26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct liability. (Also: sections 66, 6015) Rev. Proc. 2013-34 SECTION 1. PURPOSE AND SCOPE

.01 Purpose. This revenue procedure provides guidance for a taxpayer seeking

equitable relief from income tax liability under section 66(c) or section 6015(f) of the

Internal Revenue Code (a “requesting spouse”). Section 4.01 of this revenue procedure

provides the threshold requirements for any request for equitable relief. Section 4.02 of

this revenue procedure sets forth the conditions under which the Internal Revenue

Service will make streamlined relief determinations granting equitable relief under

section 6015(f) from an understatement of income tax or an underpayment of income

tax reported on a joint return, or the operation of community property law under section

66(c). Section 4.03 of this revenue procedure provides a nonexclusive list of factors for

consideration in determining whether relief should be granted under section 6015(f)

because it would be inequitable to hold a requesting spouse jointly and severally liable

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when the conditions of section 4.02 are not met. The factors in section 4.03 also will

apply in determining whether to relieve a spouse from income tax liability resulting from

the operation of community property law under the equitable relief provision of section

66(c).

.02 Scope. This revenue procedure applies to spouses who request either

equitable relief from joint and several liability under section 6015(f), or equitable relief

under section 66(c) from income tax liability resulting from the operation of community

property law.

SECTION 2. BACKGROUND

.01 Section 6013(d)(3) provides that married taxpayers who file a joint return

under section 6013 will be jointly and severally liable for the income tax arising from that

joint return. For purposes of section 6013(d)(3) and this revenue procedure, the term

“tax” includes penalties, additions to tax, and interest. See sections 6601(e)(1) and

6665(a)(2).

.02 Section 3201(a) of the Internal Revenue Service Restructuring and Reform

Act of 1998, Pub. L. No. 105-206, 112 Stat. 685, 734 (RRA), enacted section 6015,

which provides relief in certain circumstances from the joint and several liability imposed

by section 6013(d)(3). Section 6015(b) and (c) specify two sets of circumstances under

which relief from joint and several liability is available in cases involving

understatements of tax. Section 6015(b) is modeled after former section 6013(e), the

prior innocent spouse statute, and section 6015(c) provides for separation of liability for

taxpayers who are no longer married to, are legally separated from, or not living

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together with the person with whom they filed a joint return. If relief is not available

under section 6015(b) or (c), section 6015(f) authorizes the Secretary to grant equitable

relief if, taking into account all the facts and circumstances, the Secretary determines

that it is inequitable to hold a requesting spouse liable for any unpaid tax or any

deficiency (or any portion of either).

Section 66(c) provides relief from income tax liability resulting from the operation

of community property law to taxpayers domiciled in a community property state who do

not file a joint return. Section 3201(b) of the RRA amended section 66(c) to add an

equitable relief provision similar to section 6015(f).

.03 Section 6015 provides relief only from joint and several liability arising from a

joint return. If an individual signs a joint return under duress, the election to file jointly is

not valid and there is no valid return with respect to the requesting spouse. The

individual is not jointly and severally liable for any income tax liabilities arising from that

return. In that case, section 6015 does not apply and is not necessary for obtaining

relief. If an individual files a claim for relief under section 6015, but also maintains that

there is no valid joint return due to duress, the Service will first make a determination as

to the validity of the joint return and may accordingly deny the request for section 6015

relief based on the fact that no joint return was filed (and thus, relief is not necessary).

If it is ultimately determined that a valid joint return was filed, the Service will then

consider whether the individual would be entitled to relief from joint and several liability

on the merits.

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.04 Under section 6015(b) and (c), relief is available only from an

understatement or a deficiency. Section 6015(b) and (c) do not authorize relief from an

underpayment of income tax reported on a joint return. Section 66(c) and section

6015(f) permit equitable relief from an underpayment of income tax or from a deficiency.

The legislative history of section 6015 provides that Congress intended for the

Secretary to exercise discretion in granting equitable relief from an underpayment of

income tax if a requesting spouse “does not know, and had no reason to know, that

funds intended for the payment of tax were instead taken by the other spouse for such

other spouse’s benefit.” H.R. Conf. Rep. No. 105-599, at 254 (1998). Congress also

intended for the Secretary to exercise the equitable relief authority under section 6015(f)

in other situations if, “taking into account all the facts and circumstances, it is inequitable

to hold an individual liable for all or part of any unpaid tax or deficiency arising from a

joint return.” Id.

