25.15.12  Appeals Procedures (Cont. 1)

25.15.12.19 
Separate Assessment Module Overview

25.15.12.19.2  (05-22-2012)
Split/Transfer Accounts

  1. MFT 31 accounts established or in process between January 1, 2001 and January 1, 2005 were established as Split/Transfer Accounts.

  2. See IRM 21.6.8.4.1, Split/Transfer Accounts, for additional information on Split/Transfer Accounts.

25.15.12.19.3  (05-22-2012)
Mirrored Accounts

  1. As of January 1, 2005, Master File programming for the MFT 31 allows for the systemic "mirroring" of the MFT 30 module.

  2. Mirrored modules are created when certain events occur resulting in one or both spouses being fully or partially liable.

  3. The mirroring process creates two MFT 31 accounts; one for each spouse’s Taxpayer Identification Number (TIN). It provides a greater ability to systemically handle separate treatment of spouses; while maintaining a necessary cross-referencing capability.

  4. The purpose of mirroring a joint MFT 30 module into separate, but identical MFT 31 modules is to allow for the correct computation of each taxpayer’s Collection Statute Expiration Date (CSED). Mirroring also allows collection activity to continue for the non-requesting spouse (NRS).

  5. See IRM 21.6.8.5.1, Mirrored Accounts, or IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability, for the details of how the mirroring process occurs.

  6. Some situations prevent mirroring of modules. The modules which can not be mirrored will have to be transferred to NMF using existing procedures. Exceptions to mirroring modules are discussed in IRM 25.15.15.2.1, Exceptions to Mirroring Modules.

  7. Some situations require additional actions prior to mirroring:

    • Modules with a credit balance. See IRM 25.15.15.8, Resolving Credit Balances.

    • Modules with an unresolved unpostable condition. See IRM 25.15.15.7, Resolving Mirroring Unpostable Transaction Codes.

  8. The mirroring process occurs through a series of transactions:

    1. Two TC 971s are input on the MFT 30 account. Each TC 971 contains a XREF-TIN field entry, one with the primary TIN and the second with the secondary TIN.

    2. The TC 971 action code of 100, 101, 104, or 106 on the MFT 30 account indicates the account is mirrored on MFT 31. The action code (AC) identifies the reason.

    3. A TC 971 AC 145 input on the MFT 30 account triggers the mirroring process, generates a TC 400 on the MFT 30 account, and copies all transactions on the MFT 30 account to the two MFT 31 accounts. An "M-" Freeze is generated on all three accounts. Credits are generated to all three accounts, making them appear to be in zero balance.

      Caution:

      The account is not full paid. Any balance due is re-established when the M- freeze is released.

    4. TC 971 AC 110 is generated to both MFT 31 modules and allows a systemic cross-referencing for payments unless the payment has a Designated Payment Code of 31.

    5. A pending TC 971 AC 10X on the MFT 30 joint account indicates an MFT 31 account(s) is being created.

  9. See IRM 25.15.15.2, First Read , for procedures on mirroring modules.

25.15.12.19.4  (05-22-2012)
Exam/Appeals/AUR modules

  1. Exam/Appeals/AUR MFT 31 modules are created when only one spouse petitions Tax Court with regard to a proposed tax adjustment or agrees to a tax adjustment.

  2. The modules are systemically established but not mirrored.

  3. Exam/Appeals/AUR MFT 31 accounts are established using similar procedures as for mirrored accounts, except the account is not mirrored because only one TC 971 AC 102 or 103 is input. The non-petitioning spouse's TIN is input as the TC 971 cross-reference TIN.

25.15.12.20  (09-30-2013)
Settlement Computation Preparation

  1. This subsection discusses the procedures for settlement computations and the statutory provisions under IRC 6015 and IRC 66(c).

  2. Under IRC 6015(b), relief is available only from an assessed deficiency or understatement, or one that has been determined under the deficiency procedures. IRC 6015(b) does not authorize relief from an underpayment of tax (tax reported on a joint return but not paid with the return). IRC 6015(c) provides for the allocation of liability for a deficiency, but does not authorize allocation of an underpayment of tax. IRC 6015(f) permits equitable relief for an understatement or underpayment of income tax.

    1. The meaning of understatement is given in IRC 6662(d)(2)(A) and the regulations thereunder: the excess of the amount of the tax required to be shown on the return for the taxable year, over the amount of tax imposed, which is shown on the return, reduced by any rebate (within the meaning of IRC section 6211(b)(2)).

      Note:

      For IRC 6015 purposes, a deficiency and an understatement are the same.

    2. An underpayment is an unpaid amount due from self-assessed taxes on either an original or amended joint return if a statutory notice of deficiency was not issued.

      Note:

      For information on whether certain math errors are understatements or underpayments, see IRM 25.15.7.5.15, Math Error.

  3. Under IRC 6015(e) the RS may petition the Tax Court to determine the appropriate relief available if such petition is filed by the 90th day after the final determination is mailed or, if the IRS has not issued a determination, after 6 months of filing the request. See IRC 6015(e)(1)(A). In addition, a taxpayer may raise relief under IRC 6015 as a defense in a deficiency or CDP case. If the RS petitions the Tax Court the NRS is allowed to become a party to the proceeding.

  4. The innocent spouse provisions do not apply to household employment taxes. Household employment taxes, shown on Schedule H of Form 1040, U.S. Individual Income Tax Return, are employment taxes, not income taxes. Therefore, household employment taxes must be treated as a separate and distinct issue.

  5. Check NMF, as well as MFT 30 and MFT 31 accounts, to secure information relating to joint accounts in innocent spouse cases. IRM 25.15.12.19, Separate Assessment Module Overview. These sections explain mirrored accounts and MFT 31, and how to identify them on Master File.

  6. Once you have determined to grant relief in part under IRC 6015, you may need to prepare an allocation worksheet to determine the amount of relief you intend to grant. Understatement and underpayment allocation worksheets are available on the W&I Innocent Spouse website in the Job Aids section at http://win.web.irs.gov/innocentspouse/innocent_jobaids.htm. Spreadsheets are also available on the Appeals website. Also see Lesson 4 of Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (4–2008) Catalog Number 20104L - for comprehensive instructions on the allocation of items. See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section on Understatement and Underpayment Allocation Worksheets provides further discussion.

25.15.12.20.1  (05-22-2012)
IRC 6015(b)

  1. IRC 6015(b) allows the taxpayer to request relief from an understatement of tax liability. See IRM 25.15.3.6, IRC 6015(b) — Innocent Spouse Relief Qualifications , for innocent spouse relief qualifications under IRC 6015(b) .

  2. Procedures:

    1. If one or both of the spouses are granted relief under IRC 6015(b) , use a proportionate allocation consistent with the proportionate allocation used for IRC 6015(c) cases, which is outlined in IRC 6015(d) . See IRM 25.15.3.7.2, Allocating a Deficiency Under IRC 6015(d). This section provides discussion of allocating a deficiency under IRC 6015(d).

    2. A settlement computation may be needed, as outlined in this IRM. See IRM 25.15.12.20.4, Settlement Computations for IRC 6015(b), IRC 6015(c) and IRC 6015(f) Understatement Cases.

    3. An allocation worksheet is optional and may be prepared at the discretion of the Appeals Technical Employees (ATE) or the Tax Computation Specialist (TCS). See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section provides further information on Allocation Worksheets.

25.15.12.20.2  (05-22-2012)
IRC 6015(c)

  1. This provision allows either or both taxpayers to request the allocation of the deficiency attributable to a joint return. See IRM 25.15.3.7.2, Allocating a Deficiency Under IRC 6015(d), for innocent spouse relief qualifications under IRC 6015(c).

    Note:

    Refunds are not allowed under IRC 6015(c).

  2. If one spouse requests allocation and the other does not, the non-requesting spouse remains liable for the entire deficiency.

  3. The allocation of items is made without regard to community property laws (IRC 6015(a)).

  4. When one or both of the spouses elect the application of IRC 6015(c),IRC 6015(d) provides the procedures for allocating a deficiency between spouses.

    1. See Treas. Reg. section 1.6015-3 for information on how to allocate income, deductions, credits and payments.

    2. The allocation method is discussed in detail in IRM 25.15.3.7.2, Allocating a Deficiency Under IRC 6015(d).

    3. Also see Lesson 4 of Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (4–2008) Catalog Number 20104L , for comprehensive instructions on the allocation of items.

  5. Procedures:

    1. A settlement computation may be needed, as outlined in this IRM. See IRM 25.15.12.20.4, Settlement Computations for IRC 6015(b), IRC 6015(c) and IRC 6015(f) Understatement Cases.

    2. An allocation worksheet is optional and may be prepared at the discretion of the Appeals Technical Employee (ATE) or the Tax Computation Specialist (TCS). See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section provides further information on Allocation Worksheets.

25.15.12.20.3  (05-22-2012)
IRC 6015(f)

  1. The Service has issued proposed guidance in Notice 2012–8 which supersedes the existing guidance (Rev. Proc. 2003-61) for individuals seeking equitable innocent spouse relief under IRC 6015(f). All claims under IRC 6015(f) should be evaluated under the proposed rules set forth in the Notice until final procedures are published, unless the taxpayer contends that he or she would receive more favorable treatment under Rev. Proc. 2003–61.

  2. IRC 6015(f) provides the IRS with discretionary authority to grant equitable relief from deficiencies and underpayments, if relief provisions under IRC 6015(b) or IRC 6015(c) do not apply.

  3. Section 4.04 of Notice 2012–8 provides rules governing refunds. Under the notice, in both understatement and underpayment cases refunds are allowed for payments made solely by the RS after July 22, 1998, if the RS establishes that the funds used to make the payment for which the refund is sought were provided by the RS. A RS is not eligible for payment made with the joint return, joint payments or payments by the NRS. A RS, however, may be eligible for a refund of the RS's portion of the requesting and nonrequesting spouse's joint overpayment from another tax year that was applied to the joint liability at issue to the extent that the RS can establish that the RS provided the funds for the overpayment or a portion of the overpayment. Refunds are subject to the limitation of IRC 6511.

  4. IRC 6015(f) applies to both understatements (unpaid liabilities from understatement or deficiency assessments) and underpayments (self-assessed taxes reported on original or amended returns but not paid with the return).

    1. IRC 6015(f) provides equitable relief can be granted for a portion or the entire amount of the unpaid balance of the underpayment of the tax as reported by taxpayers.

    2. Thus, it is the only provision under IRC 6015 which provides for relief from self-assessed tax. The relief is granted on the underpayment and/or any related interest and penalties.

  5. IRC 6015(f) also applies to penalties and interest when relief is granted for the underlying item.

    1. In some cases, the tax may have already been paid after the return was filed, but the interest and penalties are still outstanding. In such cases, if the taxpayer would have been relieved of the tax had the tax been unpaid, then the taxpayer is relieved of the unpaid interest and penalties.

      Note:

      If the underlying tax was paid in full when the return was filed, but interest and/or penalties remained unpaid when the return was filed, then there is no underpayment for purposes of IRC 6015, so the taxpayer is not eligible for relief under IRC 6015 for the interest and/or penalty.

    2. However, if the taxpayer would not be relieved of the underlying tax (that constituted the underpayment), the taxpayer is not relieved of the unpaid interest and penalties.

  6. Overstated withholding is considered an underpayment of tax and qualifies for consideration under IRC 6015(f). It does not matter whether the overstated withholding was refunded or not.

  7. Procedures:

    1. If one or both of the spouses are granted relief under IRC 6015(f), use a proportionate allocation consistent with the proportionate allocation used for IRC 6015(c) cases, which is outlined in IRC 6015(d) . See IRM 25.15.3.7.2, Allocating a Deficiency Under IRC 6015(d). This section provides discussion of allocating a deficiency under IRC 6015(d).

