The IRS has proposed a revenue procedure to revise the threshold requirements for Code Sec. 6015(f) innocent spouse relief. The IRS also proposed streamlined equitable innocent spouse determinations.
There are different types of relief from joint and several liability for spouses who filed joint returns: Code Sec. 6015(b) innocent spouse relief; Code Sec. 6015(c) separation of liability relief; and Code Sec. 6015(f) equitable relief. Equitable relief under Code Sec. 6015(f) may apply when a taxpayer does not qualify for Code Sec. 6015(b) or 6015(c) relief.
The IRS Restructuring and Reform Act of 1998 did not specify a limitations period for Code Sec. 6015(f) equitable relief. But, the IRS imposed one by regulation. The Tax Court twice struck down the regulation. Both decisions were reversed on appeal. A number of lawmakers also called on the IRS to remove the controversial regulation, which the agency did in July 2011 in Notice 2011-8, 2011-8 IRB 503.
A new revenue procedure would clarify application of the equitable factors to the determination, take into account abuse and financial control by the nonrequesting spouse, alter how economic hardship is evaluated, and make other changes, the IRS explained The proposed changes would also apply to married individuals with community property income.
The IRS considers all of the facts and circumstances to determine if a taxpayer qualifies for equitable innocent spouse relief. The IRS proposed to clarify that no one factor or a majority of factors necessarily controls the determination. The IRS also proposed to revise the economic hardship factor to provide minimum standards based on income, expenses and assets. Actual knowledge, the IRS explained, would no longer be weighed more heavily than other factors.
Where a taxpayer has been abused by the nonrequesting spouse, the taxpayer may not have been able to challenge the treatment of items on the return or question the payment of taxes, the IRS reported. Lack of financial control may have a similar impact, the agency added. In response, the IRS proposed that abuse or lack of financial control may mitigate other factors that weigh against granting relief.
IRS Chief Counsel instructed its attorneys, effective immediately, to no longer argue that equitable relief is not warranted based on factors in Rev. Proc. 2003-62.