SECTION 3. SIGNIFICANT CHANGES

On January 5, 2012, the Department of Treasury and the Service released

Notice 2012-8, 2012-4 I.R.B. 309, which set forth a proposed revenue procedure to

update and revise Rev. Proc. 2003-61, 2003-2 C.B. 296. Notice 2012-8 also modified

and clarified the criteria for equitable relief, and it eliminated the two-year rule for filing a

claim for relief as set forth in Notice 2011-70, 2011-2 C.B.135. Notice 2012-8 invited

public comment regarding the proposed revenue procedure. A total of 54 comments

were received, 45 of which were general comments either in support of the revisions,

asking for assistance in specific cases, or totally unrelated to innocent spouse relief.

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The nine substantive comments ranged from discussing one or two discrete issues to

commenting on all aspects of the proposed revenue procedure and innocent spouse

relief in general. Treasury and the Service considered all comments received, and the

proposed revenue procedure has been modified to take into account many of the

concerns raised.

This revenue procedure supersedes Rev. Proc. 2003-61. The structure and

format of this revenue procedure generally follows that of Rev. Proc. 2003-61 with the

following significant changes:

.01 This revenue procedure gives greater deference to the presence of abuse

than Rev. Proc. 2003-61. The Service recognizes that the issue of abuse can be

relevant with respect to the analysis of other factors and can negate the presence of

certain factors. This change is intended to give greater weight to the presence of abuse

when its presence impacts the analysis of other factors.

.02 The timeliness threshold condition in section 4.01(3) of this revenue

procedure provides that a request for equitable relief under section 6015(f) or section

66(c) must be filed before the expiration of the period of limitation for collection under

section 6502 to the extent the taxpayer seeks relief from an outstanding liability, or

before the expiration of the period of limitation for credit or refund under section 6511 to

the extent the taxpayer seeks a refund of taxes paid. This is a significant change to the

requirement in Rev. Proc. 2003-61, section 4.01(3), and Treas. Reg. § 1.6015-5(b)(1)

(TD 9003), that the requesting spouse’s claim for equitable relief must be filed no later

than two years after the date of the Service’s first collection activity. See Notice 2011-

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70, 2011-2 C.B. 135. In response to a comment received with respect to Notice 2012-8,

section 4.01(3)(a) refers to the period of limitation for collection as its commonly used

IRS term – Collection Statute Expiration Date or CSED.

.03 The attribution threshold condition in section 4.01(7) of this revenue

procedure adds a new exception in paragraph (e) to the requirement that the income tax

liability must be attributable to an item of the nonrequesting spouse. Under section

4.01(7)(e) of the revenue procedure, relief would not be precluded for an item

attributable to the requesting spouse if the nonrequesting spouse’s fraud gave rise to

the understatement of tax or deficiency.

.04 Streamlined determinations under section 4.02 of this revenue procedure

now apply to understatements of income tax instead of only underpayments as under

Rev. Proc. 2003-61. Section 4.02 also now applies to claims for equitable relief under

section 66(c).

.05 Section 4.03(2) of this revenue procedure clarifies that no one factor or a

majority of factors necessarily controls the determination. Therefore, depending on the

facts and circumstances of the case, relief may still be appropriate if the number of

factors weighing against relief exceeds the number of factors weighing in favor of relief,

or a denial of relief may still be appropriate if the number of factors weighing in favor of

relief exceeds the number of factors weighing against relief.

.06 The economic hardship factor in section 4.03(2)(b) of this revenue procedure

now provides minimum standards based on income, expenses, and assets, for

determining whether the requesting spouse would suffer economic hardship if relief is

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not granted. Section 4.03(2)(b) also now provides that the lack of a finding of economic

hardship does not weigh against relief, as it did under Rev. Proc. 2003-61, and instead

will be neutral.

.07 The knowledge factor for understatement cases in section 4.03(2)(c)(i) of

this revenue procedure clarifies how the factor works in cases involving equitable relief

under section 66(c), in addition to cases involving equitable relief under section 6015(f).

Section 4.03(2)(c)(i)(A) provides that actual knowledge of the item giving rise to an

understatement or deficiency will no longer be weighed more heavily than other factors,

as it did under Rev. Proc. 2003-61. Further, section 4.03(2)(c)(i)(A) clarifies that, for

purposes of this factor, 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 because of the abuse or financial control, the

requesting spouse was not able to challenge the treatment of any items on the joint

return for fear of the nonrequesting spouse’s retaliation, then that abuse or financial

control will result in this factor weighing in favor of relief even if the requesting spouse

knew or had reason to know of the items giving rise to the understatement or deficiency.