    2. A settlement computation may be needed, as outlined in this IRM. See IRM 25.15.12.20.4, Settlement Computations for IRC 6015(b), IRC 6015(c) and IRC 6015(f) Understatement Cases and IRM 25.15.12.20.5, Settlement Computations for IRC 6015(f) Underpayment Cases.

    3. An allocation worksheet is optional and may be prepared at the discretion of the Appeals Technical Employees (ATE) or the Tax Computation Specialist (TCS). See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section provides further information on Allocation Worksheets.

25.15.12.20.4  (05-22-2012)
Settlement Computations for IRC 6015(b), IRC 6015(c) and IRC 6015(f) Understatement Cases

  1. Form 3610 is optional, but may be prepared at the discretion of the Appeals Technical Employee (ATE) or the Tax Computation Specialist (TCS):

    1. If Form 3610 is prepared, footnoting or a computation to show the allocation of liability between the spouses may be included.

    2. Sample Form 3610 formats are located on the Appeals TCS SharePoint site. The TCS SharePoint site is accessed through a link on the Appeals TCS website.

  2. Computation of Tax:

    1. In pre-assessment cases, generally a Form 5278, Statement - Income Tax Changes, or Form 4549, Income Tax Examination Changes, is needed to show the computation of tax. These forms may not be required in certain situations, such as when Appeals is making no changes to the prior determination.

    2. In post-assessment cases, Form 5278 or Form 4549 is usually not required since there is no change to the assessment.

  3. Understatement Allocation Worksheet:

    1. If a computation is needed to allocate the deficiency between the spouses, then the understatement allocation worksheet may be used at the discretion of the ATE or the TCS.

    2. See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section provides further information on Understatement and Underpayment Allocation Worksheets.

  4. For sample formats to use for settlement computations prepared for understatement cases where the deficiencies were not assessed, see the Appeals TCS SharePoint site.

  5. As IRC 6015(f) does not specify how to compute the amount of equitable relief, the Service has determined the computation of liability for an understatement or deficiency consistent with the proportionate allocation used for IRC 6015(c) cases, which is outlined in IRC 6015(d). See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section provides further information on Understatement and Underpayment Allocation Worksheets.

25.15.12.20.5  (05-22-2012)
Settlement Computations for IRC 6015(f) Underpayment Cases

  1. Underpayment Computations:

    1. A computation may be needed to determine the portion of the underpayment that is attributable to the non-requesting spouse, and the portion attributable to the requesting spouse, as relief can only be granted to the extent of the underpayment attributable to the non-requesting spouse.

    2. To allocate the underpayment to each spouse, calculate each spouse's taxable income as if each filed a separate return. The unpaid tax is then allocated to each spouse's pro rata share of the taxable income. Allocation is not based on what each spouse's married filing separate tax would be based on MFS rates. Each spouse get credit for any withholding attributable to the spouse. IRC 6015(f) does not specify how to compute the amount of equitable relief, the Service has determined the computation of liability for any unpaid tax shown on the original return is a proportionate allocation consistent with the proportionate allocation used for IRC 6015(c) cases, which is outlined in IRC 6015(d). See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section contains a discussion of IRC 6015(d) allocations.

  2. Form 3610 is not required for underpayment computations, since we are not computing a deficiency or overassessment. Instead, we are allocating the unpaid balance of the underpayment for the requesting and non-requesting spouses. However, it may be helpful to prepare Form 3610 to summarize the information from the underpayment allocation worksheet and the transcript of account. For sample formats see the Appeals TCS SharePoint site.

  3. Form 5278, Form 4549, etc. are not required for underpayment cases. Since there is no change to the assessment on the return, no recomputation of the tax is required. We are merely allocating the underpayment between the spouses.

  4. If a computation is needed to allocate the underpayment between the spouses, then the underpayment allocation worksheet may be used for this purpose. See IRM 25.15.12.20.7, Understatement and Underpayment Allocation Worksheets. This section provides further information on Understatement and Underpayment Allocation Worksheets.

  5. If penalties were assessed, it may be necessary to recompute the penalties based on the allocation of the payments.

  6. If the RS is not entitled to relief under IRC 6015(f) for the portion of the underpayment attributable to the NRS, then the RS remains liable for the entire underpayment.

25.15.12.20.6  (05-22-2012)
IRC 66(c) Equitable Relief Provisions

  1. The Service has issued proposed guidance in Notice 2012–8 which supersedes the existing guidance (Rev. Proc. 2003-61) for individuals seeking equitable innocent spouse relief under IRC 66(c) should be evaluated under the proposed rules set forth in the Notice until final procedures are published, unless the taxpayer contends that he or she would receive more favorable treatment under Rev. Proc. 2003–61.

  2. Section 3201(b) of RRA 98 amended IRC 66(c) to add an equitable relief provision similar to IRC 6015(f).

  3. IRC 66(c) applies to married individuals with community property income who do not file joint returns, and provides certain conditions under which an individual may be relieved of separate return liability for items of community income attributable to the individual’s spouse. See IRM 25.15.5, Relief from Community Property Laws/Community Property States.

25.15.12.20.7  (05-22-2012)
Understatement and Underpayment Allocation Worksheets

  1. Once you have determined to grant relief in part under IRC 6015, you may need to prepare an allocation worksheet to determine the amount of relief you intend to grant.

    1. If a worksheet is needed for an original liability, you use the underpayment allocation worksheet worksheet.

    2. If a worksheet is needed for any kind of additional deficiency (whether you treat it as an underpayment or an understatement), you use the understatement allocation worksheet.

  2. Understatement and underpayment allocation worksheets are available on the W&I Innocent Spouse website in the Job Aids section at http://win.web.irs.gov/innocentspouse/innocent_jobaids.htm. The W&I understatement and underpayment worksheets are also found in the spreadsheets section on the Appeals TCS website. Also see Lesson 4 of Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (4–2008) Catalog Number 20104L, for comprehensive instructions on the allocation of items.

  3. See IRM 25.15.3.7.2, Allocating a Deficiency Under IRC 6015(d), for additional information.

25.15.12.21  (09-30-2013)
Notice of Determination Under IRC 6015

  1. If agreement with the requesting spouse is not reached prepare and issue a "Notice of Determination" letter to the RS and a "Final Appeals Notice" to the NRS.

    Note:

    Do not attempt to secure a Form 870-IS on a fully denied request for relief even if the RS agrees with the determination.

  2. Verify the address using ENMOD or INOLES.

  3. Prepare the notice of determination Letter 3288, "Final Appeals Determination - to Requesting Spouse" , for the requesting spouse. APS sends this letter by certified mail if the RS lives within the U.S. (if full relief is allowed the RS, this letter is sent by regular mail) or by registered mail if the RS lives outside the U.S. The notice letter is available on APGolf. The ATE prepares this letter. This letter is similar to a notice of deficiency since the taxpayer can petition Tax Court. The Tax Court has jurisdiction to review denials of relief under IRC 6015(b),IRC 6015(c), and IRC 6015(f) (but for IRC 6015(f) denials involving only an underpayment, the Tax Court only has jurisdiction if the tax years were not full-paid prior to December 20, 2006).

    Note:

    If determination is partial relief or relief denied and you are issuing a notice of deficiency to the RS, see IRM 25.15.12.23.3, Partial Relief Allowed to Requesting Spouse or IRM 25.15.12.23.4, Relief Denied to Requesting Spouse, for special language that needs to be included in the Final Appeals Determination letter to the RS.

  4. Prepare the final Appeals notice, Letter 3289, "Final Appeals Notice - to Non-requesting Spouse" , for the non-requesting spouse. APS sends this letter by regular mail on the same date the determination letter is issued to the RS. This letter does not include Tax Court language because there are no provisions in IRC 6015 to allow the non-requesting spouse to petition Tax Court. This final notice letter is available on APGolf. The ATE prepares this letter.

  5. If both spouses request relief, prepare a notice of determination Letter 3288 for each spouse. Each letter is addressed only to the spouse that requested relief. In addition, prepare a Final Appeals Notice for each spouse as the NRS in the other spouse's case.

  6. The ATE must provide the information needed to update ISTS on the Innocent Spouse Customized Form 5402, i.e., the ISTS ADP Code, ISTS Code Section and ISTS ADP Reason Code.

  7. An allocation worksheet may be attached to a notice of determination letter if needed.

25.15.12.21.1  (09-30-2013)
APS Notice of Determination Procedures

  1. When issuing an innocent spouse notice of determination, APS uses procedures similar to those for issuing a notice of deficiency:

    1. Check for ATM signatures on all letters.

    2. Verify the addresses for both taxpayers using ENMOD or INOLES. If different, check file for newest address.

    3. Check TIN's on all letters.

    4. Send the letter by certified mail if taxpayer lives within the United States. Send the letter by registered mail if taxpayer lives outside the United States. A fully allowed relief notice of determination letter is not sent by certified mail.

    5. Date the letter. The date on the letter must match the date the letter is actually mailed.

    6. Send the appropriate copies of the letter and schedules to the representative, if there is one.

    7. Put a copy of the letter and schedules in the administrative file.

    8. Enter the taxpayer's name, mailing address as it appears on the envelope, and the mailing date in the mailing record.

      Reminder:

      APS mails Letter 3289 to the NRS by regular mail by on the same date the determination letter is sent by certified mail to the RS.

  2. Update ISTS:

    1. Update the Innocent Spouse Tracking System (ISTS) to stage 16, Appeals determination issued, using the date the letter was mailed as the stage date and input the required ADP Code, Code Section and Reason Code information provided by the ATE on the Customized Form 5402.

  3. Update the following fields on ACDS on both the RS and Joint records:

    • SNTYPE = 090A

    • SNDATE = date letter is mailed. The letter MUST be mailed on the date on the letter

    • On the return level screen, SND = Y

  4. Suspend the administrative file until the RS petitions or default the case at the end of the suspense period. The suspense period is 120 days. This is equal to the 90 days the RS has to petition plus an additional 30 days to allow sufficient time for Appeals to receive notification of the filing of a Tax Court petition.

    Note:

    The RS has 90 days to petition. There is no provision for extra days to file a petition if the RS lives outside the United States.

25.15.12.22  (05-22-2012)
Rescinding/Issuing a Second Final Determination Letter

  1. The Service cannot rescind a final determination letter issued under IRC 6015 because this section does not have a statutory provision comparable to IRC 6212(d), specifically providing for the rescission of a notice of deficiency.

  2. However, in very limited circumstances, the Service may issue a second final determination letter for the same request. Refer to IRM 25.15.17, Reconsiderations, for information on circumstances that allow for issuance of a second final determination letter.

  3. If a Tax Court petition is filed in response to the final determination letter, no second final determination letter can be issued.

  4. If Appeals issues a second final determination letter, the Appeals Team Manager is authorized to sign.

25.15.12.23  (05-22-2012)
Notice of Deficiency Under IRC 6015

  1. This section discusses the notice of deficiency procedures for cases where one or both spouses requested "Innocent Spouse" relief under IRC 6015.

  2. Household employment taxes included on Form 1040 are subject to normal employment tax procedures. Relief under IRC 6015 is not available as it applies only to income taxes under Subtitle A of the IRC. Any adjustment to these taxes cannot be included in a notice of deficiency. The ATE should follow interim adjustment procedures to instruct APS to assess these taxes prior to the issuance of the notice of deficiency.

