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Innocent Spouse ReliefSection 6015 regulations §1.6015-1. Relief from joint and several liability on a
joint return. (a) In
general. (b) Duress. (c) Prior
closing agreement or offer in compromise. (1) In
general. (2) Exception
for agreements relating to TEFRA partnership proceedings. (3) Examples. (d) Fraudulent
scheme. (e) Res
judicata and collateral estoppel. (f) Community
property laws. (1) In
general. (2) Example. (g) Scope of
this section and §§1.6015-2 through 1.6015-9. (h) Definitions. (1) Requesting
spouse. (2) Nonrequesting
spouse. (3) Item. (4) Erroneous
item. (5) Election
or request. (i) [Reserved] (j) Transferee
liability. (1) In
general. (2) Example.
(a) In
general. (b) Understatement. (c) Knowledge
or reason to know. (d) Inequity. (e) Partial
relief. (1) In
general. (2) Example.
(a) Election
to allocate liability. (b) Definitions. (1) Divorced. (2) Legally
separated. (3) Members
of the same household. (i)
Temporary
absences. (ii)
Separate
dwellings. (c) Limitations. (1) No
refunds. (2) Actual
knowledge. (i)
In general. (A) Omitted
income. (B) Deduction
or credit. (1) Erroneous
deductions in general. (2) Fictitious
or inflated deduction. (ii)
Partial
knowledge. (iii)
Knowledge of
the source not sufficient. (iv)
Factors
supporting actual knowledge. (v)
Abuse
exception. (3) Disqualified
asset transfers. (i)
In general. (ii)
Disqualified
asset defined. (iii)
Presumption. (4) Examples. (d) Allocation. (1) In
general. (2) Allocation
of erroneous items. (i)
Benefit on
the return. (ii)
Fraud. (iii)
Erroneous
items of income. (iv)
Erroneous
deduction items. (3) Burden of
proof. (4) General
allocation method. (i)
Proportionate
allocation. (ii)
Separate
treatment items. (iii)
Child's
liability. (iv)
Allocation
of certain items. (A) Alternative
minimum tax. (B) Accuracy-related
and fraud penalties. (5) Examples. (6) Alternative
allocation methods. (i)
Allocation
based on applicable tax rates. (ii)
Allocation
methods provided in subsequent published guidance. (iii)
Example.
(a) Requesting
relief. (b) Time
period for filing a request for relief. (1) In
general. (2) Definitions. (i)
Collection
activity. (ii)
Section 6330
notice. (3) Requests
for relief made before commencement of collection activity. (4) Examples. (5) Premature
requests for relief. (c) Effect of
a final administrative determination.
(a) In
general. (b) Information
submitted. (c) Effect of
opportunity to participate.
(a) In
general. (b) Time
period for petitioning the Tax Court. (c) Restrictions
on collection and suspension of the running of the period of
limitations. (1) Restrictions
on collection under §1.6015-2 or 1.6015-3. (2) Waiver of
the restrictions on collection. (3) Suspension
of the running of the period of limitations. (i)
Relief under
§1.6015-2 or 1.6015-3. (ii)
Relief under
§1.6015-4. (4) Definitions. (i)
Levy. (ii)
Proceedings
in court. (iii)
Assessment
to which the election relates.
(a) In
general. (b) Liabilities
paid on or before July 22, 1998. (c) Examples.
§1.6015-1., Relief from joint and several liability on a joint
return (a) In general (1) An
individual who qualifies and elects under section 6013 to file a joint
Federal income tax return with another individual is jointly and
severally liable for the joint Federal income tax liabilities for that
year. A spouse or former spouse may be relieved of joint and several
liability for Federal income tax for that year under the following three
relief provisions: (i)
Innocent
spouse relief under §1.6015-2. (ii)
Allocation
of deficiency under §1.6015-3. (iii)
Equitable
relief under §1.6015-4. (2) A
requesting spouse may submit a single claim electing relief under both
or either §§1.6015-2 and 1.6015-3, and requesting relief under §1.6015-4.
