Innocent Spouse Relief

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IRC 6015 (c) 


The United States Tax Court in Smith (Petitioner) and Hodge (Intervenor) v. Comm’r of Internal Revenue Service, Docket No. 372-23S, filed June 12, 2025, agreed with the Petitioner and the IRS in a rare case of review associated with a non-requesting spouse’s objection to provision of Innocent Spouse relief. The relevant tax period is 2017. However, the return was filed in July 2021. The return was prepared by Petitioner, wife. The couple legally separated in October 2021. Petitioner had W-2 income. Intervenor husband had W-2 income, 1099 income and cancelled debt income. Neither of the last two items were included on the return, so the IRS later issued a notice adjusting the liability. It was after this that Petitioner filed for Innocent Spouse relief under IRC 6015(c). Under this type of relief, the requesting party can have the liability limited to their income only. This particular provision states that relief is not available if the requesting spouse “had actual knowledge, at the time such individual signed the return, of any item giving rise to a deficiency (or portion thereof) which is not allocable to such individual…” In this case, the IRS agreed that requesting spouse should receive relief. However, the Intervenor (husband), submitted a response indicating that Petitioner must have been aware of the unreported income because she prepared the return and had access to his bank account, so she could not have been “completely oblivious,” as he stated it. The Court deemed his testimony to be self-serving and unverified. During the relevant period, the parties lived apart. The 1099 for self-employment and cancelled debt were addressed to the husband, Intervenor. The 1099 income was deposited into his sole account. Furthermore, the Court pointed out that throughout their marriage they always maintained separate bank accounts. Relief was granted to Petitioner because of the inability to meet the burden of the statute. 

Innocent Spouse Relief

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IRC 6015 (c) & (f)

The Tax Court in Jurries v. Comm’r of Internal Revenue, Docket No. 2786-20S filed May 22, 2024 held that the taxpayer failed to establish fraud as a threshold requirement for Equitable Innocent Spouse relief in this matter. The taxpayers filed a joint income tax return for 2016 as they always had, by the wife preparing the return on Turbo Tax. The wife did not show the husband the return prior to, or after preparing it, as they were separated. On the return, she deducted $42,181 as unreimbursed business expenses. On the return, she attributed some of this to herself and some to the husband. The IRS issued a refund of $12,500 which she deposited part of into her own account and part into the husband’s account. The IRS examined and disallowed the expense. After receiving this notification, the husband then filed for Innocent Spouse Relief under IRC 6015 (c), which allocates the expense as if the taxpayers filed the return separately. The IRS agreed to this allocation. Husband then wanted to pursue full equitable relief from all liability through the use of IRC 6015(f) as an affirmative defense in this case. Equitable relief requires overcoming seven threshold conditions, one of which requires the item to be attributable to the nonrequesting spouse’s income, (it isn’t), and if not, then the requesting spouse could establish fraud. Mr. Jurries contended that the fraud exception applied in this matter. Ultimately, the Court did not think fraud was established because Mr. Jurries could have accessed the return in turbo tax. Most damaging was that upon receipt of the refund, his wife deposited a portion of the refund into his checking account, rather than keeping it for herself. And, he testified that he knew he could not take this deduction on this tax return. 

Innocent Spouse Relief

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IRC 6015(b)

This newsletter has traditionally reviewed Innocent Spouse relief under the equitable provisions of IRC 6015(f), as that is the most common basis for relief.  The case of Kraszewska v. Comm’r, filed February 28, 2024 at TC Memo 2024-026 provides an opportunity to review a Tax Court case where the Court granted relief under IRC 6015(b). In order to qualify for relief under this provision, it is necessary to meet all of the following provisions: a joint return has been filed; establishes that in signing the return he or she did not know, and had no reason to know, that there was such an understatement; it is inequitable to hold the other individual liable for the deficiency of tax attributable to such understatement; and the election is made within 2 years of collection activity beginning. The fundamental difference of 6015(b) versus 6015(f) is that there is an understatement of tax on the return, as opposed to simply an underpayment.  In the instant case, the IRS issued a notice of deficiency for the taxpayers 2017 Form 1040 for a tax amount of $6,931.  In other words, no balance was due on filing the return, rather, the IRS made adjustments and created a balance due. The Petitioner, who ultimately succeeds in this matter, was gainfully employed in her home country, prior to joining and marrying the Respondent in the United States. At that point, she ceased working.  The taxpayers maintained separate bank accounts and the Respondent was very secretive about his finances.  Due to lack of income and the secretive nature of the finances, Respondent controlled the financial aspects of their lives together. For the year in question, Petitioner had become employed, but turned over her income information to Respondent for tax return preparation as he told her she would not be familiar with the American tax system.  Once the return was completed, Respondent only showed Petitioner the signature page of the return to file electronically.  Though the case does not explain what adjustments were made by the IRS, the return did reflect itemized deductions that were almost half of the reported income and included large sums as unreimbursed employee expenses – a heavily examined area of late.  The Court applied the facts to the law and determined that the Petitioner met all factors for relief and as such granted her relief from the deficiency.  Again, a rather rare opportunity to review a case based on this type of Innocent Spouse Relief.

