Both federal and Louisiana law have provisions that relieve innocent spouses from tax deficiencies or understatements. You should be able to identify when a client may have a potential innocent spouse relief claim. Appropriate claims should be filed with both the IRS and the Louisiana Department of Revenue. Innocent spouse relief often arises in domestic violence cases.

Innocent spouse relief cases are complex.1  The IRS has a spousal tax relief eligibility explorer on its web page to assist with evaluating eligibility for innocent spouse relief. It is recommended that these cases be referred to a Low-Income Taxpayer Clinic or other tax law specialist.

• 1For a comprehensive discussion of § 6015 innocent spouse relief, see Robert B. Nadler, A Practitioner’s Guide to Innocent Spouse Relief: Proven Strategies for Winning Section 6015 Tax Cases (2011). This manual is currently out of print but is available from the law library of the Texas A&M University School of Law. The manual is free to LITC attorneys and to private practitioners for a small fee.

Section 6015(b) innocent spouse relief can’t be used for an underpayment, which occurs when the tax is admitted to be due on the return, but it is not paid at the time of filing.1  But, innocent spouse relief is appropriate for an understatement of tax, i.e., the offending spouse filed a return with incomplete or false information. Generally, if the other spouse did not know or have reason to know about the unreported income or erroneous items and did not receive benefits from the unreported income or erroneous items, that spouse may be eligible for innocent spouse relief. A single return may have a mixture of underpayment and understatement issues.

If the requesting spouse knew or had reason to know of the understatement, innocent spouse relief is not available.2  The reason-to-know standard considers all the facts and circumstances (e.g., the nature of the item, the requesting spouse’s education and business background, the extent of that spouse’s participation) and inquires whether a reasonable person in similar circumstances would have known of the understatement.3  The existence of domestic violence in the marriage can be an important factor; in these situations, an abuser often controls the household’s finances and an abused spouse may have been afraid to inquire about these matters.

• 1Hopkins v. Comm’r, 121 T.C. 73, 88 (2003).
• 226 C.F.R. § 1.6015-2(a)(3).
• 326 C.F.R. § 1.6015-2(c).

A separate tax liability election under § 6015(c) is available for a taxpayer who, at the time of election, is no longer married to or has been living apart for at least 12 months from the person with whom the taxpayer originally filed a joint return.

To elect this relief, a taxpayer must prove that a portion of the understatement was attributable to the other spouse. A taxpayer can’t use § 6015(c) for an underpayment of tax liability.1  The determination of separate liability is made without regard to community property rights. Thus, taxes are based on the electing taxpayer’s own income as if the taxpayer had filed a separate married return. If the taxpayer had no income, the tax liability will be zero.

Taxpayers are often successful under § 6015(c). Relief is easier to obtain under § 6015(c) than under § 6105(b) because the IRS can only deny apportioned liability under § 6015(c) if it proves actual knowledge of an erroneous item, as distinguished from a mere “reason to know.”2

• 1Hopkins v. Comm’r, 121 T.C. 73, 88 (2003).
• 2Generally, the burden of proof is on the taxpayer for innocent spouse relief with the exception of the requirement that the IRS must prove actual knowledge to deny apportioned liability under § 6015(c). See, e.g., Culver v. Comm’r, 116 T.C. 189 (2001).

If relief is not available under the innocent spouse rule (§ 6015(b)) or the separate liability election (§ 6015(c)), the IRS may relieve an individual of liability if it would be inequitable to hold the individual liable for any unpaid tax or deficiency.1   The IRS automatically considers a taxpayer for equitable relief if innocent spouse and separate liability relief are denied.

Low-income clients, particularly survivors of domestic violence, often qualify for equitable relief under § 6015(f) or § 66(c).2  I.R.C. § 66(c) provides equitable relief in community property states where a joint return was not filed; I.R.C. § 6015(f) applies if a joint return was filed (even in community property states). Unlike I.R.C. § 6015(b) and (c), § 6015(f) and § 66(c) permit equitable relief from an underpayment of income tax. The requesting spouse may even be able to obtain a refund in some circumstances.3

Under the requesting spouse must satisfy 7 threshold conditions for § 6015(f) relief.4  Conditions 1 and 2 don’t apply for a § 66(c) equitable relief request. These conditions are:

1. Filing a joint return
2. Denial of relief under § 6015(b) and (c)
3. Application within 2 years of first collection activity5
4. No transfer of assets as part of fraudulent scheme
5. No transfer of disqualified assets to the requesting spouse
6. Requesting spouse did not file or fail to file with fraudulent intent
7. Item resulting in deficiency or underpayment is attributable to non-requesting spouse unless (a) attribution is due to operation of community property laws and the item is only nominally owned by requesting spouse; (b) the non-requesting spouse misappropriated funds and the requesting spouse had no knowledge or reason to know of the misappropriation; or (c) abuse not amounting to duress led the requesting spouse not to challenge treatment of items.6

If a case involves an underpayment on a joint return, the IRS will ordinarily grant § 6015(f) equitable relief if the taxpayer meets the 3 “safe harbor” conditions in § 4.02 of Rev. Proc. 2003-61: marital status, no knowledge of underpayment, and economic hardship.7  In some cases, the marital status factor may be met even if the spouses lived separately in the same house.8  Equitable relief under § 4.02 is available to all joint return taxpayers with underpayments, including taxpayers in community property states.

If only partial relief is granted under § 4.02, a taxpayer may still be eligible for total relief under § 4.03.9  Equitable relief is available under § 4.03 for a “community property state” taxpayer who did not file a joint return, who requested relief under I.R.C. § 66(c), and who met the applicable threshold conditions of § 4.01, i.e., conditions 3 to 7. It is also available to a spouse who filed a joint return and met the § 4.01 threshold conditions, but did not qualify for “safe harbor” relief under § 4.02.

Under § 4.03, no single factor is determinative. All factors must be considered and weighed appropriately.10  The Tax Court now reviews IRS denials of § 6015(f) equitable relief under a de novo standard of review and a de novo scope of review.11 The Tax Court regularly reverses IRS denials of equitable relief. If the Tax Court finds that the IRS erred in denying equitable innocent spouse relief, it must decide the appropriate relief and may not remand the case to the IRS.12

• 1I.R.C. § 6015(f).
• 2For a sample analysis of § 6015(f) equitable innocent spouse relief, see Stephenson v. Comm’r, T.C. Memo 2011-16. For a sample analysis of § 66(c) equitable innocent spouse relief, see Bennett v. Comm’r, T.C. Summ. Op. 2005-84.
• 3See Rev. Proc. 2003-61, § 4.04; see also Washington v. Comm’r, 120 T.C. 137, 152–54 (2003).
• 4See Rev. Proc. 2003-61, § 4.01.
• 5The IRS has decided not to impose the 2-year time limit for § 6015(f) equitable relief claims. See Notice 2011-70, 2011-32 I.R.B. 135. However, the IRS has decided that that the Rev. Proc. 2003-61 time limits for § 66(c) equitable relief claims are invalid.
• 6For helpful discussion of the “abuse exception”, see Nihiser v. Comm’r, T.C. Memo 2008-135; Brown v. Comm’r, T.C. Summ. Op. 2008-121.
• 7Gonce v. Comm’r, T.C. Memo 2007-328.
• 8Nihiser v. Comm’r, T.C. Memo 2008-135.
• 9Cf. Bruen v. Comm’r, T.C. Memo 2009-249.
• 10Rosenthal v. Comm’r, T.C. Memo 2004-89.
• 11Porter v. Comm’r, 132 T.C. 2003 (2009).
• 12Friday v. Comm’r, 124 T.C. 220, 222 (2005); Nihiser v. Comm’r, T.C. Memo 2008-135.

The primary laws for innocent spouse relief from state taxes are La. R.S. 47:101(B)(7) and 47:1584.1  These laws are similar to the IRS rules for innocent spouse relief and are retroactive to all tax years. If possible, file the innocent spouse claim within two years of the first collection activity directed to the innocent spouse.2  Innocent spouses may also be relieved from suspension of driver’s licenses for failure to pay state taxes greater than $1,000.3

• 1Guidelines for filing state innocent spouse relief claims are found in Louisiana Department of Revenue Technical Advisory Memorandum 99-003.
• 2Although La. R.S. 47:101 establishes a 2-year limit for assertion of innocent spouse relief, La. R.S. 47:1584(B)(4) gives the Secretary authority to grant innocent spouse relief after the expiration of the two years.
• 3La. R.S. 47:296.