However, equitable relief under §1.6015-4 is available only to a
requesting spouse who fails to qualify for relief under §§1.6015-2 and
1.6015-3. If a requesting spouse elects the application of either §1.6015-2
or 1.6015-3, the Internal Revenue Service will consider whether relief
is appropriate under the other elective provision and, to the extent
relief is unavailable under either, under §1.6015-4. If a requesting
spouse seeks relief only under §1.6015-4, the Secretary may not grant
relief under §1.6015-2 or 1.6015-3 in the absence of an affirmative
election made by the requesting spouse under either of those sections.
If in the course of reviewing a request for relief only under §1.6015-4,
the (3) Relief is
not available for liabilities that are required to be reported on a
joint Federal income tax return but are not income taxes imposed under
Subtitle A of the Internal Revenue Code (e.g., domestic service
employment taxes under section 3510). (b) Duress. --For rules relating to the treatment of returns signed under
duress, see §1.6013-4(d). (c) Prior closing
agreement or offer in compromise (1) In general. --A requesting spouse is not entitled to relief from joint and
several liability under §1.6015-2, 1.6015-3, or 1.6015-4 for any tax
year for which the requesting spouse has entered into a closing
agreement with the Commissioner that disposes of the same liability that
is the subject of the claim for relief. In addition, a requesting spouse
is not entitled to relief from joint and several liability under §1.6015-2,
1.6015-3, or 1.6015-4 for any tax year for which the requesting spouse
has entered into an offer in compromise with the Commissioner. For rules
relating to the effect of closing agreements and offers in compromise,
see sections 7121 and 7122, and the regulations thereunder. (2) Exception for agreements relating to TEFRA partnership proceedings.
--The rule
in paragraph (c)(1) of this section regarding the unavailability of
relief from joint and several liability when the liability to which the
claim for relief relates was the subject of a prior closing agreement
entered into by the requesting spouse, shall not apply to an agreement
described in section 6224(c) with respect to partnership items (or any
penalty, addition to tax, or additional amount that relates to
adjustments to partnership items) that is entered into while the
requesting spouse is a party to a pending partnership-level proceeding
conducted under the provisions of subchapter C of chapter 63 of subtitle
F of the Internal Revenue Code (TEFRA partnership proceeding). If,
however, a requesting spouse enters into a closing agreement pertaining
to any penalty, addition to tax, or additional amount that relates to
adjustments to partnership items, at a time when the requesting spouse
is not a party to a pending TEFRA partnership proceeding (e.g., in
connection with an affected items proceeding), then the provisions of
paragraph (c)(1) shall apply. Similarly, if a requesting spouse enters
into a closing agreement with respect to both partnership items
(including affected items) and nonpartnership items, while the
requesting spouse is a party to a pending TEFRA partnership proceeding,
the provisions of paragraph (c)(1) shall apply to the portion of the
closing agreement that relates to nonpartnership items and the
provisions of this paragraph (c)(2) shall apply to the remainder of the
closing agreement. (3) Examples. --The following examples illustrate the rules of this paragraph
(c): Example 1. H
and W file joint returns for taxable years 2002-2004, on which they
claim losses attributable to H's limited partnership interest in
Partnership A. In January 2006, the Internal Revenue Service commences
an audit under the provisions of subchapter C of chapter 63 of subtitle
F of the Internal Revenue Code (TEFRA partnership proceeding) regarding
Partnership A's 2002-2004 taxable years, and sends H and W a notice
under section 6223(a)(1). In September 2007, H files a bankruptcy
petition under chapter 7 of the Bankruptcy Code and receives a discharge
in April 2008. In August 2008, H and W enter into a closing agreement
with the Internal Revenue Service, in which H and W agree to the
disallowance of some of the claimed losses from Partnership A for
taxable years 2002 through 2007. W may not later claim relief from joint
and several liability under section 6015 as to the disallowed losses
attributable to Partnership A for taxable years 2002 to 2007. This is
because at the time W entered into the closing agreement, H's
partnership items attributable to Partnership A had converted to
nonpartnership items as a result of H's filing of the bankruptcy
petition. The conversion of H's items also terminated W's status as a
partner in the TEFRA partnership proceeding regarding Partnership A.