25.15.12.23.1  (09-30-2013)
General Procedures

  1. When a notice of deficiency must be issued when one or both spouses have requested relief from liability under IRC 6015, the ATE requests preparation of the notice of deficiency from TCS as outlined in IRM 8.17.4.4, How an AO Requests Preparation of a Notice of Deficiency. The TCS will prepare the standard notice of deficiency Letter 894.

  2. Follow normal procedures to verify the last known address. Follow procedures outlined in IRM 8.17.4, Notices of Deficiency and related subsections for addressing and mailing the Notice of Deficiency.

  3. Married filing joint taxpayers are given separate notice of IRS actions that may affect their joint and several liability and collection thereof.

  4. The IRS must send a copy of the joint notice of deficiency to each spouse, even when they reside at the same address.

  5. If Form 8857, Request for Innocent Spouse Relief, was filed and has a new name or address for the RS, the new name or address cannot be disclosed to the NRS. See IRM 8.17.4.28.3, Divorced or Separated Taxpayers, for information on how to address and mail the notice of deficiency letter, statement and schedules in these cases.

  6. Check NMF, as well as MFT 30 and MFT 31 to secure information relating to joint accounts in innocent spouse cases. IRM 25.15.12.19, Separate Assessment Module Overview. This sections explain MFT 31 accounts and how to identify them on Master File.

  7. If the ASED is about to expire and one or both of the spouses will not extend the statute then follow the procedures in IRM 25.15.12.23.6, Short Statute Procedures.

25.15.12.23.2  (09-30-2013)
Full Relief Allowed to Requesting Spouse

  1. When a determination is made that the requesting spouse should receive full relief from a determined joint liability under the provisions of IRC 6015, and the NRS was notified and given an opportunity to participate in the administrative proceedings, do not issue a notice of deficiency to the requesting spouse. The following letters must be prepared and issued:

    Requesting Spouse Letters Non-requesting Spouse Letters
    1. Letter 3288, Final Appeals Determination - to Requesting Spouse

    Note:

    Do not issue a notice of deficiency to the RS nor send a copy of the NRS's notice of deficiency to the RS.

    1. Letter 894, Notice of Deficiency

    2. Letter 3289, Final Appeals Notice - to Non-requesting Spouse

  2. The TCS prepares the statutory notice of deficiency, including Letter 894. The ATE prepares Letter 3288 and Letter 3289. The notice of deficiency should be sent to the taxpayers at the same time as the Letters 3288 and 3289, but in a separate envelope. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination.

  3. The notice of deficiency Letter 894 is addressed to both spouses, but is sent only to the NRS. See details below:

    1. Use the names of both spouses on the letter.

    2. Use the address of the NRS on the letter.

    3. On the letter use the primary TIN as shown on the return.

    4. Direct the salutation on the letter to the NRS.

  4. On Form 4089 (or Form 4089–A and Form 870) reflect only the name, address and TIN of the spouse to whom the notice is being sent (NRS).

  5. On Form 5278 include the names of both spouses and also reflect the primary TIN, since the tax computation start from the joint return.

  6. On the explanation of adjustments and any computational schedules and exhibits attached to the notice, include the names of both spouses.

    Example:

    John and Jane Doe timely file a joint return for 2008 reflecting John's TIN as the primary taxpayer identification number. The 2008 return was examined and a deficiency of $5,000.00 is proposed. John Doe requested and was allowed full innocent spouse relief. A notice of deficiency must be issued to Jane Doe. The notice of deficiency includes Letter 894, which is addressed to both John and Jane Doe. John's taxpayer identification number is shown on the letter but Jane's address is used on the letter. The salutation of the letter is "Dear Jane Doe" . The Form 4089 waiver is addressed to Jane Doe only and reflects only Jane Doe's TIN and address. The Form 5278 is addressed to both John and Jane Doe. John's TIN is used on the Form 5278.

  7. Include the following paragraph on the notice of deficiency letter, waiver (Form 4089 or Form 870), and at the bottom of Form 5278 (Instead of including the paragraph on the waiver and on Form 5278, it may be shown instead on separate schedules attached to the waiver and to Form 5278).

    "We granted full relief to [Name of the requesting spouse] under Internal Revenue Code section 6015 [insert applicable subsection; for example, (b), (c), and/or (f)], from the joint and several liability determined in this notice of deficiency. We will send a separate letter to each spouse regarding our decision to grant full relief."

  8. The ATE prepares and APS sends Letter 3289, Final Appeals Notice - to Non-requesting Spouse, to the NRS by regular mail. The final Appeals notice letter (Letter 3289) and notice of deficiency should be sent at the same time, but in separate envelopes. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination.

  9. The ATE prepares and APS sends Letter 3288, Final Appeals Determination - to Requesting Spouse, to the RS by regular mail as notice that full relief was allowed. Do not issue a notice of deficiency or send a copy to the RS. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination.

  10. If the NRS has not had a chance to appeal the full grant of relief (for example if the ASED is about to expire and one or both of the spouses will not extend the statue) then follow the procedures in IRM 25.15.12.23.6, Short Statute Procedures. The ATE will need to tell the TCS to follow the short statute procedures.

25.15.12.23.3  (05-22-2012)
Partial Relief Allowed to Requesting Spouse

  1. When a determination is made that the requesting spouse should receive partial relief from the deficiency and both spouses had the opportunity to participate in the administrative proceedings, the notice of deficiency to the NRS and the RS should show the full amount of the deficiency. The following letters must be prepared and issued:

    Requesting Spouse Letters Non-requesting Spouse Letters
    1. Letter 894, Notice of Deficiency

    2. Letter 3288, Final Appeals Determination - to Requesting Spouse

    1. Letter 894, Notice of Deficiency

    2. Letter 3289, Final Appeals Notice - to Non-requesting Spouse

    Note:

    Only one Letter 894 is prepared for the joint notice of deficiency (unless duplicate originals are needed due to name changes, different addresses, etc.)

  2. The TCS prepares the statutory notice of deficiency, including Letter 894. The ATE prepares Letters 3288 and 3289. The notice of deficiency should be sent to the taxpayers at the same time as the Letters 3288 and 3289, but in a separate envelope. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination.

  3. When a deficiency remains attributable to both spouses, but each is liable for a different amount, show the total deficiency on the joint notice of deficiency letter and Form 4089 (or Form 4089-A and Form 870) as usual.

  4. Include the following paragraph on the notice of deficiency letter, waiver (Form 4089 or Form 870), and at the bottom of Form 5278 (Instead of including the paragraph on the waiver and on Form 5278, it may be shown instead on separate schedules attached to the waiver and to Form 5278).

    "We granted partial relief to [Name of requesting spouse] under Internal Revenue Code section 6015 [insert applicable subsection; for example, (b), (c), and/or (f)], from the joint and several liability determined in this notice of deficiency. The amount of [Name of requesting spouse]’s remaining liability is not reflected in this notice. We will send a separate letter to each spouse regarding our decision to grant partial relief."

  5. See the Appeals TCS SharePoint site for examples of Letter 894 and Form 4089.

  6. Prepare Form 5278 and include all adjustments made to the return.

  7. The ATE prepares and APS sends Letter 3289, Final Appeals Notice - to Non-requesting Spouse, to the NRS by regular mail. The final Appeals notice letter (Letter 3289) and notice of deficiency should be sent at the same time, but in separate envelopes. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination.

  8. The ATE prepares and APS sends Letter 3288, Final Appeals Determination - to Requesting Spouse, to the RS by certified mail with Tax Court rights. The final determination letter (Letter 3288) and notice of deficiency should be sent at the same time, but in separate envelopes. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination. In addition to the standard explanatory paragraph(s), add the following write-in paragraph to the letter:

    If you disagree with this determination and also disagree with our determination in a related Notice of Deficiency for the same tax years, you may contest both in the United States Tax Court in the same petition. See the paragraph below in this letter entitled "If You Disagree" for additional information about filing a petition. If you dispute both determinations, state you are contesting both notices in the explanation section of your petition, and include a copy of both this notice and the Notice of Deficiency as enclosures. If you already filed a petition contesting the Notice of Deficiency, you do not need to file a separate petition, but may instead amend your existing petition to state your objections to this determination.

  9. Innocent spouse allocation worksheets are no longer required to be prepared with the statutory notice of deficiency. Instead, when needed they are included with the Letter 3288 and Letter 3289. If the ATE wants the TCS to prepare allocation worksheets, the ATE must specify this on a work request to the TCS. Otherwise, the TCS will not need to prepare an allocation worksheet when they prepare the notice of deficiency.

    1. Innocent Spouse allocation spreadsheets that can be used for these computations are available on the Appeals TCS SharePoint site.

    2. See Lesson 4 of Compliance's Innocent Spouse coursebook, Training 26553–102 (4–2008) Catalog Number 20104L, for comprehensive instructions on the allocation of items.

    3. Understatement and underpayment allocation worksheets and instructions are available on the W&I Innocent Spouse website in the Job Aids section at http://win.web.irs.gov/innocentspouse/innocent_jobaids.htm.

  10. If the spouses have not had a chance to appeal the partial grant of relief (for example if the ASED is about to expire and one or both of the spouses will not extend the statue) then follow the procedures in IRM 25.15.12.23.6, Short Statute Procedures. The ATE will need to tell the TCS to follow the short statute procedures.

25.15.12.23.4  (05-22-2012)
Relief Denied to Requesting Spouse

  1. When a determination is made that the requesting spouse should not receive relief from the deficiency (i.e., both spouses are liable for the entire deficiency), the notice of deficiency to the NRS and the RS should show the full amount of the deficiency. The following letters must be prepared and issued:

    Requesting Spouse Letters Non-requesting Spouse Letters
    1. Letter 894, Notice of Deficiency

    2. Letter 3288, Final Appeals Determination - to Requesting Spouse

    1. Letter 894, Notice of Deficiency

    2. Letter 3289, Final Appeals Notice - to Non-requesting Spouse

    Note:

    Only one Letter 894 is prepared for the joint notice of deficiency (unless duplicate originals are needed due to name changes, different addresses, etc.

  2. The TCS prepares the statutory notice of deficiency, including Letter 894. The ATE prepares Letters 3288 and 3289. The notice of deficiency should be sent to the taxpayers at the same time as the Letters 3288 and 3289, but in a separate envelope. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination.

  3. Show the total deficiency amounts on the joint notice of deficiency letter and Form 4089 (or Form 4089-A and Form 870) as usual.

  4. Include the following paragraph on the notice of deficiency letter, waiver (Form 4089 or Form 870), and at the bottom of Form 5278 (Instead of including the paragraph on the waiver and on Form 5278, it may be shown instead on separate schedules attached to the waiver and to Form 5278).

    "We denied relief to [Name of requesting spouse] under IRC sections 6015(b), (c), or (f), from the joint and several liability determined in this notice of deficiency. We will send a separate letter to each spouse regarding our decision to deny relief."

  5. The ATE prepares and APS sends Letter 3289, Final Appeals Notice - to Non-requesting Spouse, to the NRS by regular mail. The final Appeals notice letter (Letter 3289) and notice of deficiency should be sent at the same time, but in separate envelopes.

  6. The ATE prepares and APS sends Letter 3288, Final Appeals Determination - to Requesting Spouse, to the RS by certified mail with Tax Court rights. The final determination letter (Letter 3288) and notice of deficiency should be sent at the same time, but in separate envelopes. In addition to the standard explanatory paragraph(s), add the following write-in paragraph to the letter:

    If you disagree with this determination and also disagree with our determination in a related Notice of Deficiency for the same tax years, you may contest both in the United States Tax Court in the same petition. See the paragraph below in this letter entitled "If You Disagree" for additional information about filing a petition. If you dispute both determinations, state you are contesting both notices in the explanation section of your petition and include a copy of both this notice and the Notice of Deficiency as enclosures. If you already filed a petition contesting the Notice of Deficiency, you do not need to file a separate petition, but may instead amend your existing petition to state your objections to this determination.

