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Innocent Spouse: the Basics of I.R.C. § 6015 : Part 1 of 4 Parts

I have always said:  “the Internal Revenue Service is the third party to the North Carolina Divorce”.  It is, therefore, incumbent upon parties to a divorce, their counsel, and their CPAs in North Carolina to understand the Innocent Spouse rules of the Internal Revenue Code, particularly if there are tax issues outstanding.  Further, understanding innocent spouse can many times help with an otherwise devastating tax situation.

This article will be in four parts, so be sure to read all four parts.  Also, check this blog regularly for updates on innocent spouse law as I will write about it frequently.  I’ll keep you advised of new cases and new rulings from the IRS.

So, if you are in Greensboro, Charlotte or wherever, this four-article series should answer your questions about innocent spouse tax law and how it might affect your North Carolina divorce.

Part 1 of 4:     General Rules of Innocent Spouse under Section 6015 of the Internal Revenue Code.

Part 2 of 4:     Statutes of Limitations for Innocent Spouse Actions.

Part 3 of 4:    Discretionary Relief as an Innocent Spouse.

Part 4 of 4:    A Summary on Current law regarding Innocent Spouse and Thoughts on how this affects a North Carolina Divorce.

General Rules  Of Innocent Spouse

(a) When the parties file a joint tax return, they are generally jointly liable for any tax problem, and the IRS is free to collect the full amount owed from either of them.  I.R.C. § 6013(d)(3).

(b) Section 6015 allows either spouse to petition for innocent spouse relief.  If relief is granted, the innocent spouse is not liable for the tax problem.

(c) There are three types of innocent spouse relief.

(1) Under I.R.C. § 6015(b), the IRS must grant innocent spouse relief if “the other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was [a tax] understatement,” I.R.C. § 6015(b)(1)(C), and “it is inequitable to hold the other individual liable for the deficiency,” id. § 6015(b)(1)(D).

(2) Under I.R.C. § 6015(c), the IRS must grant innocent spouse relief from a tax understatement if the innocent spouse is legally separated or divorced from the other spouse, or was separated from the other spouse for 12 months at the time innocent spouse relief was requested.  There is an exception if the IRS proves that the allegedly innocent spouse had actual knowledge of the tax problem, and there is an exception to the exception if the joint tax return was filed under duress.  Relief is allowed only as to understatements attributable to the income of the other spouse.

(3) Under I.R.C. § 6015(f), the IRS may grant innocent spouse relief if “it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either),” and relief is not available under § 6015(b) or (c).

(d) The first two types of relief are known generally as mandatory innocent spouse relief, and the last type of relief is known generally as discretionary innocent spouse relief.

For more information, please see parts 2, 3 and 4 of this series of articles.

 

By Carolyn J. Woodruff, JD, CPA, CVA