Consequently, the closing agreement did not pertain to partnership items
and W was not a party to a pending partnership-level proceeding
regarding Partnership A when she entered into the closing agreement.
Accordingly, the exception in paragraph (c)(2) of this section for
agreements relating to TEFRA partnership proceedings does not apply. Example 2. H
and W file a joint return for taxable year 2002, on which they claim
$25,000 in losses attributable to H's general partnership interest in
Partnership B. In November 2003, the Service proposes a deficiency in
tax relating to H's and W's 2002 joint return arising from omitted
taxable interest income in the amount of $2,000 that is attributable to
H. In July 2005, the Internal Revenue Service commences a TEFRA
partnership proceeding regarding Partnership B's 2002 and 2003 taxable
years, and sends H and W a notice under section 6223(a)(1). In March
2006, H and W enter into a closing agreement with the Service. The
closing agreement provides for the disallowance of the claimed losses
from Partnership B in excess of H's and W's out-of-pocket expenditures
relating to Partnership B for taxable year 2002 and any subsequent
year(s) in which H and W claimed losses from Partnership B. In addition,
H and W agree to the imposition of the accuracy-related penalty under
section 6662 with respect to the disallowed losses attributable to
partnership B. In the closing agreement, H and W also agree to the
deficiency resulting from the omitted interest income for taxable year
2002. W may not later claim relief from joint and several liability
under section 6015 as to the deficiency in tax attributable to the
omitted income of $2,000 for taxable year 2002, because this portion of
the closing agreement pertains to nonpartnership items. In contrast, W
may claim relief from joint and several liability as to the disallowed
losses and accuracy-related penalty attributable to Partnership B for
taxable year 2002 or any subsequent year(s). This is because this
portion of the closing agreement pertains to partnership and affected
items and was entered into at a time when W was a party to the pending
partnership-level proceeding regarding Partnership B. Consequently, W
never had the opportunity to raise the innocent spouse defense in the
course of that TEFRA partnership proceeding. (See §1.6015-5(b)(5)
relating to premature claims). (d) Fraudulent scheme. --If the Secretary establishes that a spouse transferred assets
to the other spouse as part of a fraudulent scheme, relief is not
available under section 6015, and section 6013(d)(3) applies to the
return. For purposes of this section, a fraudulent scheme includes a
scheme to defraud the Service or another third party, including, but not
limited to, creditors, ex-spouses, and business partners. (e) Res judicata and collateral estoppel. --A
requesting spouse is barred from relief from joint and several liability
under section 6015 by res judicata for any tax year for which a court of
competent jurisdiction has rendered a final decision on the requesting
spouse's tax liability if relief under section 6015 was at issue in the
prior proceeding, or if the requesting spouse meaningfully participated
in that proceeding and could have raised relief under section 6015. A
requesting spouse has not meaningfully participated in a prior
proceeding if, due to the effective date of section 6015, relief under
section 6015 was not available in that proceeding. Also, any final
decisions rendered by a court of competent jurisdiction regarding issues
relevant to section 6015 are conclusive and the requesting spouse may be
collaterally estopped from relitigating those issues. (f) Community property laws (1) In general. --In determining whether relief is available under §1.6015-2,
1.6015-3, or 1.6015-4, items of income, credits, and deductions are
generally allocated to the spouses without regard to the operation of
community property laws. An erroneous item is attributed to the
individual whose activities gave rise to such item. See §1.6015-3(d)(2). (2) Example. --The following example illustrates the rule of this paragraph
(f): Example. (i)
H and W are married and have lived in State A (a community property
state) since 1987. On April 15, 2003, H and W file a joint Federal
income tax return for the 2002 taxable year. In August 2005, the
Internal Revenue Service proposes a $17,000 deficiency with respect to
the 2002 joint return. A portion of the deficiency is attributable to