  7. If the requesting spouse has not had the chance to appeal the denial of relief (for example if the ASED is about to expire and one or both of the spouses will not extend the statue) then follow the procedures in IRM 25.15.12.23.6, Short Statute Procedures. The ATE will need to tell the TCS to follow the short statute procedures.

25.15.12.23.5  (05-22-2012)
Both Spouses Request Relief

  1. If both spouses request relief and had the opportunity to participate in the administrative proceedings, the following letters must be prepared and issued:

    Requesting Spouse Letters Other Requesting Spouse Letters
    1. Letter 894, Notice of Deficiency

    2. Letter 3288, Final Appeals Determination - to Requesting Spouse

    1. Letter 894, Notice of Deficiency

    2. Letter 3288, Final Appeals Determination - to Requesting Spouse

    Note:

    Only one Letter 894 is prepared for the joint notice of deficiency (unless duplicate originals are needed due to name changes, different addresses, etc.

  2. The TCS prepares the statutory notice of deficiency, including Letter 894. The ATE prepares Letters 3288. The notice of deficiency should be sent to the taxpayers at the same time as the Letter 3288. but in a separate envelope. See IRM 25.15.12.21, Notice of Determination Under IRC 6015, for further information about Notices of Determination.

  3. Prepare and issue the notices of deficiency as described above in IRM 25.15.12.23.2, Full Relief Allowed to Requesting Spouse, IRM 25.15.12.23.3, Partial Relief Allowed to Requesting Spouse, or IRM 25.15.12.23.4, Relief Denied to Requesting Spouse, except instead of the statements described in the above sections, include the following paragraph on the notice of deficiency letter, waiver (Form 4089 or Form 870), and at the bottom of Form 5278 (Instead of including the paragraph on the waiver and on Form 5278, it may be shown instead on separate schedules attached to the waiver and to Form 5278.)

    "We are sending separate notices regarding [Name of requesting spouse] and [Name of other requesting spouse]’s requests for relief from joint and several liability under IRC sections 6015(b), (c), or (f). Our determination is not reflected in this notice."

    Note:

    As stated in IRM 25.15.12.23.2, Full Relief Allowed to Requesting Spouse, a notice of deficiency should not be issued to a spouse who has been relieved from a determined joint liability under the provisions of IRC 6015.

    Note:

    The "separate notices" in the above paragraph refers to the Letters 3288 that will be sent to each spouse.

  4. It is not necessary to send Letter 3289, Final Appeals Notice - to Non-requesting Spouse, to each spouse to notify them of the decision regarding the request of their spouse or former spouse. Include an explanation of the decision regarding the request of their spouse or former spouse in Letter 3288, Final Appeals Determination - to Requesting Spouse.

  5. The ATE prepares and APS sends Letter 3288, Final Appeals Determination - to Requesting Spouse, with Tax Court rights, to each RS by certified mail. The final determination letter (Letter 3288) and notice of deficiency should be sent at the same time, but in separate envelopes. In addition to the standard explanation paragraph(s), add the following paragraph to Letter 3288 as a write-in paragraph:

    If you disagree with this determination and also disagree with our determination in a related Notice of Deficiency for the same tax years, you may contest both in the United States Tax Court in the same petition. See the paragraph below in this letter entitled "If You Disagree" for additional information about filing a petition. If you dispute both determinations, state you are contesting both notices in the explanation section of your petition and include a copy of both this notice and the Notice of Deficiency as enclosures. If you already filed a petition contesting the Notice of Deficiency, you do not need to file a separate petition, but may instead amend your existing petition to state your objections to this determination.”

  6. Innocent spouse allocation worksheets are no longer required to be prepared with the statutory notice of deficiency. Instead, when needed they are included with the Letter 3288 and Letter 3289. If the ATE wants the TCS to prepare allocation worksheets, the ATE must specify this on a work request to the TCS. Otherwise, the TCS will not need to prepare an allocation worksheet when they prepare the notice of deficiency.

    1. Innocent Spouse allocation spreadsheets that can be used for these computations are available on the Appeals TCS SharePoint site.

    2. See Lesson 4 of Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (4–2008) Catalog Number 20104L, for comprehensive instructions on the allocation of items.

    3. Understatement and underpayment allocation worksheets and instructions are available on the W&I Innocent Spouse website in the Job Aids section at http://win.web.irs.gov/innocentspouse/innocent_jobaids.htm.

  7. If the spouses have not had a chance to appeal the partial grant of relief (for example if the ASED is about to expire and one or both of the spouses will not extend the statue) then follow the procedures in IRM 25.15.12.23.6, Short Statute Procedures. The ATE will need to tell the TCS to follow the short statute procedures.

25.15.12.23.6  (05-22-2012)
Short Statute Procedures

  1. If the ASED is about to expire before consideration of the innocent spouse issue can be completed and one or both of the spouses will not extend the statute, the notice of deficiency to the NRS and the RS should show the full amount of the deficiency.

  2. Include the following paragraph on the notice of deficiency letter, waiver (Form 4089 or Form 870), and at the bottom of Form 5278 (Instead of including the paragraph on the waiver and on Form 5278, it may be shown instead on separate schedules attached to the waiver and to Form 5278.)

    "[Name of requesting spouse] requested relief under IRC sections 6015(b), (c), or (f), from the joint and several liability determined in this notice of deficiency. Our determination is not reflected in this notice."

  3. The ATE will request a new WUNO for the innocent spouse case and retain copies of all pertinent documents from the notice of deficiency (income) file. Cross reference the income WUNO and add a cross-reference on the income case to the innocent spouse WUNO. The ATE should continue consideration of the innocent spouse issue while the notice of deficiency is pending.

  4. APS is responsible for maintaining the notice of deficiency case and monitoring it during the suspense period to determine if, in response to the notice of deficiency, a petition to the U.S. Tax Court was filed. APS is responsible for:

    If... Then...
    A joint petition is filed by both spouses
    1. Update ACDS with the docket number and follow existing procedures to expeditiously process the file to Counsel for the timely filing of an “Answer” to the petition, except, close the case using closing code 42 to move it into Part 2 instead of Part 3. Flag the file for return to Appeals for consideration of the innocent spouse issue.

    2. After assessment, the innocent spouse request will be processed following post-assessment procedures.

    Each spouse files a separate petition
    1. Update ACDS to control two work unit numbers, each with its own separate docket number and a cross-reference to the other, and follow existing procedures to expeditiously process the file to Counsel for the timely filing of an “Answer” to the petition.

    2. After assessment, the innocent spouse request will be processed following post-assessment procedures.

    Only the requesting spouse files a petition
    1. Make a default assessment on the non-requesting (non-petitioning) spouse’s MFT 31 account and include copies of the assessment paperwork in the case file.

    2. Update ACDS with the docket number and follow existing procedures to expeditiously process the file to Counsel for the timely filing of an “Answer” to the petition.

    3. After assessment, the innocent spouse request will be processed following post-assessment procedures.

    Only the non-requesting spouse files a petition
    1. Make a default assessment on the non-requesting (non-petitioning) spouse’s MFT 31 account and include copies of the assessment paperwork in the case file.

    2. Update ACDS with the docket number and follow existing procedures to expeditiously process the file to Counsel for the timely filing of an “Answer” to the petition.

    3. After assessment, the innocent spouse request will be processed following post-assessment procedures.

    No petition is filed (when the full suspense time frame has elapsed)
    1. Make the default joint assessment on MFT 30.

      Note:

      Follow normal procedures to assess the joint account by default. Notify the ATE with the innocent spouse case that the assessment was made so the ATE can update the statute date/code on the case.

    2. After assessment, the innocent spouse request will be processed following post-assessment procedures.

  5. The ATE will coordinate with Counsel if the RS petitions Tax Court.

25.15.12.23.7  (05-22-2012)
Fraud Penalty Under IRC 6663(c)

  1. IRC 6663(c) provides that in the case of a joint return, the imposition of the fraud penalty shall not apply to a spouse, unless some part of the underpayment is due to the fraud of such spouse.

  2. Where the fraud penalty is assessed against a spouse without appropriate development and explanation, that spouse should be relieved of such assessment pursuant to IRC 6663(a), not IRC 6015. IRC 6015 does not provide for relief from penalties and interest separate from tax.

25.15.12.24  (05-22-2012)
Form 8857 Filed During the 90/150-Day Period

  1. In cases where Appeals issued the notice of deficiency for a joint return, and during the 90/150-day period a spouse mails a Form 8857 to Appeals requesting Relief from Joint and Several Liability, APS will pull the case and return it to the Assigned ATE. The ATE will take the following actions:

    • Notify the taxpayer who filed the request for relief, either by letter or telephone, that the period to file a petition with the United States Tax Court is not extended by the filing of the request for relief from joint and several liability.

    • Notify the taxpayer that if they plan to file a petition with Tax Court regarding the notice of deficiency to include the Innocent Spouse issue in the petition.

    • Explain to the taxpayer that they do not need to file a petition with Tax Court regarding the notice of deficiency to be considered for innocent spouse relief and that their claim will be forwarded to CCISO for consideration. If the taxpayer does file a petition, the ATE should notify the Counsel attorney handling the case that the taxpayer has filed a claim for relief under IRC 6015.

    • Explain to the taxpayer that if they are not in agreement with CCISO's innocent spouse determination, then they will be given appeal rights and/or Tax Court rights.

  2. The AO will take the actions listed above as soon as possible and return the administrative file to APS as soon as the notification is made. The AO will document the notification in their Case Activity Record.

    Note:

    APS monitors the case while it is in the hands of the ATE, either by using LACTION and LTODATE or PEAs.

  3. If no petition is filed by either taxpayer in response to the notice of deficiency, APS will:

    1. Assess the deficiency reflected on the notice.

    2. Close the case on ACDS and AIMS, if it is controlled on AIMS.

    3. Recharge the administrative file and forward it and the Form 8857 to CCISO for consideration of the relief issue.

      Note:

      The RS and/or NRS have appeal rights depending on CCISO's determination.

  4. If a petition is filed in response to the notice of deficiency, APS will:

    1. Close the case to Counsel for trial preparation with closing code 43 on ACDS.

    2. Send a copy of the Form 8857 to CCISO for consideration of the relief issue, and provide CCISO with the name and address of the Counsel attorney, if known, or the Counsel office, if the name of the attorney is not known. Retain a copy of the transmittal in the administrative file for Counsel's information.

    3. Forward the administrative file to Counsel for Answer/Trial Preparation.

25.15.12.25  (05-22-2012)
Docketed Innocent Spouse Cases

  1. The RS may petition the Tax Court to determine the appropriate relief available if such petition is filed:

    1. During the 90-day period beginning on the day after the final determination for relief under IRC 6015 is mailed, or

    2. After 6 months of filing the request, if the IRS has not issued a determination.

    See IRC 6015(e)(1)(A)

  2. A taxpayer may raise IRC 6015 in a petition in response to:

    • A final determination letter. Final determination letters are issued by either SB/SE's Technical Services function, CCISO, or Appeals.

    • A notice of deficiency.

    • A CDP notice of determination - if the taxpayer raised relief under IRC 6015 in the collection due process proceeding under IRC 6320 or IRC 6330.

25.15.12.25.1  (05-22-2012)
Innocent Spouse Issue Raised in Petition

  1. If IRC 6015 relief is raised for the first time in a docketed case, treat it in the same manner as any other affirmative issue raised in a docketed case. Jurisdiction is retained by either Appeals or Counsel. Per Chief Counsel Notice 2009–021, Counsel will refer the case to CCISO to consider the request for relief.