Innocent Spouse Relief

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IRC 6015

The Tax Court in Keri A. deGuzman and Brian deGuzman v. Comm’r of Internal Revenue, at Docket No. 13230-20, issued an opinion after trial on May 2, 2023 finding that it was appropriate to grant Innocent Spouse Relief under IRC section 6015 (c). In this case, Brian deGuzman was a cardiothoracic surgeon. He met his wife, Keri, at a hospital where she was a nurse.  They married in 2004.  They ultimately adopted four children and Ms. deGuzman ceased working.   Dr. DeGuzman was not only a surgeon, but also the co-founder of two medical device related companies and the chief medical officer of one of the companies.  The DeGuzman’s lived a “lavish,” lifestyle per the Court. Ms. DeGuzman enjoyed as much of the lavish lifestyle as her husband. During the 2013 to 2018 time period, the taxpayers either failed to timely file their income tax returns, or failed to properly pay their taxes.  They ultimately owed hundreds of thousands of dollars to the IRS. Interestingly, it was also Ms. DeGuzman who regularly communicated with the CPA regarding preparation of the family tax returns…including at least some information about Dr. DeGuzman’s businesses. She also participated in meetings with the CPA about the tax issues.  While the 2016 and 2017 returns were filed late, 2018 was timely filed.  All were examined by the IRS and ultimately adjusted.  Ms. DeGuzman requested relief from the exam assessments under the Innocent Spouse statutory sections and the IRS allowed it. Ultimately, Dr. DeGuzman disagreed and the matter ended up before the Tax Court.   All of the above is mentioned because it normally negates the success of a taxpayer seeking innocent spouse relief.  However, in this case, the IRS had granted the relief and the Appeals division sustained it.  In this case, the spouse has brought the matter before the Court.  The statute indicates that it is the requirement of the government to prove that the requesting spouse (Ms. DeGuzman) had actual knowledge of the items that gave rise to the deficiency.  Remember, it wasn’t the IRS arguing that Ms. DeGuzman should be held liable here, it was her husband.  As such, nothing before the Court reflected the IRS arguing that Ms. DeGuzman had actual knowledge of these items giving rise to the deficiency. Because of that issue, the Court could not conclude that Ms. DeGuzman had actual knowledge of the understatement items and therefore the relief granted under the Innocent Spouse provisions of Section 6015(c) stood.  Regardless of the reasons, this case is a bit of an outlier when it comes to relief for someone that seemingly benefited so much personally from non-payment of tax deficiencies. 

Innocent Spouse Relief

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I.R.C. 6015

The United States Tax Court in Jane M. Lassek, Petitioner, and Michael E. Smith, Intervenor v. Comm’r, Docket No. 25395-16, Filed October 28, 2019 provided the Petitioner (wife) with partial innocent spouse relief for one year and denied relief for another.  The liabilities at issue begin with the 2011 year in which Intervenor (husband) prepared a return and improperly characterized his 401(k) distribution in the amount of $46,477 as nontaxable.  The Service determined a deficiency of $14,996 and penalties of $3,026.  The petitioner never reviewed the return as it was electronically filed by the Intervenor. In 2012, both took distributions from their retirement and both signed the return.  They had no plan for how they intended to pay the balance.  The parties ultimately divorced and their divorce decree was silent in regards to the tax liabilities. In reviewing the years at issue, the Court ruled that the Petitioner should be granted relief for the 2011 year under I.R.C. 6015 (c) – a section that limits a spouse’s liability to the portion of the deficiency properly allocable to that spouse under 6015(d).  This is available because the tax due did not appear on the face of the return. The Court granted relief because it did not believe that the Petitioner had actual knowledge of Intervenor’s 2011 401(k) distribution.  As for tax year 2012, the Petitioner failed to qualify for relief. She admitted at trial that she would not suffer economic harm if relief was not granted.  Further, Petitioner failed because she could not reasonably believe that Intervenor would or could pay the tax liability.  This case is a good review of the multi-level and multi-factor analysis of equitable relief under 6015(f).