.08 The knowledge factor for underpayment cases in section 4.03(2)(c)(ii) of this

revenue procedure now provides that, in determining whether the requesting spouse

knew or had reason to know that the nonrequesting spouse would not pay the tax

reported as due on the return, the Service will consider whether the requesting spouse

reasonably expected that the nonrequesting spouse would pay the tax liability at the

time the return was filed or within a reasonable period of time after the filing of the

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return. In response to comments received with respect to Notice 2012-8, section

4.03(2)(c)(ii) provides that a requesting spouse may be presumed to have reasonably

expected that the nonrequesting spouse would pay the liability if a request for an

installment agreement to pay the tax was filed by the later of 90 days after the due date

for payment of the tax, or 90 days after the return was filed. Further, section

4.03(2)(c)(ii) clarifies that for purposes of this factor, 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 because of the

abuse or financial control, the requesting spouse was not able to question the payment

of the taxes reported as due on the return or challenge the nonrequesting spouse’s

assurance regarding payment of the taxes for fear of the nonrequesting spouse’s

retaliation, then that abuse or financial control will result in this factor weighing in favor

of relief even if the requesting spouse knew or had reason to know that the

nonrequesting spouse would not pay the tax liability. Finally, section 4.03(2)(c)(ii)

provides that if the requesting spouse did not reasonably expect that the nonrequesting

spouse would pay the tax liability reported on an amended return that was based on

items not properly reported on the original return, the Service will also consider whether

the requesting spouse knew or had reason to know of the understatement on the

original return.

.09 The legal obligation factor in section 4.03(2)(d) of this revenue procedure

clarifies that a requesting spouse’s legal obligation to pay outstanding tax liabilities is a

factor to consider in determining whether equitable relief should be granted, in addition

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to whether the nonrequesting spouse has a legal obligation to pay the tax liabilities.

.10 The significant benefit factor in section 4.03(2)(e) of this revenue procedure

provides that any significant benefit a requesting spouse may have received from the

unpaid tax or understatement will not weigh against relief (will be neutral) if the

nonrequesting spouse abused the requesting spouse or maintained financial control

and made the decisions regarding living a more lavish lifestyle. Further, section

4.03(2)(e) provides that if only the nonrequesting spouse significantly benefitted from

the unpaid tax or understatement, and the requesting spouse had little or no benefit, or

the nonrequesting spouse enjoyed the benefit to the requesting spouse’s detriment, this

factor will weigh in favor of relief. Section 4.03(2)(e) also provides that if the amount of

unpaid tax or understatement of tax was small such that neither spouse received a

significant benefit, then this factor is neutral. In response to comments received with

respect to Notice 2012-8, section 4.03(2)(e) provides that the determination that the tax

liability was small such that neither spouse received a significant benefit will vary

depending on the facts and circumstances of each case.

.11 The compliance with the income tax laws factor in section 4.03(2)(f) of this

revenue procedure now provides that a requesting spouse’s subsequent compliance

with all Federal income tax laws is a factor that may weigh in favor of relief, instead of

always being neutral under Rev. Proc. 2003-61.

.12 Section 4.04 of this revenue procedure broadens the availability of refunds in

cases involving deficiencies by eliminating the rule in section 4.04(1) of Rev. Proc.

2003-61 that limited refunds in cases involving deficiencies to payments made by the

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requesting spouse pursuant to an installment agreement.

SECTION 4. GENERAL CONDITIONS FOR RELIEF

.01 Eligibility for equitable relief. A requesting spouse must satisfy all of the

following threshold conditions to be eligible to submit a request for equitable relief under

section 6015(f). With the exception of conditions (1) and (2), a requesting spouse must

satisfy all of the following threshold conditions to be eligible to submit a request for

equitable relief under section 66(c). The Service may relieve a requesting spouse who

satisfies all the applicable threshold conditions set forth below of all or part of the

income tax liability under section 66(c) or section 6015(f) if, taking into account all the

facts and circumstances, the Service determines that it would be inequitable to hold the

requesting spouse liable for the income tax liability. The threshold conditions are as

follows:

(1) The requesting spouse filed a joint return for the taxable year for which he or

she seeks relief.

(2) Relief is not available to the requesting spouse under section 6015(b) or (c).

(3) The claim for relief is timely filed:

(a) If the requesting spouse is applying for relief from a liability or a portion of a

liability that remains unpaid, the request for relief must be made on or before the

Collection Statute Expiration Date (CSED). The CSED is the date the period of

limitation on collection of the income tax liability expires, as provided in section 6502.

