Below are basic innocent spouse terms related to the determination of relief. This listing is by no means exhaustive or complete.
Actual Knowledge – The requesting spouse actually knew of the erroneous item. This is a high standard and can be met by the following:
- A confession from the requesting spouse.
- A “smoking gun” providing evidence of actual knowledge. For example, the requesting spouse took receipt of unreported income and deposited it into a joint checking account. Or the requesting spouse doctored receipts or invoices for an erroneous deduction.
- So much circumstantial evidence that a reasonable person would conclude the requesting spouse had to have actual knowledge of the erroneous item.
Allocation – The assignment of individual income and expense items between the spouses to compute the portion of an underpayment or understatement belonging to each spouse.
Apportionment – Partial relief of a specific item or the entire underpayment/understatement.
Attribution – The spouse to which an item of income, expense, additional tax or credit belongs. Attribution is king – there is no relief for your own item(s).
Collection Activity – Actions that constitute “collection activity” include:
- The offset of a refund against the requesting spouse.
- For claims filed on or after July 18, 2002, the sending of an IRC 6330 notice to the taxpayer will trigger the two year period. An IRC 6330 notice is the notice sent pursuant to IRC Section 6330, which provides the taxpayer with notice of the IRS’s intent to levy and of their right to a collection due process (CDP) hearing. A CDP Notice will not start the two year period for filing an IRC 6015 claim unless the CDP notice informs the taxpayer of the taxpayer’s right to file a claim under IRC 6015.
- The filing of a suit by the United States against the requesting spouse for the collection of a joint tax liability triggers the two year period. If a collection suit was filed, the two year period begins to run from the date the suit is filed.
Constructive Knowledge – A reasonable person in a similar situation would have known of the error. Factors to consider regarding the requesting spouse are:
- The nature and amount of the erroneous item relative to other items.
- The couple’s financial situation.
- The education and experience of the requesting spouse.
- Extent of involvement in the erroneous item.
- Whether the requesting spouse failed to question the item when a reasonable person would have questioned.
- Whether the erroneous item represents a departure from prior years treatment of the item.
Deficiency – A proposed additional tax based upon an active IRS examination that has not yet been assessed.
Deficiency Proceeding – An active IRS examination resulting in additional tax that has been proposed but not yet assessed.
Erroneous Item – Any item resulting in an understatement of tax. Can be unreported income or overstated deduction. Also includes other taxes and credits. Penalties and interest are not erroneous items.
Non-requesting Spouse – The other party to the joint return.
Post-Assessment Claim – An innocent spouse claim filed after tax has been assessed. The assessed tax can be from either an unpaid balance due from the original return or from additional tax resulting from a deficiency proceeding. Post-Assessment claims comprise the vast majority of innocent spouse claims filed.
Pre-Assessment Claim – An innocent spouse claim filed during a deficiency proceeding, as defined above.
Requesting Spouse – The spouse filing an innocent spouse claim.
Underpayment – An unpaid balance due reported on an original return.
Understatement – An assessment resulting from an audit. Also known as a deficiency assessment.