$20,000 of H's unreported interest income from his individual bank
account. The remainder of the deficiency is attributable to $30,000 of
W's disallowed business expense deductions. Under the laws of State A, H
and W each own 1/2 of all income earned and property acquired during the
marriage. (ii)
In November 2005, H and W divorce and W timely elects to allocate the
deficiency. Even though the laws of State A provide that 1/2 of the
interest income is W's, for purposes of relief under this section, the
$20,000 unreported interest income is allocable to H, and the $30,000
disallowed deduction is allocable to W. The community property laws of
State A are not considered in allocating items for this purpose. (g) Scope of this section and §§1.6015-2 through 1.6015-9. --This
section and §§1.6015-2 through 1.6015-9 do not apply to any portion of
a liability for any taxable year for which a claim for credit or refund
is barred by operation of law or rule of law. (h) Definitions (1) Requesting spouse. --A requesting spouse is an individual who filed a joint return
and elects relief from Federal income tax liability arising from that
return under §1.6015-2 or 1.6015-3, or requests relief from Federal
income tax liability arising from that return under §1.6015-4. (2) Nonrequesting spouse. --A nonrequesting spouse is the individual with whom the
requesting spouse filed the joint return for the year for which relief
from liability is sought. (3) Item. --An item is that which is required to be separately listed on an
individual income tax return or any required attachments. Items include,
but are not limited to, gross income, deductions, credits, and basis. (4) Erroneous item. --An erroneous item is any item resulting in an understatement
or deficiency in tax to the extent that such item is omitted from, or
improperly reported (including improperly characterized) on an
individual income tax return. For example, unreported income from an
investment asset resulting in an understatement or deficiency in tax is
an erroneous item. Similarly, ordinary income that is improperly
reported as capital gain resulting in an understatement or deficiency in
tax is also an erroneous item. In addition, a deduction for an expense
that is personal in nature that results in an understatement or
deficiency in tax is an erroneous item of deduction. An erroneous item
is also an improperly reported item that affects the liability on other
returns (e.g., an improper net operating loss that is carried back to a
prior year's return). Penalties and interest are not erroneous items.
Rather, relief from penalties and interest will generally be determined
based on the proportion of the total erroneous items from which the
requesting spouse is relieved. If a penalty relates to a particular
erroneous item, see §1.6015-3(d)(4)(iv)(B). (5) Election or request. --A qualifying election under §1.6015-2 or 1.6015-3, or
request under §1.6015-4, is the first timely claim for relief from
joint and several liability for the tax year for which relief is sought.
A qualifying election also includes a requesting spouse's second
election to seek relief from joint and several liability for the same
tax year under §1.6015-3 when the additional qualifications of
paragraphs (h)(5)(i) and (ii) of this section are met -- (i)
The
requesting spouse did not qualify for relief under §1.6015-3 when the
Internal Revenue Service considered the first election solely because
the qualifications of §1.6015-3(a) were not satisfied; and (ii)
At the time
of the second election, the qualifications for relief under §1.6015-3(a)
are satisfied. (i) [Reserved] (j) Transferee liability (1) In general. --The relief provisions of section 6015 do not negate liability
that arises under the operation of other laws. Therefore, a requesting
spouse who is relieved of joint and several liability under §1.6015-2,
1.6015-3, or 1.6015-4 may nevertheless remain liable for the unpaid tax
(including additions to tax, penalties, and interest) to the extent
provided by Federal or state transferee liability or property laws. For
the rules regarding the liability of transferees, see sections 6901
through 6904 and the regulations thereunder. In addition, the requesting
spouse's property may be subject to collection under Federal or state
property laws. (2) Example. --The following example illustrates the rule of this paragraph
(j): Example. H
and W timely file their 1998 joint income tax return on April 15, 1999.