  2. When a request for relief under IRC 6015 is raised for the first time in a petition to the Tax Court and the taxpayer simultaneously files a Form 8857 with the Service, the petition to the court takes precedence, since the court has jurisdiction over the tax year(s) at issue.

  3. Counsel (or Appeals under Rev. Proc. 87–24) has functional jurisdiction over the matter and handles the case and request for relief, and either settles or litigates the issue on its merits, as appropriate. Counsel and Appeals may ask CCISO or Field Examination for assistance in developing a previously unaudited issue, while retaining jurisdiction.

  4. In the event a Form 8857 is filed simultaneously with the filing of the petition or subsequent to the filing of the petition while Counsel (or Appeals) has functional jurisdiction over the matter, the receiving function forwards the form to the appropriate Associate Area Counsel handling the litigation as determined from TL CATS or the Docket List. (The module typically shows a litigation freeze code TC 520).

25.15.12.25.2  (05-22-2012)
NRS Notice and Intervention

  1. In response to IRC 6015(e)(4), the Tax Court wrote Tax Court Rule 325, Notice and Intervention.

  2. Counsel must file a Notice of Filing of Petition and Right to Intervene (Notice of Filing) in all cases involving IRC 6015 (including deficiency cases, stand-alone cases, and collection due process cases) on the NRS on or before 60 days from the date of service of a petition raising IRC 6015 relief, unless the NRS is already a party to the case. This Notice of Filing advises the NRS of the right to intervene by filing a notice of intervention with the Court, no later than 60 days after the date the Notice of Filing was served on the NRS. In addition, Counsel must simultaneously file with the Court a copy of the Notice of filing with an attached certificate of Service. Please note that if each spouse files a separate petition from a notice of deficiency and one spouse raises relief under IRC 6015, or only one spouse files a petition, then the Notice of Filing must be sent to the other spouse because that spouse is not a party to the IRC 6015 case. If each spouse raises IRC 6015 relief in separate petitions, then a Notice of Filing must be sent to each spouse regarding the right to intervene in the other spouse's case. See IRM 35.2.2.12, Answers in Cases Where Petitioners Seek Relief from Joint and Several Liability, for additional guidance.

  3. If the NRS desires to intervene, the NRS files a notice of intervention with the Court no later than 60 days after service of the Notice of Filing of the petition by Counsel, unless the Court directs otherwise.

  4. If the NRS intervenes, Counsel provides Appeals with a copy of the notice of intervention. Counsel and Appeals must coordinate with each other regarding the NRS's right to intervene and/or intervention.

25.15.12.25.3  (05-22-2012)
Preparation of Settlement Documents

  1. Appeals is responsible for preparing the necessary computations for docketed cases settled by either Appeals or Counsel.

  2. Counsel generally prepares the settlement documents for docketed innocent spouse cases.

    1. In Field Appeals offices - Appeals generally mails the settlement documents to be executed by the taxpayer or counsel of record.

    2. In Campus Appeals offices - Counsel generally prepares and mails the documents to be executed by the taxpayer or counsel of record. See IRM 8.4.2.6.1, Stipulation/Decision Preparation.

  3. Where unusual or complex circumstances exist, proposed settlements of regular docketed cases are reviewed by the Appeals Team Manager or Appeals Area Director before the settlement documents are forwarded to the taxpayer for signing.

25.15.12.26  (05-22-2012)
APS Closing Procedures

  1. This section contains instructions for the processing of innocent spouse cases after the request is determined to be disallowed, partially disallowed, nonqualifying, or allowed in full and the modules are not mirrored. For instructions on processing mirrored modules see IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability.

  2. Allocation of liability could apply to either allowed or partially allowed requests. A partial allowance occurs when the taxpayer does not qualify for full relief but is entitled to some, but not full, relief. Partial allowance does not include a situation where a taxpayer is eligible for full relief under IRC 6015(c), but the taxpayer does not qualify for a refund of payments/offsets made against the liability because refunds are not allowed under IRC 6015(c). This determination is made by the ATE.

  3. Assessments against only one spouse of a joint return were made:

    1. Prior to January, 2001, on the separate Non-Master File (NMF) MFT 20 account.

      Note:

      If NMF was used to assess one spouse, NMF is used to assess the other spouse.

    2. Effective January 2001, on the separate Master File MFT 31 account.

    3. See IRM 25.15.12.19, Separate Assessment Module Overview, for additional information.

25.15.12.26.1  (05-22-2012)
APS Routing for Closing

  1. Cincinnati APS closes and processes innocent spouse cases in Appeals. This includes closing ACDS, processing account adjustments, and updating ISTS. Cincinnati APS processes these types of cases when:

    1. Form 870-IS agreement is received,

    2. Taxpayer now accepts Compliance's preliminary determination and asks Appeals to close out their case,

    3. Request for relief is unprocessable or does not meet the basic requirements,

    4. There is an invalid joint election,

    5. The final determination letter defaults,

    6. The U.S. Tax Court enters a decision,

    7. A Circuit Court enters a decision regarding a Tax Court decision.

  2. If a final determination letter was issued, and by the 121st day, no notification is received that the RS has petitioned the Tax Court, APS purges the case within seven (7) calendar days and closes the case as a defaulted determination letter.

  3. If a petition with the Tax Court is filed in response to the final determination letter, the issuing APS office updates ACDS and sends the administrative file to Counsel for "Answer" and trial preparation no later than two days after notification is received the case is docketed.

25.15.12.26.2  (05-22-2012)
Backend APS Statute Responsibility

  1. APS is responsible for verifying and monitoring the statute dates on all tax periods and returns under their jurisdiction. Correct statute dates must be promptly determined and updated on ACDS and IDRS (AIMS) following the requirements in IRM 8.21.2.5, Updating Statutes on ACDS and AIMS and the procedures contained in the Pipeline Training Material.

  2. Information for determining and updating statues on post-assessed cases can be found in Exhibit 25.15.12-1, Innocent Spouse - ACDS Statute Date/Code Table.

  3. For pre-assessed cases, statute dates should be computed and updated in the following order when sufficient time remains on the statute to allow for normal processing through IDRS:

    1. Normal statute (never shorten the normal 3 year statute).

    2. Normal or extended statute plus 150 days, see IRM for specifics on SFR's and delinquent return processing.

    3. Decision/Dismissal entered date plus 150 days.

    4. Tackon time (computations must be signed and approved by manager).

      Note:

      A notice of deficiency must have been issued in order for the additional 150 days or tackon time to apply. If no SND has been issued, the normal 3 year statute applies.

  4. ACDS is programmed to enter a statute date equal to 150 days from the decision entered date; this date is a conservative action that aids in the statute monitoring process. APS is responsible for reviewing and determining the actual ASED and updating as follows.

  5. Decision entered on a petitioned Tax Court case:

    • Enter a date 150 days from what the normal or extended statute date was before the notice of deficiency was issued or 150 days from the decision entered date, whichever is later.

    • Delete the statute code DOCKT. If less than 60 days remain on the statute, compute the statute date using tack-on procedures. If using a tack-on statute date, also input statute code TACKON. See IRM 8.21.2.5, Updating Statutes on ACDS and AIMS.

25.15.12.26.3  (09-30-2013)
Preliminary Closing Procedures

  1. Upon receipt of an administrative file for closing, APS assigns the innocent spouse case to an APS employee on PEAs. That employee is responsible for closing ACDS, processing account adjustments, and update of appropriate systems including IDRS and ISTS.

  2. First, the assigned employee reviews the closing instructions. The instructions must address:

    1. Transaction codes: which transactions are to be transferred to MFT 31 or state the Entire Account must be transferred. Entire Account means the TC 150 and all subsequent transactions must be transferred to MFT 31.

    2. Payments: which payments must be transferred to MFT 31 and which payments must be refunded. Allocation of any payments and credits must be identified. If this information is not available on the closing instructions, reject the case back to the ATE.
      See IRM 25.15.9.1.15, Credit and Payment Disposition, for additional information.
      See IRM 25.15.9.1.16, Credit Transfers, for instructions on credit transfers.
      See IRM 25.15.9.1.17, Manual Refunds, for instructions on manual refunds.

    3. Freeze codes: -L (AIMS), -Z, and Z- (all are Criminal Investigation (CI) freezes). The ATE must have contacted CI and documented the conversation and if account adjustments are needed, CI must have agreed to allow the account to be mirrored (which temporarily removes the CI freeze), or the case must be rejected to the ATE.

    4. If CI will not allow the account to be mirrored, the ATE should process the case as a premature referral and return it to CCISO for suspense. Include your Appeals determination in the case file.

  3. The assigned employee reviews the file to:

    1. Verify the appropriate closing documents are in the administrative file, i.e, agreement form, a final determination letter, or an entered decision. Verify any current Power of Attorney(s) (POA(s)).

    2. Verify Transaction Code (TC) 971, Action Code (AC) 065 is posted correctly. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972, for TC 971 AC 065 instructions.

    3. Verify TC 130 is posted correctly on Command Code (CC) ENMOD. See IRM 25.15.2.4.3, TC 130 Entire Account Frozen From Refunding, for additional information on TC 130 and TC 131.

      Note:

      If TC 130 is incorrect and must be re-input, input TC 131. Then input new TC 130 using a posting delay code of 1 cycle.

    4. Check for freeze codes (-A, -L, -Y, -Z, Z-) which could change prior closing instructions. See IRM 25.15.9.1(5), Overview: Accounts Processing of Innocent Spouse Cases.

    5. Identify and review the account for transactions involving levies, liens, OICs, IAs, missing payments, and collection statute expiration dates. Any problems with these transactions must be coordinated with the ATE for resolution.

    6. Identify whether any payments and credits must be allocated. If this information is not available on the closing instructions, reject back to the ATE.

    7. Resolve account problems. (See IRM 25.15.9.1(3), Overview: Accounts Processing of Innocent Spouse Cases and IRM 25.15.9.1.1, Account Problems, for guidance in resolving account problems.)

  4. Refer to IRM 25.15.9.1(8), Overview: Accounts Processing of Innocent Spouse Cases, for a number of additional IRM resources to use when processing Innocent Spouse cases.

  5. Refer to IRM 25.15.7.10.2.1.1, Form 12412, Operations Assistance Request (OAR), for instructions on Form 12412, Operations Assistance Request (OAR).

25.15.12.26.4  (05-22-2012)
Innocent Spouse ACDS Closing

  1. Close the key case account on ACDS following general closing instructions and follow the additional instructions described below:

    • CLOSINGCD — Enter the appropriate closing code for the innocent spouse determination which includes 03, 04, 05, 08, 10, 11, 12, 17, 18, 19 or 21 (See general closing instructions for closing code description and the link to the ACDS Closing Code Definitions/Business Rules posted on the ACDS page on the Appeals web site at http://appeals.web.irs.gov/BusinessSystemPlanning/acds.htm.)

    • Paycode — Enter the appropriate pay code for each tax period on the key case account. See Form 5402 for paycode descriptions.

    • Revised Tax Def/-OAFigure 25.15.12-3, Revised Dollars.

    • Revised Pen Def/-OAFigure 25.15.12-3, Revised Dollars.

    • APPEALS AMTCLM - Leave blank.

    • APPEALS AMTDIS - Leave blank.

