If you are considering filing an Innocent Spouse Request with the IRS, hiring an Tax Attorney with experience in Innocent Spouse Relief matters is in your best interest.
We decided to do a podcast about Innocent Spouse Relief.
I recently had the pleasure of talking with Attorney Anthony Parent over at IRSMedic: Parent & Parent LLP on his up-and-coming (and entertaining) tax podcast "Parental Advisory: The Show". It was a great experience. We might have gotten a little off-track at first, talking about the Connecticut Department of Revenue Services and how they like to put pressure on individuals taxpayers by charging them personally as criminals when they fall behind on state taxes. (Even though they can't actually do that in some cases, they still do.)
Though we did not get into too much of the nitty-gritty of Innocent Spouse Relief under Revenue Procedure 2013-34, we did discuss some high points of what to do, and - more importantly what not to do when filing a claim for Innocent Spouse relief under the "equitable relief" provisions of Internal Revenue Code 6015(f).
The "Equitable Relief" option of an Innocent Spouse claim is a facts-and-circumstances test.
Here's what the code section says:
(f) Equitable relief
Under procedures prescribed by the Secretary, if—
(1) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either); and
(2) relief is not available to such individual under subsection (b) or (c),
the Secretary may relieve such individual of such liability.
The truth is that the words "Under procedures prescribed by the Secretary" (the IRS) means very little if your case ever ends up in Tax Court. That's because the Tax Court actually reviews all Innocent Spouse claims via a de novo standard of review. What that means in plain English is that the Tax Court is not bound by the decisions made by the IRS departments that reviewed the claim before it got to Tax Court. In Innocent Spouse cases, the Tax Court will even consider factors that were never presented to the IRS during the administrative claim.
So basically, what the Tax Court will consider is whether or not it would be unfair (inequitable) to stick one spouse with a tax bill that is actually attributable to the other spouse. That's it. In some recent cases, the Tax Court has completely ignored the factors set out in the IRS Revenue Procedure regarding Innocent Spouse/Equitable Relief, but in most cases - the Tax Court will use the IRS factors, but make its own determinations as to whether those factors favor relief based on the court's own reasoning and previous Tax Court precedent.
The IRS has a very mixed track record on Innocent Spouse cases that make it to Tax Court.
And the IRS almost always loses when it is obvious to any casual observer that imposing liability on the spouse making the claim would be unfair. When dealing with IRS Appeals, it is important to consider that hazards of litigation is something the IRS Settlement Officer is required to take into account.
So the real question is - if you have a good story, if you have a good reason that it would be unfair to impose liability on you for your former (or current) spouse's tax sins, why would you give the IRS an "out" by oversharing and potentially giving them a "Tax Court proof" reason to disqualify you for relief?
The IRS wants you to fill out form 8857, but be aware. They are setting traps for taxpayers or tax professionals who decide to "overshare" in their submissions. (I think that Form 8857 is pretty worthless, actually.)
Listen to the podcast here:
Watch the video on YouTube here.