H dies in March 2000, and the executor of H's will transfers all of the
estate's assets to W. In July 2001, the Internal Revenue Service
assesses a deficiency for the 1998 return. The items giving rise to the
deficiency are attributable to H. W is relieved of the liability under
section 6015, and H's estate remains solely liable. The Internal Revenue
Service may seek to collect the deficiency from W to the extent
permitted under Federal or state transferee liability or property laws. [Reg.
§1.6015-1.]
(a) In general. --A requesting spouse may be relieved of joint and several
liability for tax (including additions to tax, penalties, and interest)
from an understatement for a taxable year under this section if the
requesting spouse elects the application of this section in accordance
with §§1.6015-1(h)(5) and 1.6015-5, and -- (1) A joint
return was filed for the taxable year; (2) On the
return there is an understatement attributable to erroneous items of the
nonrequesting spouse; (3) The requesting spouse establishes that
in signing the return he or she did not know and had no reason to know
of the understatement; and (4) It is
inequitable to hold the requesting spouse liable for the deficiency
attributable to the understatement. (b) Understatement. --The term understatement has the meaning given to such
term by section 6662(d)(2)(A) and the regulations thereunder. (c) Knowledge or reason to
know. --A
requesting spouse has knowledge or reason to know of an understatement
if he or she actually knew of the understatement, or if a reasonable
person in similar circumstances would have known of the understatement.
For rules relating to a requesting spouse's actual knowledge, see §1.6015-3(c)(2).
All of the facts and circumstances are considered in determining whether
a requesting spouse had reason to know of an understatement. The facts
and circumstances that are considered include, but are not limited to,
the nature of the erroneous item and the amount of the erroneous item
relative to other items; the couple's financial situation; the
requesting spouse's educational background and business experience; the
extent of the requesting spouse's participation in the activity that
resulted in the erroneous item; whether the requesting spouse failed to
inquire, at or before the time the return was signed, about items on the
return or omitted from the return that a reasonable person would
question; and whether the erroneous item represented a departure from a
recurring pattern reflected in prior years' returns (e.g., omitted
income from an investment regularly reported on prior years' returns). (d) Inequity. --All
of the facts and circumstances are considered in determining whether it
is inequitable to hold a requesting spouse jointly and severally liable
for an understatement. One relevant factor for this purpose is whether
the requesting spouse significantly benefitted, directly or indirectly,
from the understatement. A significant benefit is any benefit in excess
of normal support. Evidence of direct or indirect benefit may consist of
transfers of property or rights to property, including transfers that
may be received several years after the year of the understatement.
Thus, for example, if a requesting spouse receives property (including
life insurance proceeds) from the nonrequesting spouse that is beyond
normal support and traceable to items omitted from gross income that are
attributable to the nonrequesting spouse, the requesting spouse will be
considered to have received significant benefit from those items. Other
factors that may also be taken into account, if the situation warrants,
include the fact that the requesting spouse has been deserted by the
nonrequesting spouse, the fact that the spouses have been divorced or
separated, or that the requesting spouse received benefit on the return
from the understatement. For guidance concerning the criteria to be used
in determining whether it is inequitable to hold a requesting spouse
jointly and severally liable under this section, see Rev. Proc. 2000-15
(2000-1 C.B. 447), or other guidance published by the Treasury and (e)
Partial relief (1) In general. --If a requesting spouse had no knowledge or reason to know of
only a portion of an erroneous item, the requesting spouse may be
relieved of the liability attributable to that portion of that item, if
all other requirements are met with respect to that portion. (2) Example. --The following example illustrates the rules of this paragraph
(e): Example. H
and W are married and file their 2004 joint income tax return in March
2005. In April 2006, H is convicted of embezzling $2 million from his
employer during 2004. H kept all of his embezzlement income in an
individual bank account, and he used most of the funds to support his
gambling habit. H and W had a joint bank account into which H and W
deposited all of their reported income. Each month during 2004, H
transferred an additional $10,000 from the individual account to H and
W's joint bank account. W paid the household expenses using this joint
account, and regularly received the bank statements relating to the
account. W had no knowledge or reason to know of H's embezzling
activities. However, W did have knowledge and reason to know of $120,000
of the $2 million of H's embezzlement income at the time she signed the
joint return because that amount passed through the couple's joint bank
account. Therefore, W may be relieved of the liability arising from
$1,880,000 of the unreported embezzlement income, but she may not be
relieved of the liability for the deficiency arising from $120,000 of
the unreported embezzlement income of which she knew and had reason to
know. [Reg.