      Figure 25.15.12-3

      Revised Dollars

        Pre-assessment Post-assessment
      Revised Tax Enter the revised deficiency of tax as shown on the appeals report Leave blank
      Revised Penalty Enter the revised penalty amount, if any, as shown on the appeals report Leave blank

  2. Close the non-key cases on ACDS:

    1. CLOSINGCD— 45

    2. Paycode — enter 7, not applicable, on each tax period.

    3. Revised Tax Def/-OA — Leave blank.

    4. Revised Pen Def/-OA — Leave blank.

    5. APPEALS AMTCLM — Leave blank.

    6. APPEALS AMTDIS — Leave blank.

25.15.12.26.5  (09-30-2013)
Unprocessable Requests for Relief and Requests Not Meeting Basic Requirements (No Consideration)

  1. When the ATE determines the request for relief is unprocessable or does not meet the basic requirements, APS will:

    1. Input TC 290 .00. If relief is nonqualifying for multiple years, input one TC 290 on the latest nonqualifying year. See IRM 21.5.2, Account Resolution - Adjustment Guidelines, for additional instructions on posting the TC 290. Enter the following on the TC 290:
      Blocking Series (BS) 00 (with original return) or 05 (without original return) or 99 (if tax period is more than 10 years earlier and the original return has been destroyed),
      Reason code (RC) 97,
      Source Documents (SD) Y,
      Source Code (SC) 2, and
      Hold Code (HC) 3.

    2. Assemble the file. See IRM 25.15.9.1.22, Case File Assembly, for case assembly instructions.

    3. Reverse TC 971 AC 065 if one is on the account, by inputting TC 972 AC 065. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972 and IRM 25.15.9.1.20, Final Purge/Transfer Completed, for additional information.

    4. Reverse TC 130, if appropriate. See IRM 25.15.9.1.5.1(1)(c), Denied under IRC 6015(b), (c), or (f).

    5. Update ISTS to Stage 29 including the appropriate activity code and Stage 30, Activity NOACCTP. See IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions for information on the ISTS.

    6. Send the case to Files.

25.15.12.26.6  (09-30-2013)
Invalid Joint Election

  1. A return may contain an invalid joint election if the filing status is joint but the return was processed without a signature or if the taxpayer states he/she did not sign the return and there is no indication of intent to file a joint return. The following situations could be determined to be an invalid joint election:

    • An original or amended joint return was filed and processed with only one signature.

    • The return was signed, however, it was established that the signature was forged and there was no tacit consent.

    • The return was signed under duress.

  2. A return may contain an invalid joint election if the taxpayer filed a joint return, but had no legal right to file jointly. This situation occurs when the taxpayers were not married the year the joint return was filed. If the taxpayer seeks to invalidate the joint election the taxpayer must submit verification. The taxpayer must provide an allocation of all income, credits, and payments. See IRM 25.15.7.5.6, Invalid Joint Election, for a list of states and if they recognize common law marriages. Also see IRM 25.15.7.10.13.5.2, Invalid Joint Election When RS and NRS Were Not Married, for information on invalid joint elections when the RS and NRS were not married.

  3. When it is determined the secondary taxpayer is not liable because of an invalid joint election, APS will:

    1. Correct the entity to remove the secondary taxpayer's name, taxpayer identification number, and change the filing status to 1, 3, 4, or 6 as applicable. To remove the secondary taxpayer's taxpayer identification number (TIN), input 000-00-0001 in the SPOUSES-TIN field on ENREQ if filing status is changed to 6. Filing Status 6 applies to forgery cases only.

    2. Process any adjustment, if needed, such as a credit transfer or manual refund.

    3. Input TC 290 .00 with the following entries:
      BS 00 (with original return) or 05 (without original return) or 99 (if tax period is more than 10 years earlier and the original return has been destroyed,
      RC 03/97 (unless the AO specifies another reason code),
      SC 2, and
      HC 3.

    4. Reverse TC 971 AC 065 if one is on the account, by inputting TC 972 AC 065. Do not extend the Collection Statute Expiration Date (CSED) since IRC 6015 was not applicable. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972 and IRM 25.15.9.1.20, Final Purge/Transfer Complete, for additional information.

    5. Reverse TC 130, if appropriate. Do not remove if there are other innocent spouse years open. See IRM 25.15.9.1.5.1(1)(c), Denied under IRC 6015(b), (c), or (f).

    6. Update ISTS to Stage 29, Activity INVA and Stage 30, Activity ACCTCORR.

    7. Close the IDRS control base.

    8. Send case to Files.

  4. When it is determined the primary taxpayer is not liable because of an invalid joint election, APS will:

    1. Update ISTS to Stage 29 with activity "INVA" and then to Stage 27.

    2. Request a transfer to Master File Tax (MFT) Code 31 for the secondary spouse.

    3. Transfer any credits and/or issue refunds as instructed. IRM 25.15.9.1.16, Credit Transfers and IRM 25.15.9.1.17, Manual Refunds, for additional instructions.

    4. Prepare Form 12810, Transfer Request Checklist. See IRM 25.15.9.1.19, Form 12810 - Special Considerations, for detailed instructions.

    5. Update ISTS to Stage 28.

    6. Document PEAs activity record with actions taken and suspense the case on PEAs.

  5. Refunds due a taxpayer for payments made with respect to a tax liability stemming from invalid joint elections are available if the claim was received within 3 years of the date the return was filed, or 2 years from the payment date, whichever is later, and a married filing separate (MFS) return was filed, or the taxpayer was not required to file a return.

25.15.12.26.7  (09-30-2013)
Innocent Spouse Relief Allowed in Full

  1. Instructions are provided for closing a fully allowed innocent spouse case when the tax was assessed on the joint account (either from the tax on the return not being paid or from an additional assessment).

  2. Claims are considered fully allowed when the RS is granted full relief from all the items giving rise to a deficiency or to the entire underpayment reported on the joint return, regardless of whether the RS has made payments towards the liability. Thus, this includes cases where the RS is granted relief from the entire deficiency under IRC 6015(c). Likewise, if a RS is entitled to receive a refund because the refund is barred by IRC 6511, the RS has received "full relief" . The important thing to remember is that "relief" relates to whether the RS remains liable for any of the deficiency or underpayment, not whether the RS is eligible for a refund.

  3. APS will:

    1. Review the case and account information to make sure the transaction codes (TC 971 AC 065, TC 971 AC 104 and TC 130) are posted correctly whether the case is partially allowed or fully allowed. If not, make the appropriate changes. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972 and IRM 25.15.9.1.20, Final Purge/Transfer Complete, for additional instructions.

      Note:

      If TC 971 AC 104 has been input with an incorrect date - do not make a correction to correct the date. A programming problem has been identified and an attempt to re-input the TC 971 AC 104 will unpost. If this does occur and the MFT 31 account was established with the first input, the transfer can still be done. If TC 971 AC 104 has been input in error - a TC 972 AC 104 must be input on both MFT 30 and MFT 31 accounts to reverse the TC 971 AC 104.

    2. If the account is mirrored input the TC 290 .00 to MFT 31 of RS. See IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability, for additional required transactions.

    3. If the account can be mirrored see IRM 25.15.12.19.3, Mirrored Acounts, for mirroring instructions. Once account is mirrored input the TC 290 .00 to MFT 31 of RS. See IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability, for additional required transactions.

    4. If the account can not be mirrored input TC 290 .00 on MFT 30 (BS 00 or 05, RC 98, SD Y , SC 2, and HC 3) on the primary master file account, for each year the request was allowed. On the joint account, use command code REQ77/FRM77 to input TC 971, AC 103, XREF TIN = non-requesting spouse TIN (this will create an MFT 31 account). Prepare and process Form 12810, Transfer Request/Checksheet List, to the campus (this will move the liability to the nonrequesting spouse's account). After the liability has been transferred, if a TC 470 is on the account, use command code REQ77/FRM77 to input TC 472 to start collection activity. Do not reverse the IDRS transaction codes until the TC 402 posts.

    5. Research to determine if the TC 130 is still needed on the account. Do not remove if there are other innocent spouse years open. Check ISTS to ensure all innocent spouse years are in stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 DLN are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the TC 971 AC 065.

      Note:

      Do not remove if a "2" is in the ninth digit of the TC 130 DLN. This means the TC 130 was input by NMF and they will reverse it when required

    6. Mail the appropriate closing letters.

    7. Update ISTS. See IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions and the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    8. Close ACDS and PEAs.

    9. Send case to Files. See IRM 25.15.9.1.22, Case File Assembly, for case file assembly.

25.15.12.26.8  (09-30-2013)
Innocent Spouse Relief Denied in Full

  1. Instructions are provided for closing a fully denied innocent spouse case.

  2. APS will:

    1. Adjust the account(s) as required.

    2. If the account is mirrored input the TC 290 .00 to MFT 31 of RS.

    3. If the account can be mirrored see IRM 25.15.12.19.3, Mirrored Accounts, for mirroring instructions. Once account is mirrored input the TC 290 .00 to MFT 31 of RS.

    4. If the account can not be mirrored input the TC 290 .00 to MFT 30 (BS 00, 05, 98 or 99, SD Y, RC 97, SC 2, and HC 3) on the primary master file account, for each year the request was disallowed.

    5. Input TC 972 AC 065. See IRM 25.15.12.26.13, Inputting TC 972, IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972 and IRM 25.15.9.1.20, Final Purge/Transfer Complete, for additional instructions.

    6. Research to determine if the TC 130 is still needed on the account. Do not remove if there are other Innocent Spouse years open. Check ISTS to ensure all Innocent Spouse years are in Stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 DLN are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the TC 971 AC 065.

      Note:

      Do not remove if a "2" is in the ninth digit of the TC 130 DLN. This means the TC 130 was input by NMF and they will reverse it when required.

    7. Mail the appropriate closing letters.

    8. Update ISTS. See IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions and the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    9. Close ACDS and PEAs.

    10. Send case to Files. See IRM 25.15.9.1.22, Case File Assembly, for case file assembly.

25.15.12.26.9  (09-30-2013)
Innocent Spouse Relief Partially Allowed

  1. Partial relief occurs when the RS remains liable for some portion of the deficiency or underpayment, regardless of whether the RS is eligible for a refund of any payments the RS made towards the liability.

  2. A claim is considered to be a partial if any part of a tax assessment (including EITC reversal, withholding credit, accuracy-related penalty, etc.) is allocated between the spouses' mirrored accounts before considering any payments by the RS.

  3. APS will:

    1. Adjust the account(s) as required.

    2. If the account is mirrored input the TC 290 .00 to MFT 31 of RS. See IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability, for additional required transactions.

    3. If the account can be mirrored see IRM 25.15.12.19.3, Mirrored Accounts, for mirroring instructions. Once account is mirrored input the TC 290 .00 to MFT 31 of RS. See IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability, for additional required transactions.

    4. If the account can not be mirrored input the TC 290 .00 to MFT 30 (BS 00, 05, 98 or 99, SD Y, RC 97 and 98, SC 2, and HC 3) on the primary master file account, for each year the request was partially disallowed. Input TC 971 AC 103 to establish MFT 31 for the NRS. Prepare Form 12810 and route to the Account Transfer Team. See IRM 25.15.9.1.19.1, Routing Form 12810 to Account Transfer Team, for additional information.

    5. Input TC 972 AC 065. See IRM 25.15.12.26.13, Inputting TC 972, IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972 and IRM 25.15.9.1.20, Final Purge/Transfer Complete, for additional instructions.

    6. Research to determine if the TC 130 is still needed on the account. Do not remove if there are other innocent spouse years open. Check ISTS to ensure all Innocent Spouse years are in stage 30. Do not remove TC 130 if input by another campus unless the DLN of the TC 971 AC 065 and the TC 130 DLN are for the same center and posting cycle of the TC 130 is one cycle later than the posting cycle of the TC 971 AC 065.