Updated Guidance from the IRS on Innocent Spouse Relief

Posted on by katemley

When married taxpayers file a return, they may elect to file that return jointly with their spouse.  Sometimes that is a mistake – a big one!  When filing a joint return, the Internal Revenue Code provides that both spouses will be jointly and severally liable for the tax, penalties and interest.  This blog has reviewed the various options available to spouses requesting that they be relieved from liability on the return. Just click on “Innocent Spouse Relief” under “Posts by Category” for a general  review.  Lately, we are seeing the IRS take action to update their analysis of Innocent Spouse Applications.

General guidelines provide that understatements of tax may qualify for relief under so-called “innocent spouse” or “separation of liability” provisions, while underpayments may only qualify under “equitable relief” provisions.  All three of these are under the umbrella of “innocent spouse relief” provided by the Internal Revenue Code.

Of note, earlier this year, the IRS updated internal guidance. One change made to internal guidelines earlier this year was to clarify provisions relating to actual or constructive knowledge of the understatement of tax.  Basically, in order to qualify under this particular type of Innocent Spouse relief, it is necessary to show that the requesting taxpayer did not know about the understatement and had no reason to know of the understatement.  If this requirement isn’t met, then the requesting spouse doesn’t qualify.  However, if the requesting spouse can establish that he or she was the victim of domestic abuse prior to the time that the return was signed, but did not sign the return under duress, and as a result of the prior abuse, did not challenge any of the items on the return for fear of retaliation, then the IRS will not review the requirement of showing that the requesting spouse did not know or did not have reason to know of the understatement.

Normally, the IRS will review the following factors to determine if the requesting spouse knew or had reason to know of the understatement, absent a showing of abuse: 1) the nature of the erroneous item and the amount of the erroneous item relative to the other items, 2) the couple’s financial situation, 3) the requesting spouse’s educational background and business experience, 4) the extent of the requesting spouse’s participation in the activity that resulted in the erroneous item, 5) whether the requesting spouse failed to inquire, at or before the time the return was filed, about items on the return or omitted from the return that a reasonable person would questions, and 6) whether the erroneous item represented a departure from a recurring pattern reflected in prior year’s returns.

The IRS has pending the finalization of procedures that weigh abuse in a spousal relationship more heavily in the analysis of relief under Innocent Spouse provisions.  Some of the changes mentioned here are based in internal guidelines associated with working applications for relief and acknowledge the proposed official guidance.  Should you have questions about Innocent Spouse relief, don’t hesitate to contact our office.

Innocent Spouse Relief: Income attribution

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Income attribution rule addressed by Tax Court

In Connie L. Minton a.k.a. Connie L. Keeney v. Comm’r, T.C. Memo 2018-15, filed February 5, 2018, the Tax Court was asked to review an IRS Appeals’ decision denying innocent spouse relief based on equitable relief. In this case, taxpayer made application for relief after divorce. The return in question reflected income from a 401(k) withdrawal taxpayer instituted at the request of her former spouse – for the purpose of investing in a business venture that failed. Additionally, the spouse’s income from his business, along with a small amount of interest income was reported on the return. The Appeals officer indicated that the taxpayer’s request for relief failed because the tax was attributed to her income. Thus, it did not meet the threshold condition for relief. The Tax Court reviewed this decision and discussed the exceptions to the attribution rule. Those exceptions include: a) attribution due solely to the operation of community property law, b) nominal ownership, c) misappropriation of funds, d) abuse before the return was filed that affects the requesting spouse’s ability to challenge the treatment of items on the return or question payment of any balance due, and e) fraud committed by the nonrequesting spouse that is the reason for the erroneous item. Ultimately, the Court indicated that the taxpayer did not meet any of the exceptions and failed the threshold conditions as to her 401(k) withdrawal. The Tax Court, however, disagreed with Appeals in that they concluded the liability attributed to the nonrequesting spouse’s business income should not be attributed to the taxpayer because her involvement in the business was nominal only. This is a good discussion of some exceptions to the income attribution rule, not regularly reviewed by the Court.