§1.6015-2.]
(a) Election to allocate deficiency. --A
requesting spouse may elect to allocate a deficiency if, as defined in
paragraph (b) of this section, the requesting spouse is divorced,
widowed, or legally separated, or has not been a member of the same
household as the nonrequesting spouse at any time during the 12-month
period ending on the date an election for relief is filed. For purposes
of this section, the marital status of a deceased requesting spouse will
be determined on the earlier of the date of the election or the date of
death in accordance with section 7703(a)(1). Subject to the restrictions
of paragraph (c) of this section, an eligible requesting spouse who
elects the application of this section in accordance with §§1.6015-1(h)(5)
and 1.6015-5 generally may be relieved of joint and several liability
for the portion of any deficiency that is allocated to the nonrequesting
spouse pursuant to the allocation methods set forth in paragraph (d) of
this section. Relief may be available to both spouses filing the joint
return if each spouse is eligible for and elects the application of this
section. (b) Definitions (1) Divorced. --A determination of whether a requesting spouse is divorced
for purposes of this section will be made in accordance with section
7703 and the regulations thereunder. Such determination will be made as
of the date the election is filed. (2) Legally separated. --A determination of whether a requesting spouse is legally
separated for purposes of this section will be made in accordance with
section 7703 and the regulations thereunder. Such determination will be
made as of the date the election is filed. (3) Members of the same household (i)
Temporary absences. --A
requesting spouse and a nonrequesting spouse are considered members of
the same household during either spouse's temporary absences from the
household if it is reasonable to assume that the absent spouse will
return to the household, and the household or a substantially equivalent
household is maintained in anticipation of such return. Examples of
temporary absences may include, but are not limited to, absence due to
incarceration, illness, business, vacation, military service, or
education. (ii)
Separate dwellings. --A husband and wife who reside in the same dwelling are
considered members of the same household. In addition, a husband and
wife who reside in two separate dwellings are considered members of the
same household if the spouses are not estranged or one spouse is
temporarily absent from the other's household within the meaning of
paragraph (b)(3)(i) of this section. (c) Limitations (1) No refunds. --Relief under this section is only available for unpaid
liabilities resulting from understatements of liability. Refunds are not
authorized under this section. (2) Actual knowledge (i)
In general. --If,
under section 6015(c)(3)(C), the Secretary demonstrates that, at the
time the return was signed, the requesting spouse had actual knowledge
of an erroneous item that is allocable to the nonrequesting spouse, the
election to allocate the deficiency attributable to that item is
invalid, and the requesting spouse remains liable for the portion of the
deficiency attributable to that item. The Service, having both the
burden of production and the burden of persuasion, must establish, by a
preponderance of the evidence, that the requesting spouse had actual
knowledge of the erroneous item in order to invalidate the election. (A) Omitted income. --In
the case of omitted income, knowledge of the item includes knowledge of
the receipt of the income. For example, assume W received $5,000 of
dividend income from her investment in X Co. but did not report it on
the joint return. H knew that W received $5,000 of dividend income from
X Co. that year. H had actual knowledge of the erroneous item (i.e.,
$5,000 of unreported dividend income from X Co.), and no relief is
available under this section for the deficiency attributable to the
dividend income from X Co. This rule applies equally in situations where
the other spouse has unreported income although the spouse does not have
an actual receipt of cash (e.g., dividend reinvestment or a distributive
share from a flow-through entity shown on Schedule K-1, "Partner's
Share of Income, Credits, Deductions, etc."). (B) Deduction or credit (1)
Erroneous deductions in general. --In
the case of an erroneous deduction or credit, knowledge of the item
means knowledge of the facts that made the item not allowable as a
deduction or credit. (2)
Fictitious or inflated deduction. --If
a deduction is fictitious or inflated, the (ii)
Partial knowledge. --If a requesting spouse had actual knowledge of only a portion
of an erroneous item, then relief is not available for that portion of
the erroneous item. For example, if H knew that W received $1,000 of
dividend income and did not know that W received an additional $4,000 of
dividend income, relief would not be available for the portion of the
deficiency attributable to the $1,000 of dividend income of which H had
actual knowledge. A requesting spouse's actual knowledge of the proper
tax treatment of an item is not relevant for purposes of demonstrating
that the requesting spouse had actual knowledge of an erroneous item.