      Note:

      Do not remove if a "2" is in the ninth digit of the TC 130 DLN. This means the TC 130 was input by NMF and they will reverse it when required.

    7. Mail the appropriate closing letters.

    8. Update ISTS. See IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions and the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    9. Close ACDS and PEAs.

    10. Send case to Files. See IRM 25.15.9.1.22, Case File Assembly, for case file assembly.

25.15.12.26.10  (05-22-2012)
Pre-Assessment Cases

  1. The following instructions are provided for when the assessment has NOT been made and innocent spouse is allowed in part or in full.

  2. If Innocent Spouse relief is granted on a pre-assessment case, APS will process the case using normal procedures for making an assessment to MFT 31. Pay particular attention to the other information section of the Form 5278, and Form 5402, for instructions on how the tax is to be assessed to the taxpayers. Examples of situations that can occur (not all-inclusive):

    • An assessment against the NRS only.

    • An assessment against the NRS and an assessment against the joint account.

    • An assessment against the NRS and an assessment against the RS.

    • An assessment against the NRS and an overassessment against the RS.

25.15.12.26.11  (09-30-2013)
AIMS Closings

  1. If Appeals denies relief and no account adjustment is needed, and the case is on AIMS, APS prepares/inputs a Form 5403, TC 300 $0.00 for the joint account when:

    1. the determination letter defaults,

    2. the taxpayer asks Appeals to close out their request for innocent spouse consideration, or

    3. the Tax Court determines that innocent spouse does not apply.

  2. If an account adjustment is needed, and the case is on AIMS, APS will:

    1. Close ACDS.

    2. Use command code REQ77/FRM77 to input TC 971, AC 103, XREF-TIN = TIN of non-requesting spouse (this will establish the MFT 31 account).

    3. Process Form 5403 for each account with AMCLSS.

    4. Process Form 5403 with AMCLSA after MFT 31 assessment posts.

    5. After the MFT 31 assessment posts, use command code REQ77/FRM77 to input TC 472 on the MFT 31 account (this will resume collection).

    6. Mail the appropriate closing letters.

    7. Update ISTS. See IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions and the Innocent Spouse Tracking System Reference Guide for additional ISTS information.

    8. Process Form 3177 using REQ77/FRM77 to release the L– innocent spouse freeze on the account with TC 972 (See IRM 25.15.12.26.13, Inputting TC 972. This section provides procedures for determining the correct transaction date.)

    9. Send case to Files. See IRM 25.15.9.1.25, Case File Assembly, for case file assembly.

  3. If the case is open on AIMS, close the case through AIMS using Form 5403. Prepare the first Form 5403 for the joint account. Prepare a second Form 5403 for the non-requesting spouse: If both spouse's are granted innocent spouse relief, prepare a third Form 5403 for the other spouse. An open AIMS case needs to be mirrored.

    1. Prepare Form 5403 to remove -L freeze using AMCSLA

    2. Once TC 300 for zero posts, See IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability, for the mirroring process.

  4. Additional Form 5403 instructions are provided in the tables below:

    Form 5403 Instructions
    Joint Account:
    Check AMCLSA At the top of Form 5403
    TIN TIN of joint account
    MFT 30
    Item 12 TC 300 = amount for which both spouse's are liable
    Item 14 Enter statute date
    Item 800 or Item 801 Amount Appeals Results/Counsel Results
    Item A Note: "TPW (or TPH) is innocent spouse – Transfer liability of $__ to (culpable spouse's) MFT 31 account."
    Nonrequesting spouse:
    Check AMCLSS At the top of Form 5403
    TIN TIN of joint account
    MFT 30

    Note:

    Although MFT 30 is used on the Form 5403, the assessment will be made on MFT 31.

    Item 12 TC 300 = tax to be assessed against this spouse only
    Item 14 Enter statute date
    Item 800 or Item 801 Amount Appeals Results/Counsel Results
    Item 56 Check PA if NRS is the primary TIN OR check SA if NRS is the secondary TIN. Checking PA or SA will determine where the assessment is made.
    Item 57 Name control of secondary spouse when NRS is secondary spouse
    Other spouse (if both spouse's are granted relief):
    Check AMCLSS At the top of Form 5403
    TIN TIN of joint account
    MFT 30

    Note:

    Although MFT 30 is used on the Form 5403, the assessment will be made on MFT 31.

    Item 12 TC 300 = tax to be assessed against this spouse
    Item 14 Enter statute date
    Item 800 or Item 801 Amount Appeals Results/Counsel Results
    Item 56 Check PA if nonrequesting spouse is the primary TIN OR check SA if nonrequesting spouse is the secondary TIN. Checking PA or SA will determine where the assessment is made.
    Item 57 Name control of secondary spouse when NRS is secondary spouse

    Form 5403 Disposal Codes for Innocent Spouse Cases
    Description Disposal Code
    Allowed in full 01
    No change 01
    Disallowed in full - Agreement or no response to 30-day letter 02
    Change to Tax and/or Penalty 03
    Defaulted on final determination letter 10
    Petitioned 11
    Change to Reference Codes Only 12

25.15.12.26.12  (05-22-2012)
NMF Account Processing

  1. Accounts were assessed on NMF prior to January 2001. The following instructions are provided for tax assessed on NMF and innocent spouse relief is allowed for all or part of the tax.

  2. Prepare Form 5403 to abate the tax/penalty on the innocent spouse:

    1. TIN = innocent spouse TIN with an "N"

    2. MFT = 20

    3. TC 301 = amount of tax to be abated

    4. Note in ITEM A: "TPW (or TPH) is granted innocent spouse relief for this liability"

  3. Attach a copy of the NMF transcript to the Form 5403.

  4. Prepare a Form 1331, Notice of Adjustment, and forward it with the Form 5403 to the Cincinnati Campus Accounting Branch, Stop 21, to process the abatement.

  5. Mail the appropriate closing letter to the requesting spouse. Mail a separate letter to the non-requesting spouse.

  6. Process Form 3177 using REQ77/FRM77 to release the L– innocent spouse freeze on the account with TC 972. See IRM 25.15.12.26.13, Inputting TC 972. This section provides information on determining the correct transaction date.

    Caution:

    Do not reverse the TC 971 or input a reversal of any other IDRS transaction codes until the TC 402 posts.

  7. Update ISTS.

  8. Close ACDS.

25.15.12.26.13  (09-30-2013)
Inputting TC 972

  1. When a Form 8857, Request for Innocent Spouse Relief, is received, a TC 971 AC 065 is input in the account to represent the beginning of the CSED suspension period. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972, for TC 971 AC 065 instructions. A TC 972 AC 065 needs to be input before the AIMS or IDRS closing. The TC 972 AC 065 represents the ending date of the CSED suspension period.

  2. The RS's CSED is suspended for the period during which the Service is prohibited from collecting pursuant to IRC 6015(e)(1)(B) plus 60 days. IRC 6015(e)(5). The prohibition on collection runs from the time the claim is filed under IRC 6015 until:

    • the date the Service signs Form 870-IS on behalf of the Commissioner,

    • the 90 day period for petition the Tax Court expires, or

    • if a Tax Court petition is filed, until the Tax Court decision becomes final.

  3. Although the Service is not permitted to collect against the RS while the claim is pending, collection actions against the NRS during this period are not prohibited and should continue.

  4. Because of the amendment of IRC 6015(e) and the revision to Form 8857, treat any claim for relief filed on or after December 20, 2006, as suspending the CSED from the date the claim was received, no matter which revision of Form 8857 is used by the RS.

  5. For claims for relief filed before December 20, 2006, for which the RS only requested relief under IRC 6015(f), the prohibition on collection and suspension of the CSED start on December 20, 2006, and not on the date of the claim for relief was received.

  6. If the claim for relief was filed before December 20, 2006, and also included an election under (b) or (c), then the prohibition on collection and suspension of the CSED do begin on the date the claim for relief was received.

  7. The TC 972 AC 065 transaction date for IRC 6015 claim is -

    1. Notice of Final Determination date + 150 days (for cases in which the RS didn't petition the Tax Court)

    2. Tax Court Decision + 150 days (for cases in which the RS did petition the Tax Court)

      Note:

      See IRM 25.15.2.4.2(7), Innocent Spouse Indicator Transaction Code (TC) 971/972, for further information, especially for situations where the RS filed a Notice of Appeal from the Tax Court decision.

    3. The date the Appeals Team Manager (ATM) signed Form 870-IS, plus 60 days.

  8. When the CSED is not being extended, the TC 972 AC 065 transaction date is the same transaction date used for the TC 971 AC 065.

  9. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972, for more information on the tolling of the Collection Statute Expiration Date (CSED) during the pendency of innocent spouse cases.

25.15.12.26.14  (09-30-2013)
Form 12810 Procedures

  1. Form 12810, Account Transfer Request Checklist, is used to request transfer of part or all of a tax assessment to MFT 31 or NMF 20. See IRM 25.15.9.1.19, Form 12810 - Special Considerations.

  2. When the TC 400 and TC 402 post on the account and the completed Form 12810 is received from the Credit and Account Transfer Unit, the case is ready for closing. Follow the instructions contained in IRM 25.15.9.1.19, Form 12810 - Special Considerations, IRM 25.15.9.1.19.1, Routing Form 12810 to Account Transfer Team, and IRM 25.15.9.1.20, Final Purge/Transfer Complete.

25.15.12.26.15  (09-30-2013)
Collection Statute Expiration Date (CSED) Expired

  1. The CSED is suspended upon receipt of Form 8857. So if the CSED was open when the claim was received, the claim must be evaluated.

  2. If the CSED expired for the RS prior to the filing of Form 8857 return the case to CCISO as a premature referral.

  3. The most common conditions that could affect the CSED are:

    • TC 290 (Additional tax assessment)

    • TC 300 (Additional tax assessment by Examination or Collection)

    • TC 340 (Restricted Interest)

    • TC 480 (OIC)

    • TC 520 (Bankruptcy)

    • TC 550 (Waiver to extend to CSED).

    • TC 971 AC 065 (Innocent Spouse Claim)

    • CDP Hearing Request

  4. See IRM 5.1.19.3, Case Actions That Can Suspend And/Or Extend a CSED for additional information.

  5. Refer to IRM 25.15.9.1.9, Collection Statute Expiration Date, for guidance on determining the last CSED.

25.15.12.26.16  (09-30-2013)
Special Processing Instructions

  1. IRM 25.15.9, Account Processing of Requests for Relief from Joint and Several Liability contains processing instructions for cases needing special processing consideration. This list is not all inclusive.

    • Barred Statute One Signature (BSOS) — See IRM 25.15.9.1.4, Barred Statute One Signature (BSOS), for the procedures APS should follow in these cases.

    • Bankruptcy — See IRM 25.15.9.1.9, Bankruptcy -V/-W Freeze.

    • Offer in Compromise — See IRM 25.15.9.1.10, Offer in Compromise (OIC) -Y Freeze.

    • Decedents — See IRM 25.15.9.1.11, Decedents.

    • Penalty Considerations — See IRM 25.15.9.1.12, Penalty Considerations.

    • Interest Considerations — See IRM 25.15.9.1.13, Interest Consideration, and IRM 25.15.9.1.14, Non-restricting TC 340.

    • Liability Application — See IRM 25.15.9.1.18, Liability Application.

    • Manual Refunds — See IRM 25.15.9.1.18, Manual Refunds.

