent Spouse Operations Managers; SB/SE Compliance Technical Services Examination Group Managers; and Appeals Team Managers.

    • Form 8857 - Request for Innocent Spouse Relief and Separation of Liability (And Separation of Liability and Equitable Relief)

    • Publication 971 -Innocent Spouse Relief

    • Publication 3512 - Innocent Spouse Relief(Brochure)

    • Training Pub. 8534-102, Cat. No. 85205X - Innocent Spouse Determinations

    • Innocent Spouse Website: http://www.hq.irs.gov/ISWP/index.htm

    • Chief Counsel Website: http://counsel.web.irs.gov/intranet_new/wi/spouse.asp

4.11.34.2  (12-15-2004)
Overview

  1. The Internal Revenue Service Restructuring and Reform Act (RRA 98), signed into law on July 22, 1998, made substantial changes to the Internal Revenue Code and to the way Internal Revenue Service administers relief from joint and several liability.

  2. This law expands the relief available under the innocent spouse provisions. It is the Service’s responsibility to ensure that these provisions are implemented fairly. The IRS is dedicated to ensuring the rights of both the requesting and non-requesting spouses are protected. The examiner needs to ensure each claim receives timely and consistent treatment within the established guidelines and in accordance with the law.

  3. IRC Section 6015 provides three types of relief from joint and several liability to spouses who filed a joint return. The three types of relief are:

    • Innocent Spouse Relief - IRC Section 6015(b)

    • Election to Allocate a Deficiency - IRC Section 6015(c)

    • Equitable Relief - IRC Section 6015(f)

  4. Taxpayers may request relief from joint and several liability on Form 8857, Request for Innocent Spouse Relief.

  5. Many married taxpayers choose to file a joint tax return because of certain tax benefits this filing status allows.

  6. Both taxpayers are jointly and individually responsible for the tax, interest or penalties due on the joint return even if they later divorce. One spouse can be held responsible for payment of all the tax due.

  7. Given the implications of joint and several liability, each spouse is responsible for:

    1. The accuracy and completeness of the joint return; and

    2. The payment of the tax liability as reported on the return, as well as any additional tax, penalties and interest that may be assessed.

  8. An individual's marital status at the end of a taxable period has tax liability consequences. It determines:

    1. The filing status of the individual, and

    2. The items includible on the individual's tax return if the individual is domiciled in a community property state and is not filing a joint return.

  9. Married taxpayers living in community property states filing separate returns may still be liable for income tax items attributable to their spouse under the local community property law (See IRM 25.15.5 and IRM 4.11.32).

4.11.34.2.1  (12-15-2004)
Non-Innocent Spouse Issues

  1. Relief from joint and several liability should not be confused with other provisions which may also provide relief to joint filers.

  2. The following are issues for which relief under IRC 6015 is not available:

    1. Return signed under duress (See IRM 25.15.1 subsection 2.3)

    2. Forged Signatures (See IRM 25.15.1 subsection 2.4)

    3. Injured Spouse Claims (See IRM 25.15.1 subsection 2.5)

  3. The Service has the responsibility to taxpayers to advise taxpayers of these relief provisions even if the taxpayers does not specifically raise them due to their own ignorance of the law.

4.11.34.2.2  (12-15-2004)
Resources Available

  1. A resource providing information concerning relief from joint and several liability is the Innocent Spouse Website at http://www.hq.irs.gov/ISWP/index.htm .

  2. The following listing shows of some of the information available at this site:

    • Alerts

    • Appeal's Memos

    • Contact Listings (includes Innocent Spouse Coordinator Directory)

    • Court Cases (relevant to innocent spouse issues)

    • Job Aides - (http://www.hq.irs.gov/iswp/Documents/Job%20Aids/job_aids.htm)

    • Relief at a Glance

    • Domestic Abuse Training Guides

    • Case File Assembly

    • Case Building Checksheet

    • Innocent Spouse Training Guide

    • I/S Questionnaire

    • IRC 6013(e) Proforma

    • IRC 6015 Proforma

    • Memorandums

    • Power Point Presentations

    • Procedures (Includes: Due Process Procedures and Closing Procedures)

    • Determination Letters: (http://www.hq.irs.gov/iswp/Documents/Letters/letters.htm)

  3. Chief Counsel also has a website which provides summaries of court cases involving innocent spouse claims: http://counsel.web.irs.gov/intranet_new/wi/spouse.asp

4.11.34.3  (12-15-2004)
Pre-assessment Cases

  1. During every examination of a joint return, the examiner must discuss the taxpayer's obligations relating to joint and several liability and the relief available under IRC Section 6015, i.e., Innocent Spouse Relief.