For example, assume H did not know W's dividend income from X Co. was
taxable, but knew that W received the dividend income. Relief is not
available under this section. In addition, a requesting spouse's
knowledge of how an erroneous item was treated on the tax return is not
relevant to a determination of whether the requesting spouse had actual
knowledge of the item. For example, assume that H knew of W's dividend
income, but H failed to review the completed return and did not know
that W omitted the dividend income from the return. Relief is not
available under this section. (iii)
Knowledge of the source not sufficient. --Knowledge
of the source of an erroneous item is not sufficient to establish actual
knowledge. For example, assume H knew that W owned X Co. stock, but H
did not know that X Co. paid dividends to W that year. H's knowledge of
W's ownership in X Co. is not sufficient to establish that H had actual
knowledge of the dividend income from X Co. In addition, a requesting
spouse's actual knowledge may not be inferred when the requesting spouse
merely had reason to know of the erroneous item. Even if H's knowledge
of W's ownership interest in X Co. indicates a reason to know of the
dividend income, actual knowledge of such dividend income cannot be
inferred from H's reason to know. Similarly, the (iv)
Factors supporting actual knowledge. --To
demonstrate that a requesting spouse had actual knowledge of an
erroneous item at the time the return was signed, the (v)
Abuse exception. --If
the requesting spouse establishes that he or she was the victim of
domestic abuse prior to the time the return was signed, and that, as a
result of the prior abuse, the requesting spouse did not challenge the
treatment of any items on the return for fear of the nonrequesting
spouse's retaliation, the limitation on actual knowledge in this
paragraph (c) will not apply. However, if the requesting spouse
involuntarily executed the return, the requesting spouse may choose to
establish that the return was signed under duress. In such a case, §1.6013-4(d)
applies. (3) Disqualified asset transfers (i)
In general. --The
portion of the deficiency for which a requesting spouse is liable is
increased (up to the entire amount of the deficiency) by the value of
any disqualified asset that was transferred to the requesting spouse.
For purposes of this paragraph (c)(3), the value of a disqualified asset
is the fair market value of the asset on the date of the transfer. (ii)
Disqualified asset defined. --A disqualified asset is any property or right to property
that was transferred from the nonrequesting spouse to the requesting
spouse if the principal purpose of the transfer was the avoidance of tax
or payment of tax (including additions to tax, penalties, and interest). (iii)
Presumption. --Any asset transferred from the nonrequesting spouse to the requesting
spouse during the 12-month period before the mailing date of the first
letter of proposed deficiency (e.g., a 30-day letter or, if no 30-day
letter is mailed, a notice of deficiency) is presumed to be a
disqualified asset. The presumption also applies to any asset that is
transferred from the nonrequesting spouse to the requesting spouse after
the mailing date of the first letter of proposed deficiency. The
presumption does not apply, however, if the requesting spouse
establishes that the asset was transferred pursuant to a decree of
divorce or separate maintenance or a written instrument incident to such
a decree. If the presumption does not apply, but the Internal Revenue
Service can establish that the purpose of the transfer was the avoidance
of tax or payment of tax, the asset will be disqualified, and its value
will be added to the amount of the deficiency for which the requesting
spouse remains liable. If the presumption applies, a requesting spouse
may still rebut the presumption by establishing that the principal
purpose of the transfer was not the avoidance of tax or payment of tax. (4) Examples. --The following examples illustrate the rules in this paragraph
(c): Example 1. Actual
knowledge of an erroneous item. (i) H and W file their 2001 joint
Federal income tax return on April 15, 2002. On the return, H and W