Innocent Spouse Relief: Relief while married

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Taxpayer obtains relief while still married

In Hudson v. Comm’r T.C. Summary Opinion 2017-7, filed February 8, 2017, the Tax Court granted equitable relief from joint and several liability under section 6015(f).  It is a rare case that the IRS grants relief to a taxpayer that requests innocent spouse relief, unless that individual is legally separated or divorced from the jointly liable taxpayer. The taxpayer and her husband remained legally married, but were essentially estranged.  Petitioner remained in the marriage because she “regards the vow of marriage as sacrosanct and does not believe in divorce.” The liability reported on the face of the return was largely from the early withdrawal penalty associated with Petitioner’s husband taking a distribution from his retirement account to finance the purchase of a piece of residential real estate – in his name alone. Though petitioner resided at this residence, the Tax Court did not believe she enjoyed a lavish lifestyle.  Petitioner held a bachelors degree and, while she was out of the workplace caring for their children during the year at issue, she later became employed in her field. At the time of filing the Petition in the Tax Court, she was unemployed and struggled with reasonable living expenses. The Court could not provide “streamlined” relief because the Petitioner remained married.  That triggered a facts and circumstances analysis where economic hardship and lack of significant benefit factored heavily into the Court’s grant of liability relief. 

Why do I have to owe over $10,000 to get help with my IRS tax debt?

Posted on by katemley

Everyone has seen on television, or heard on the radio, advertisments for assistance with owing the IRS back taxes.  Turn on the TV late at night to watch reruns of your favorite show and you’re bound to see at least one. But they all have that caveat, saying that you must owe the IRS over $10,000 for them to help you, but why?

The fact of the matter is that you don’t need to owe a certain amount to have representation to assist with your tax debt – at least not from our firm.  If you listen to the television or radio you would think that there is no way to help someone who owes less than this amount.  Most of the businesses that advertise in this way are looking to submit a settlement proposal, known as an Offer in Compromise, to the IRS on your behalf.  This may or may not be possible, but generally that is the only service these businesses provide.  What they know is that due to the manner in which the IRS settles debt, it is nearly impossible to settle a small tax debt.  However, here are several situations that our office sees frequently where taxpayers have a small tax debt, but still need help sorting through their options to come into compliance:

  • Sometimes a client may owe the government a small amount, but has unfiled returns and is preparing to file bankruptcy to discharge health care debt or other obligations.  The bankruptcy code requires the taxpayer to file their last three returns in order to qualify for the bankruptcy.  After filing, the client anticipates owing more.  Perhaps that is a small amount or a large amount.  Regardless, this client needs help with those taxes because they will not be discharged in the bankruptcy.
  • A client may owe a small amount based on a return filed by the government – known as a Substitute for Return (SFR).  However, the client will owe much more later when a proper return is filed.  This can happen when a client is self-employed and receives a few 1099’s that comprise a small amount of the taxpayer’s overall revenue.  Once the return is properly completed, there may be a different picture.
  • Sometimes a client owes tax debt that their spouse created and it is simply unfair for them to be held responsible for the debt.  That client may want to be relieved from the obligation – no matter how small – through the Innocent Spouse Relief process.  Alternatively, a spouse may be harmed because his or her refund was offset to their spouses tax debt.  In this instance, this client may need assistance filing an Injured Spouse claim.
  • A client may have a few thousand dollar tax debt created by automated Exam at the IRS, but if the client merely pays it or sets up a payment agreement to resolve the balance, the taxpayer may be setting himself or herself up for problems with future tax return positions.  If your expense or other deduction is valid and the IRS disallowed it, it may be worth fighting to substantiate it so you do not create a record showing you agreed with the claim or deduction being disallowed.  Therefore, your representative could make arguments to assist in your exam and protect your position for later.
  • Some clients owe less than $10,000 and are interested in relieving themselves from the burdens of a tax lien.  It is now possible to establish a Direct Debit Installment Agreement and apply for a withdrawal of the tax lien.  There are specific procedures for this doing this must be met to qualify, but it is possible.  As a matter of fact, it is now possible to accomplish this if you owe up to $25,000.
  • A client may owe a small tax debt which was originally much larger and triggered the filing of a tax lien.  Though the debt is paid down, it is preventing the sale of a piece of real estate because there is not enough equity to retire the tax debt at closing.  These clients need assistance with a request to Discharge Property from Federal Tax Lien.  This will clear title to the property and allow for the closing, even though the entire tax debt is not being paid off in full.
  • Some of our clients only owe a couple of thousand dollars, but have many years of unfiled tax returns and anticipate owing much more.  A settlement proposal, Offer in Compromise, may be appropriate.  However, it is impossible to know if that is the case until the taxpayer knows the total owed and a financial analysis is performed which includes a review of income, expenses and equity in assets.
  • A client may need assistance when a wage levy is in place, but the balance on their total tax debt is not larger than $10,000.   In those instance, it is very likely that the taxpayer can be moved to a voluntary payment agreement if all returns are filed.  Even if all returns are not filed, substantiation to the IRS of income and expenses could likely result in a partial levy release to relieve the client of some, or all of the wage levy.
  • If any of the above is similar to your situation, or you have some other tax problem, we will be happy to help you, regardless of the size of your debt.  Just give us a call.