  2. This discussion is documented on the activity record, Form 9984 (See IRM 25.15.6 subsection 2.3).

  3. As appropriate, the examiner may wish to provide the taxpayer(s) or POA the following:

    • Publication 971 - Innocent Spouse Relief

    • Publication 504 - Divorced or Separated Individuals

    • Form 8857 - Request for Innocent Spouse Relief (And Separation of Liability and Equitable Relief)

  4. Discussion of relief of joint and several liability with joint filers is part of an examiner's package audit requirement (See IRM 25.15.6 subsection 2).

  5. This IRM section provides a broad overview of the procedures relating to the handling of pre-assessment cases. More detailed information is provided in IRM 25.15.6.

4.11.34.3.1  (12-15-2004)
Receipt of Innocent Spouse Claim to be Worked at the Centralized Site

  1. Date stamp Form 8857 or its equivalent.

  2. If you are not required to work the Form 8857, immediately send the form to

    IRS

    Stop 840F

    PO Box 840F

    Covington, KY 41012

    .

4.11.34.3.1.1  (12-15-2004)
Form 8857 Processable

  1. Forward a copy of Form 8857 to your local Innocent Spouse Coordinator.

  2. Request the following updates be completed by the Innocent Spouse Coordinator:

    1. Update Innocent Spouse Tracking System (ISTS)

    2. Input TC 971 with AC 065 and X-Reference TIN if applicable

  3. Update AIMS project code to "014" unless current project code on case has greater priority.

4.11.34.3.1.2  (12-15-2004)
Form 8857 Non-Processable

  1. The Form 8857 or a statement in lieu of must contain an original signature and the tax periods for which they are requesting relief. If either of these are missing, return to the requesting spouse for perfection.

4.11.34.3.2  (12-15-2004)
IDRS Input/Verification

  1. The examiner should verify, using IDRS command code IMFOLT, that the following items have been completed after receipt of a processable Form 8857:

    1. Ensure the input of Transaction Code (TC) 971 with Action Code (AC) 065 has posted (this can be verified using command code IMFOLT).

      Note:

      The transaction date will be the receipt date of Form 8857. The requesting spouse's SSN should be input as the X-Ref TIN ONLY if the requesting spouse is the SECONDARY taxpayer on the account.

    2. Ensure the input of TC 130 on entity module for the spouse not requesting relief. Use command code ENMOD.

    3. The Innocent Spouse Tracking System (ISTS) is updated.

    4. Project Code is updated to "014" unless the current Project Code has priority, i.e. lower number.

  2. Examiner should contact their respective Innocent Spouse Coordinator concerning any account updates not completed or completed incorrectly. A listing of the I/S Coordinators is provided on the I/S website.

4.11.34.3.3  (12-15-2004)
Report Writing and Documentation

  1. Examination of an innocent spouse claim requires consideration of all relevant code sections in the following order: IRC 6013(e); 6015(b); 6015(c); and 6015(f).

  2. The request for relief is treated as a separate issue and should contain a separate index on Form 4318. At a minimum, the workpapers should include the following:

    • Statement of determination for each year

    • Summary of pertinent facts; cross-referenced as needed

    • Basis for determination; including the development of all relevant factors

    • Listing of code sections addressed

    • Taxpayer's position if case is unagreed

  3. Letter 3284 must be mailed to the non-requesting spouse at their last know address and allow 30 days to respond.

    Caution:

    The requesting spouse's new address or new name should never be disclosed to the non-requesting spouse.

  4. There must be some determination of how the liability should be allocated if relief is fully or partially allowed. Allocation worksheets for underpayment and understatements can be found on the Innocent Spouse Website.

  5. Prepare Form 4549 using normal procedures.

    Note:

    Since the innocent spouse determination will not appear as an adjustment, the determination is listed in the "Other Information" section of Form 4549. A proforma statement is provided in IRM 25.15.6 subsection 4.1(4). Separate computations are needed to show an allocation of the liability between the two spouses.