Generally, that period expires 10 years after the assessment of tax, but it may be

extended by other provisions of the Internal Revenue Code.

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(b) Claims for credit or refund of amounts paid must be made before the

expiration of the period of limitation on credit or refund, as provided in section 6511.

Generally, that period expires three years from the time the return was filed or two years

from the time the tax was paid, whichever is later.

(4) No assets were transferred between the spouses as part of a fraudulent

scheme by the spouses.

(5) The nonrequesting spouse did not transfer disqualified assets to the

requesting spouse. For this purpose, the term “disqualified asset” has the meaning

given the term by section 6015(c)(4)(B). If the nonrequesting spouse transferred

disqualified assets to the requesting spouse, relief will be available only to the extent

that the income tax liability exceeds the value of the disqualified assets. Even if there

was a transfer of disqualified assets, the requesting spouse may be eligible for relief 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, or the requesting spouse did not have actual knowledge that disqualified

assets were transferred.

(6) The requesting spouse did not knowingly participate in the filing of a

fraudulent joint return.

(7) The income tax liability from which the requesting spouse seeks relief is

attributable (either in full or in part) to an item of the nonrequesting spouse or an

underpayment resulting from the nonrequesting spouse’s income. If the liability is

partially attributable to the requesting spouse, then relief can only be considered for the

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portion of the liability attributable to the nonrequesting spouse. Nonetheless, the

Service will consider granting relief regardless of whether the understatement,

deficiency, or underpayment is attributable (in full or in part) to the requesting spouse if

any of the following exceptions applies:

(a) Attribution solely due to the operation of community property law. If an item

is attributable or partially attributable to the requesting spouse solely due to the

operation of community property law, then for purposes of this revenue procedure, that

item (or portion thereof) will be considered to be attributable to the nonrequesting

spouse.

(b) Nominal ownership. If the item is titled in the name of the requesting spouse,

the item is presumptively attributable to the requesting spouse. This presumption is

rebuttable. For example, H opens an individual retirement account (IRA) in W’s name

and forges W’s signature on the IRA in 2006. Thereafter, H makes contributions to the

IRA and in 2008 takes a taxable distribution from the IRA. H and W file a joint return for

the 2008 taxable year, but do not report the taxable distribution on their joint return. The

Service later determines a deficiency relating to the taxable IRA distribution. W

requests relief from joint and several liability under section 6015. W establishes that W

did not contribute to the IRA, sign paperwork relating to the IRA, or otherwise act as if W

were the owner of the IRA. W, thereby, rebuts the presumption that the IRA is

attributable to W.

(c) Misappropriation of funds. If the requesting spouse did not know, and had no

reason to know, that funds intended for the payment of tax were misappropriated by the

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nonrequesting spouse for the nonrequesting spouse’s benefit, the Service will consider

granting equitable relief although the underpayment may be attributable in part or in full

to an item of the requesting spouse. The Service will consider granting relief in this

case only to the extent that the funds intended for the payment of tax were taken by the

nonrequesting spouse.

(d) Abuse. If the requesting spouse establishes that he or she was the victim of

abuse prior to the time the return was filed, and that, as a result of the prior abuse, the

requesting spouse was not able to challenge the treatment of any items on the return, or

was not able to question the payment of any balance due reported on the return, for fear

of the nonrequesting spouse’s retaliation, the Service will consider granting equitable

relief even though the deficiency or underpayment may be attributable in part or in full to

an item of the requesting spouse.

(e) Fraud committed by nonrequesting spouse. The Service will consider

granting relief notwithstanding that the item giving rise to the understatement or

deficiency is attributable to the requesting spouse, if the requesting spouse establishes

that the nonrequesting spouse’s fraud is the reason for the erroneous item. For

example, W fraudulently accesses H’s brokerage account to sell stock that H had

separately received from an inheritance. W deposits the funds from the sale in a

separate bank account to which H does not have access. H and W file a joint Federal

income tax return for the year, which does not report the income from the sale of the

stock. The Service determines a deficiency based on the omission of the income from

the sale of the stock. H requests relief from the deficiency under section 6015(f). The

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income from the sale of the stock normally would be attributable to H. Because W

committed fraud with respect to H, however, and because this fraud was the reason for

the erroneous item, the liability is properly attributable to W.

.02. Circumstances under which the Service will make streamlined

determinations granting equitable relief under sections

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