In Uncategorized on 01/06/2012 at 16:27

Or, Less Work for Us Tax Court Bloggers?

Though no new Tax Court cases came down on January 6, IRS kindly filled the gap by issuing IRS Notice 2012-8 on January 5, setting out a proposed replacement to Rev. Proc. 2003-61, 2003-2 C.B. 296, the Section 6015(f) equity relief for the innocent spouse.

Apparently the spate of Tax Court cases over the last few years has caused IRS to re-engineer its approach where the requestor makes out a case for spousal abuse by, or financial control exercised by, the non-requestor. And the proposed Rev. Proc. also cleans up the process generally.

A couple of points follow, but read the whole Notice, there’s a lot more.

IRS will “streamline” its treatment of innocent spousery when: “… the requesting spouse establishes that the requesting spouse:

(1) Is no longer married to the nonrequesting spouse…;

(2) Would suffer economic hardship if relief were not granted…; and

(3) Did not know or have reason to know that there was an understatement or deficiency on the joint return…, or did not know or have reason to know that the nonrequesting spouse would not or could not pay the underpayment of tax reported on the joint income tax return …. If the nonrequesting spouse abused the requesting spouse or maintained control over the household finances by restricting the requesting spouse’s access to financial information, and therefore, because of the abuse or financial control the requesting spouse was not able to challenge the treatment of any items on the joint return, or to question the payment of the taxes reported as due on the joint return or challenge the nonrequesting spouse’s assurance regarding payment of the taxes, for fear of the nonrequesting spouse’s retaliation, then the abuse or financial control will result in this factor being satisfied even if the requesting spouse had knowledge or reason to know of the items giving rise to the understatement or deficiency or had knowledge or reason to know that the nonrequesting spouse would not pay the tax liability.” Notice 2012-8, at pp. 14-15.

The proposed Rev. Proc. also defines “economic hardship”, a useful step when what we usually see is a dissection of a spouse’s income and expenses, a time-wasting exercise that cannot be applied in any case but the one at bar. Here’s IRS’ new answer: “If the requesting spouse’s income is below 250% of the Federal poverty guidelines, or if the requesting spouse’s monthly income exceeds the requesting spouse’s reasonable basic monthly living expenses by $300 or less, then this factor will weigh in favor of relief unless the requesting spouse has assets out of which the requesting spouse can make payments towards the tax liability and still adequately meet the requesting spouse’s reasonable basic living expenses. If the requesting spouse’s income exceeds these standards, the Service will consider all facts and circumstances in determining whether the requesting spouse would suffer economic hardship if relief is not granted.” Notice 2012-8, at pp. 17-18.

Oh yes, IRS will apply all these new procedures at once, without waiting for the Rev. Proc. to issue in final form. “Because the provisions in the proposed revenue procedure expand the equitable relief analysis by providing additional considerations for taxpayers seeking relief, until the revenue procedure is finalized, the Service will apply the provisions in the proposed revenue procedure instead of Rev. Proc. 2003-61 in evaluating claims for equitable relief under section 6015(f). If taxpayers conclude that they would receive more favorable treatment under one or more of the factors provided in Rev. Proc. 2003-61 they should advise the Service in their application for relief or supplement an already existing application. Then the Service will apply those factors from Rev. Proc. 2003-61, until a new revenue procedure is finalized.” Notice 2012-8, at p. 3. So until the new Rev. Proc. is issued, it’s gambler’s choice.

Hopefully, the new procedures will supply speedy relief to the innocent without the need for Tax Court intervention, and discourage the undeserving. Of course, for a $60 petition fee, the undeserving can still waste Tax Court’s time.

Maybe there will be less in the innocent spouse sphere for us bloggers to blog about, as well.

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