  6. Form 886-A supporting your Innocent Spouse determination is needed in every case.

4.11.34.3.4  (12-15-2004)
Mandatory Review

  1. With the implementation of the Streamline Innocent Spouse Processing Procedures effective February 2, 2002, the requirement of 100% mandatory review is no longer applicable.

  2. In regards to the innocent spouse determination, examiners no longer need to send pre-assessed cases to Technical Services for review and approval prior to the issuance of the Form 4549 and/or 30-Day letter to the taxpayer.

4.11.34.3.5  (12-15-2004)
Closing Instructions

  1. Generally, normal case closing procedures apply to a case in which relief from joint and several liability is raised.

  2. When closing an innocent spouse determination case, your determination should be annotated on the normal case closing forms. The two most common closing forms are:

    1. Form 3198, Special Handling Notice. Annotate with "IRC 6015 Relief Case" . This form should reflect whether the assessment is against the requesting or the non-requesting spouse or both.

    2. Form 5344, Examination Closing Record. This should provide the adjustment information, including if the assessment should be assessed on master file or MFT 31 or split between the two.

  3. Complete information regarding AIMS closing of innocent spouse cases can be found in IRM 4.4.15.

4.11.34.4  (12-15-2004)
Post-Assessment Cases

  1. The majority of innocent spouse cases are "post-assessment " cases; i.e., the liability in question is already assessed on the taxpayer's account.

  2. This liability may relate to an underpayment, an understatement, or both.

  3. Given the collection statute of 10 years, some of the requests for relief relate to very old years.

  4. All cases, post & pre-assessment, should be established on AIMS and carry the required Project Code of 014 and TC 971 with AC 065 ( See IRM 4.11.34 3.2. for additional Information).

  5. The bulk of post-assessment cases are being worked at the Centralized Cincinnati Innocent Spouse Operations (CCICO).

4.11.34.4.1  (12-15-2004)
Workpaper Documentation

  1. The workpaper lead sheet should contain an index reference to supporting workpapers associated with an issue.

  2. Examiners may find it useful to annotate additional information regarding the case on the lead sheet. Reviewer remarks and examiner rebuttals are sometimes written on the lead sheet.

  3. In a case where relief is denied in full or in part, a Form 886-A explaining your determination will be sent to the requesting spouse. This Form 886-A will be sent with both the preliminary and final determination letters. Form 886-A should contain sufficient information to allow the requesting spouse the ability to provide an adequate protest to the determination.

  4. Form 886-A should also be sent to the non-requesting spouse in cases where relief is granted in full or in part containing sufficient information to allow the non-requesting spouse the ability to provide an adequate protest to the determination.

4.11.34.4.2  (12-15-2004)
Determinations

  1. Before reaching a determination, the examiner shall fully develop the facts and analyze the evidence. The examiner shall consider the facts and circumstances of the case, apply the law objectively using the legal guidelines provided, and decide whether any type of relief from joint and several liability applies.

  2. Since the assessment has already posted to the account, an examination report is not issued to the taxpayers on a post-assessment case.

  3. The innocent spouse determination is communicated to the requesting and non-requesting spouse via a determination letter.

  4. The determination letters are issued by Technical Services.

  5. As a result of Rev. Proc. 2003-19, the requesting spouse receives a "preliminary" and "final" determination letter on ALL determinations.

    Note:

    These determination letters function much like a "30-Day" and "90-Day" letter respectively.

  6. The requesting spouse is provided Appeal rights in cases where relief is denied in full or in part. The non-requesting spouse is provided Appeal rights in cases where relief is granted in full or in part (See Rev. Proc. 2003–19).

  7. Innocent spouse post-assessment determinations are subject to a streamlined procedural review. Therefore, a technical review is no longer conducted on each case prior to the issuance of a determination letter.

  8. Once the procedural review is complete, the reviewer shall issue the preliminary determination letter accompanied by reports as necessary.

  9. If, upon performing the streamline procedural review, the reviewer determines harm will be done to the taxpayer as a result of the examiner's improper determination, the reviewer may return the case to the appropriate group manager for further development. The following is a list of some of the reasons why a determination may be returned:

    1. Facts and circumstances do not support the determination developed in the case,

    2. Law does not support examiner's determination, or;

    3. Account problems are not resolved.

4.11.34.4.3  (12-15-2004)
Closing Instructions

  1. Examiners may find using a lead sheet an easy way to summarize a determination. A copy of a lead sheet can be obtained from the I/S Website as a " Job Aid" .

