part4-109

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 individuals 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 individuals 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

    • Appeals 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 taxpayers 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 examiners 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 spouses 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

    • Taxpayers 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
    spouses 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
    taxpayers 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 examiners 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 examiners 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 spouses name, address, and phone number

    2. Non-requesting spouses 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 examiners name, business address, phone and fax number

    6. The Area Coordinators 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. Examiners 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 taxpayers 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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