report W's self-employment income, but they do not report W's
self-employment tax on that income. H and W divorce in July 2003. In
August 2003, H and W receive a 30-day letter from the Internal Revenue
Service proposing a deficiency with respect to W's unreported
self-employment tax on the 2001 return. On November 4, 2003, H files an
election to allocate the deficiency to W. The erroneous item is the
self-employment income, and it is allocable to W. H knows that W earned
income in 2001 as a self-employed musician, but he does not know that
self-employment tax must be reported on and paid with a joint return. (ii)
H's election to allocate the deficiency to W is invalid because, at the
time H signed the joint return, H had actual knowledge of W's
self-employment income. The fact that H was unaware of the tax
consequences of that income (i.e., that an individual is required to pay
self-employment tax on that income) is not relevant. Example 2. Actual
knowledge not inferred from a requesting spouse's reason to know. (i)
H has long been an avid gambler. H supports his gambling habit and keeps
all of his gambling winnings in an individual bank account, held solely
in his name. W knows about H's gambling habit and that he keeps a
separate bank account, but she does not know whether he has any winnings
because H does not tell her, and she does not otherwise know of H's bank
account transactions. H and W file their 2001 joint Federal income tax
return on (ii)
While W may have had reason to know of the gambling income because she
knew of H's gambling habit and separate account, W did not have actual
knowledge of the erroneous item (i.e., the gambling winnings). The
Internal Revenue Service may not infer actual knowledge from W's reason
to know of the income. Therefore, W's election to allocate the $100,000
deficiency to H is valid. Example 3. Actual
knowledge and failure to review return. (i) H and W are legally
separated. In February 1999, W signs a blank joint Federal income tax
return for 1998 and gives it to H to fill out. The return was timely
filed on (ii)
On Example 4. Actual
knowledge of an erroneous item of income. (i) H and W are legally
separated. In June 2004, a deficiency is proposed with respect to H's
and W's 2002 joint Federal income tax return that is attributable to
$30,000 of unreported income from H's plumbing business that should have
been reported on a Schedule C. No Schedule C was attached to the return.
At the time W signed the return, W knew that H had a plumbing business
but did not know whether H received any income from the business. W's
election to allocate to H the deficiency attributable to the $30,000 of
unreported plumbing income is valid. (ii)
Assume the same facts as in paragraph (i) of this Example 5
except that, at the time W signed the return, W knew that H received
$20,000 of plumbing income. W's election to allocate to H the deficiency
attributable to the $20,000 of unreported plumbing income (of which W
had actual knowledge) is invalid. W's election to allocate to H the
deficiency attributable to the $10,000 of unreported plumbing income (of
which W did not have actual knowledge) is valid. (iii)
Assume the same facts as in paragraph (i) of this Example 5
except that, at the time W signed the return, W did not know the exact
amount of H's plumbing income. W did know, however, that H received at
least $8,000 of plumbing income. W's election to allocate to H the
deficiency attributable to $8,000 of unreported plumbing income (of
which W had actual knowledge) is invalid. W's election to allocate to H
the deficiency attributable to the remaining $22,000 of unreported
plumbing income (of which W did not have actual knowledge) is valid. (iv)
Assume the same facts as in paragraph (i) of this Example 5
except that H reported $26,000 of plumbing income on the return and
omitted $4,000 of plumbing income from the return. At the time W signed
the return, W knew that H was a plumber, but she did not know that H
earned more than $26,000 that year. W's election to allocate to H the
deficiency attributable to the $4,000 of unreported plumbing income is
valid because she did not have actual knowledge that H received plumbing
income in excess of $26,000. |
