Important IRS Terms, Rules, and Code

Innocent Spouse Rule – (formally under 26 USCS §6013(e)) – A hardship prevention measure when one spouse (the non-innocent spouse) doesn’t report income, thereby leaving the remaining “innocent spouse” to pay deficiencies. Generally, when married couples file a joint tax return, they share joint and several (they both owe the full amount, independently and together both) liability for the tax owed under IRS Code §6013(d)(s), however, under §6015(c), eligible individuals are not liable for unpaid taxes to extent that they are attributable to income earned by, or deductions improperly taken by, the other spouse IF:

At time election is filed, the individual is no longer married to, or is legally separated from (and they are no longer household members with each other), with the former spouse the “innocent spouse” the tax return was filed jointly with at any time during the 12-month period ending on date such election was filed.

The key criteria and logic employed with the IRS in making a decision is IF it would be inequitable to hold innocent spouse liable for tax AND whether the spouse significantly benefitted from items omitted from gross income. In the absence of material evidence that lifestyle did not significantly change, THEN it is inequitable to hold spouse liable for deficiencies. 26 U.S.C.S. § 6013 

Additionally, the innocent spouse must demonstrate they had no reasonably reason to know of an omission of income from the joint return they signed, they are a reasonably prudent taxpayer (can’t purposefully not know the facts/truth). Generally, must have minimal or no involvement in family’s financial affairs to satisfy “no reasonably reason to know” requirement. 

• A taxpayer can not qualify for innocent spouse protection in any given tax year the taxpayer did not file a joint tax return.
• An innocent spouse does not allow a taxpayer to reopen a tax year previously closed by a closing agreement executed.
• Unpaid taxes for taxes reported (albeit not paid), even if not earned by taxpayer are not eligible for relief under this code (ie the IRS is simply trying to collect tax reported and owed, however, not paid).
• Community property laws are generally disregarded for purposes of determining spouse to who obtained gross income, other than income from property, are attributable: sham losses claimed on joint return which are entirely attributable to one spouse will not be imputed to innocent spouse by only virtue of state community property statutes where innocent spouse is not involved in transaction creating fraudulent/sham losses.
• A taxpayer may qualify for some relief, albeit not to all of the tax owed. Therefore, it is not an all-or-nothing test
• Simple ignorance of tax law, including the tax consequences of transactions and/or taxable events is not enough of an argument to qualify.
• If taxpayer spouse knows of other spouse’s illegal income (for example other spouse steals or embezzles money in the tax year in question) during the tax year or prior to filing, simply not knowing the income is taxable is not a viable argument
• Even when ‘innocent taxpayer spouse’ does not know of taxable income, albeit is able to live a higher lifestyle consistent with the unknown income, generally, no relief will be granted.