Innocent Spouse Relief

Posted on by katemley

When spouses file a tax return together, they are held jointly and severally liable for the tax debt. Each spouse is legally responsible for paying the entire liability, including tax, additions to tax, penalties, and interest. Realizing that this may not be appropriate in all cases, the Internal Revenue Service offers “innocent spouse relief” to help spouses in a variety of situations. There are three different types of relief that fall under the umbrella of “innocent spouse relief”:

  1. Innocent Spouse Relief – you may obtain this type of relief if you filed a joint tax return and the return understated tax that is attributable solely to your spouse’s erroneous item. These items could be income received by your spouse, but not reported on the return or, the items could be incorrectly reported deductions, credits, or property bases attributed to your spouse. The effect of these items, the understatement of tax, would not appear on the return when you signed it. In other words, there was no tax due, or if there was tax due, the item left out and its effect was not shown on the face of the return. You must prove that at the time you signed the return, you did not know, and had no reason to know, that the tax was understated. Finally, when looking at the situation, you must prove it would be unfair to hold you liable for the understatement of tax.
  2. The next type of relief is known as “separation of liability” relief. Under this type, the understatement of tax, interest, and penalties is allocated between you and your spouse. In order to qualify for this type of relief you must no longer be married to, or are legally separated from, the spouse with whom you filed a joint return. You qualify under this provision if you are widowed. You must additionally not be a member of the same household as the spouse with whom you filed the joint return during the twelve (12) month period prior to filing your application for relief under this provision.
  3. It is very common for one spouse to seek relief from liability from a tax obligation clearly stated on the face of the return at the time of filing. If the liability is reflected on the face of the return, and not an understatement, then the only way to qualify for relief is through the third type of relief – “Equitable Relief.” In order to qualify for this type of relief, you must establish that taking into account all facts and circumstances, it would be unfair to hold you liable.

There are many factors relevant to relief under this provision. The IRS will consider if you would suffer economic hardship if relief is not granted. The IRS does factor in who is held liable for the taxes under a divorce decree or other agreement to pay the tax – even though the IRS is not bound by these agreements. The IRS will also look at whether or not you received significant benefit from the underpaid or understated tax and whether you knew or had reason to know about the item causing the understated tax or that the tax due would not be paid.

The IRS explicitly takes domestic violence and abuse into account when evaluating claims for innocent spouse relief, especially under the equitable relief provisions. In her most recent report to Congress, the National Taxpayer Advocate explained that “domestic violence and abuse, including economic abuse, have real consequences for tax administration.” See Annual Report to Congress by National Taxpayer Advocate, Most Serious Problems for more details about this issue. The Taxpayer Advocate indicates that about 16% of applicants for innocent spouse relief report that they are victims of domestic violence and abuse. To its credit, the IRS has revised all of its rules regarding review of innocent spouse applications and has expanded the effect abuse will have in determining if relief will be granted to the requesting spouse. The important fact is that domestic violence and abuse is a factor that is being reviewed in more detail than ever by the IRS in the analysis of a request for innocent spouse relief.

By regulation, the Department of Treasury and the IRS established a two year deadline to request Equitable Relief to encourage prompt resolution of liability determinations. Basically, applications for relief under this provision were denied if active collections had been ongoing for more than two years.

On August 8, 2011, the IRS issued Notice 2011-70. The IRS removed the two year rule pending formal alteration of Treasury Regulations. This action was the result of several court rulings that questioned the validity of the provision.

This action by the IRS is important because a somewhat arbitrary rule has now been disposed of and relief can now be granted to otherwise qualified individuals.

It is particularly interesting to note that the IRS included in Notice 2011-70 that those individuals who were previously denied relief under equitable relief provisions solely because of the two year rule, may re-apply for relief.

If you believe that you should be relieved of joint liability with your spouse or former spouse, on a tax return, please contact us. The likelihood for relief is at its highest point given current IRS rules and regulations on this topic.