  2. The following is a listing of information that can be summarized on a lead sheet:

    1. Requesting spouse's name, address, and phone number

    2. Non-requesting spouse's name, address, and phone number

    3. The Power of Attorney (POA) information for requesting spouse

    4. POA information for the non-requesting spouse

    5. The examiner's name, business address, phone and fax number

    6. The Area Coordinator's name, and business address, phone and fax number

    7. IRC sections 6013(e), 6015(b),(c),or (f) timeliness factors, claim years, and date of the claim

    8. Examination techniques and type of case

    9. Examiner's innocent spouse determination for each year

    10. Reviewer area

  3. After a determination is made; provide instruction to Case Processing for the proper closing of the case. This can be done several different ways. The following are different forms that can be used to convey these instructions:

    • Form 12810, Transfer request checklist

    • Form 3870, Request for Adjustment

    • Form 3465, Adjustment Request

    • 2-Way memo

    • Form 5402, Appeals Transmittal and Case Memo

  4. Each office may have a slightly different approach to conveying the closing instructions. Regardless of the method, all closing instructions should contain complete information. The following items may be attached to the closing instructions:

    1. A print of TXMOD or IMFOLT with the deficiency transaction codes underlined that need to be moved to MFT 31

    2. A list of all payments that need to be refunded or applied to another account

  5. If you are correcting an account problem, clearly indicate any adjustment information or entity corrections that are required. Clearly indicate what actions you are requesting. If the closing instructions are unclear, the case may be sent back for clarification.

4.11.34.4.4  (12-15-2004)
Case File Assembly Guide

  1. Since post-assessment innocent spouse cases contain the same basic information, the related case files should contain the same information as pre-assessment case files and be uniform in their assembly.

  2. A case file assembly guide was developed for the consistent ordering of information. See http://www.hq.irs.gov/iswp/Documents/Job%20Aids/IS-CaseAssembly.doc

4.11.34.5  (12-15-2004)
Fraud Penalty

  1. During an examination, a separate determination should be made for each spouse filing a joint return as to whether the fraud penalty under IRC Section 6663 should be asserted against one or both spouses.

  2. This determination should be fully developed and supported by the facts of the case.

4.11.34.6  (12-15-2004)
Offers In Compromise

  1. Doubt as to Collectibility - In instances where the main issue is the lack of funds to pay the tax, the requesting spouse should be advised to file an OIC doubt as to collectibility rather than a request for relief from joint and several liability. Collectibility is separate from the issue of liability under the relief provisions.

  2. Doubt as to Liability - If the sole issue is relief from joint and several liability, the taxpayer should withdraw their OIC and file Form 8857. In most instances, this will expedite the processing of their claim.

    Note:

    Once a taxpayer's offer in compromise is accepted, the taxpayer is precluded by the terms of the offer to raise any issue related to the liability of the tax period compromised. Therefore, the taxpayer is ineligible to file an innocent spouse claim for that tax period.

  3. Additional information concerning Offer in Compromises as they relate to innocent spouse relief is provided in IRM 25.15.1 subsection 2.7.

4.11.34.7  (12-15-2004)
MFT 31

  1. MFT 31 is an IMF master file (MFT) account code used for split assessments against an individual taxpayer (solely liable) on a joint module.

  2. In most cases, MFT 31 replaces the need for a NMF account. MFT 31 is available on IDRS much like MFT 30 accounts.

  3. In cases where innocent spouse relief is granted in full or in part, MFT 31 will be necessary to hold the balance for the culpable spouse.

  4. For more information concerning MFT 31 and the old NMF accounts see IRM 4.11.59.

4.11.34.8  (12-15-2004)
Innocent Spouse Tracking System

  1. The Innocent Spouse Tracking System (ISTS) is designed to track the inventory and progress of all innocent spouse claims. The claims are tracked by using universal IDRS assignment numbers. A specific assignment number identifies each stage of the claim process.

  2. The ISTS is accessed via CC ISTS with certain definers.

  3. A reference guide was developed for use with this command code. The "ISTS Reference Guide" is listed as a Job Aid on the I/S web site: (See http://www.hq.irs.gov/iswp/Documents/Job%20Aids/job_aids.htm).

  4. Any updates/corrections should be handled through your Innocent Spouse Coordinator.

  5. See IRM 25.15.14 to resolve problems and questions relating to the tracking system.


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