25.15.12.27  (05-22-2012)
Validation Reports

  1. Validation reports may be generated from either the ACDS AMATCH sub-system or ISTS.

  2. APS is responsible for working the validation reports.

  3. The ACDS AMATCH sub-system matches ACDS information against data received from the Innocent Spouse Tracking System (ISTS) to ensure cases are received and in the proper status on ISTS. There are four ACDS/ISTS AMATCH report listings available:

    1. On ISTS Not on ACDS Open

    2. On ACDS Open Not on ISTS

    3. ISTS Stage 07 List

    4. Mismatched Data

  4. Validation reports generated from ISTS may be periodically sent to Appeals to be worked. IRM 25.15.14.5,Validating the Inventory Validation Listing (IVL) - Area Offices, contains the procedures to follow when an ISTS inventory listing is received that must be validated.

25.15.12.28  (05-22-2012)
Reconsiderations

  1. A Final Determination or a claim previously closed as nonqualified will be reconsidered any time a Requesting Spouse (RS) submits additional information (or when the IRS has failed to address the information previously sent) not previously considered as long as the Collection Statue Expiration Date (CSED) or Refund Statute Expiration Date (RSED) is still open. This includes claims previously in Stage 30 on the Innocent Spouse Tracking System (ISTS). There is no limit as to how many times a case can be reconsidered as long as the taxpayer has submitted information not previously considered.

  2. Although a Final Determination may be reconsidered, any determination reached in the reconsideration process will not be considered a Final Determination for purposes of IRC 6015(e). Thus, there is no right to petition any court for a reconsideration determination when a final determination letter was previously issued.

  3. See IRM 25.15.17, Reconsiderations, for additional information on Reconsiderations.

25.15.12.28.1  (09-30-2013)
Definitions

  1. Recon - Recon is when a taxpayer submits additional information not previously considered after the issuance of a final determination or Appeals consideration.

    Note:

    The information has to be different than what was previously considered.

  2. Post Determination - A Post Determination is a claim in ISTS Stage 30 or archived, where the taxpayer sends correspondence but the information is no different than was previously considered.

  3. Refundable Payments for Recons - Use the IRS received date of the Recon when determining if a payment is eligible for refund.

    Note:

    If the Recon is due to IRS error or previously denied for timeliness, then you consider the date of the original claim.

25.15.12.28.2  (05-22-2012)
Screening

  1. Cincinnati Centralized Innocent Spouse Operation (CCISO) will screen all reconsideration cases to determine if a case should be reconsidered by them or Appeals.

  2. See IRM 25.15.17.2, Screening, for additional information on the screening process of a reconsideration.

25.15.12.28.3  (05-22-2012)
Cases Closed in Appeals

  1. If a case was closed in Appeals (Stage 16 or 20 on the Innocent Spouse Tracking Systems (ISTS)) and meets the guidelines for reconsideration, the Cincinnati Centralized Innocent Spouse Operation (CCISO) must determine if the reconsideration will be conducted by CCISO or Appeals.

  2. If the Appeals closing code is 03, 04, or 05, CCISO will send the case to Appeals.

  3. A claim can not be reconsidered if Res Judicata applies. Res Judicata generally applies to cases closed with Appeals closing codes 10, 12, or 17. Res Judicata might also apply to cases closed with Appeals closing codes 08 and 21. If applicable, CCISO will advise the RS that the claim cannot be reconsidered because Res Judicata applies.

  4. Appeals closing codes 08 and 21 are also used for cases that were dismissed for lack of jurisdiction. CCISO will reconsider any Tax Court case dismissed for lack of jurisdiction.

25.15.12.28.4  (05-22-2012)
Types of Reconsideration Cases Sent to Appeals

  1. Reconsideration requests on cases previously closed in Appeals with closing code 03, 04, or 05 will be sent to Appeals.

  2. Reconsideration requests where CCISO received additional information and still denied but for a new reason will come to Appeals if the RS requests appeal consideration.

  3. Reconsideration request where CCISO received additional information and changed the determination to allow relief in full or part will come to Appeals if the RS or NRS requests appeal consideration.

25.15.12.28.5  (10-01-2012)
Account and Processing Support (APS) Responsibilities for Reconsideration Cases Sent to Appeals

  1. APS will follow normal innocent spouse carding procedures on a reconsideration case. See IRM 25.15.12.5, APS Establishes ACDS Controls, for additional information.

  2. In addition to normal carding procedures APS will enter:

    1. FEATRCD - RE for reconsideration.

    2. NOTES - RECON

  3. Do not input Transaction Code (TC) 971 Action Code (AC) 065.

25.15.12.28.6  (05-22-2012)
Post Determination

  1. If the claim is a post determination, the ATE will:

    1. Note in the activity record, "Received information, however the information was previously considered, no change in determination."

    2. Prepare a letter to the RS to explain that we cannot reconsider their request because the request for relief was previously considered and they did not submit any new information

      Note:

      Do not issue a letter to the Nonrequesting Spouse (NRS).

    3. Prepare a customized Form 5402:
      Disposal information-Closing Code: 03
      Resolution Reason: INNSP RECON - No new information provided

      Note:

      The Form 5402 ACM Explanation can serve as the ACM since everything that needs to be said about the case can fit into the Remarks Section of the form.

25.15.12.28.7  (05-22-2012)
No Change to Prior Determination - Reconsiderations

  1. If the claim was previously disallowed for more than one reason and you are still disallowing it for one of the original reasons, treat it as a no change to prior determination. The ATE will:

    1. Note in the activity record, "Received information, no change to prior determination."

    2. Prepare letter to the RS explaining no change to prior determination. Remind the RS of when his or her Tax Court rights will expire, if applicable.

      Note:

      Do not issue a letter to the Nonrequesting Spouse (NRS).

    3. Prepare a customized Form 5402:
      Disposal information - Closing Code: 03
      Resolution Reason: INNSP RECON - No new information provided

      Note:

      The Form 5402 ACM Explanation can serve as the ACM since everything that needs to be said about the case can fit into the Remarks Section of the form.

  2. If the RS did not receive a final determination letter and is not in agreement with the recon determination, see IRM 25.15.12.28.9, Previously Agreed Case Where no Final Determination Letter was Issued - Reconsiderations.

25.15.12.28.8  (05-22-2012)
Determination is the Same but the Reason is Different - Reconsiderations

  1. If the claim was previously disallowed for more than one reason and you are still disallowing it, but for a new reason, treat as no change to prior determination, the ATE will:

    1. Note in the activity record, "Received additional information with a new reason for disallowing."

    2. Prepare a letter to the RS explaining no change to prior determination. Remind the RS of when his or her Tax Court rights will expire, if applicable.

      Note:

      Do not issue a letter to the Nonrequesting Spouse (NRS).

    3. Prepare a customized Form 5402:
      Disposal information - Closing Code: 03
      Resolution Reason: INNSP RECON - No new information provided

    4. Prepare an Appeals Case Memorandum that fully explains the new determination

  2. If the RS did not receive a final determination letter and is not in agreement with the recon determination, see IRM 25.15.12.28.9, Previously Agreed Case Where no Final Determination Letter was Issued - Reconsiderations.

25.15.12.28.9  (05-22-2012)
Previously Agreed Case Where no Final Determination Letter was Issued - Reconsiderations

  1. If the claim was previously disallowed or partial allowed (no final determination letter was issued) and you are making no change to the original determination and the RS is not in agreement with the recon determination, the ATE will:

    1. Note in the activity record, "Received additional information but no change to original determination."

    2. Prepare the final determination letter to the RS with tax court rights.

      Note:

      Do not issue a final notice letter to the NRS unless he/she has been involved in the reconsideration process.

    3. Prepare a customized Form 5402:
      Disposal information - Closing Code: 05
      Resolution Reason: INNSP RECON - No new information provided or INNSP RECON - New information provided.

    4. Prepare an Appeals Case Memorandum that fully explains your determination.

25.15.12.28.10  (05-22-2012)
Determination Changed to Allow Relief in Full or Part - Reconsiderations

  1. If additional information is received and determination is changing to allow relief in full or part, the NRS must be notified of the change and given an opportunity to provide any relevant information.

  2. The ATE will

    1. Note in activity record, "Received additional information and changing determination."

    2. Submit a request to APS to input Transaction Code (TC) 971 Action Code (AC) 065 on account with balance due.

    3. Follow normal innocent spouse procedures to secure an agreement from the RS or prepare a final determination letter, if one was not issued previously

    4. Prepare a customized Form 5402:
      Disposal information - Closing Code: 03 if agreed or 05 if unagreed.
      Resolution Reason: INNSP RECON - New information provided

    5. Prepare an Appeals Case Memorandum that fully explains your determination.

    6. Prepare a final notice letter to the NRS.

25.15.12.28.11  (05-22-2012)
APS Closing Procedures - Reconsiderations

  1. APS will follow normal closing procedures. See IRM 25.15.12.26, APS Closing Procedures.

    Exception:

    When the recon determination is no change to the prior determination and a final determination letter is not issued, APS will associate the claim with previous Transaction Code (TC) 290, using Form 10023–B, Attachment (To Be Associated with Return).

Exhibit 25.15.12-1 
Innocent Spouse — ACDS Statute Date/Code Table

NON-DOCKETED
  Joint Return
(Key Case)
Requesting Spouse
(Related Case)
Nonrequesting Spouse
(Related Case)
PRE-ASSESSMENT
Proposed Deficiency/Appeals' Responsibility STATDATE Assessment Statute Date Assessment Statute Date Assessment Statute Date
STATCODE Blank Blank Blank
Proposed Deficiency/Exam's Responsibility STATDATE Assessment Statute Date Assessment Statute Date Assessment Statute Date
STATCODE EXAM EXAM EXAM
POST-ASSESSMENT
Both Spouses Assessed on Mirrored MFT 31 Accounts STATDATE Blank Blank Blank
STATCODE N/A SUSP ASESD
Both Spouses Assessed Jointly on MFT 30 STATDATE Blank Blank Blank
STATCODE ASESD SUSP ASESD
DOCKETED
  Joint Return
(Key Case)
Requesting Spouse
(Related Case)
Nonrequesting Spouse
(Related Case)
PRE-ASSESSMENT
Both Spouses Petition Notice of Deficiency – Same Docket Number STATDATE Blank Blank Blank
STATCODE DOCKT DOCKT DOCKT
Both Spouses Petition Notice of Deficiency – Separate Docket Numbers STATDATE Blank Blank (See Note, below) Blank (See Note, below)
STATCODE DOCKT DOCKT (See Note, below) DOCKT (See Note, below)
 

Note:

Each separate Docket Number must be controlled as a key case record on ACDS with a cross reference in NOTES to the other WUNO/Docket number.

RS Petitions Notice of Deficiency – NRS is a Non-petitioning Spouse (NPS) Not Yet Assessed STATDATE Blank Blank Assessment Statute Date
STATCODE DOCKT DOCKT Blank
RS Petitions Notice of Deficiency – NRS is a NPS - NRS Assessed per NPS procedures STATDATE Blank Blank A date equal to the 23C Date plus 8 years
STATCODE DOCKT DOCKT CSED
POST-ASSESSMENT
RS Petitions Determination Letter – Both Spouses Assessed (either Jointly or on Mirrored MFT 31 Accounts) STATDATE Blank Blank A date equal to the 23C Date plus 8 years
STATCODE DOCKT DOCKT CSED
Separate Return Work Unit (For Married Taxpayers Who Filed Separate Returns in Community Property States)
    Requesting Spouse
(Key Case)
Nonrequesting Spouse
(Related Case)
NONDOCKETED
66(c) - Assessed STATDATE Blank Blank
STATCODE SUSP N/A
66(c) - Not Assessed STATDATE Assessment Statute Date Assessment Statute Date
STATCODE Blank Blank
DOCKETED
66(c) - Assessed STATDATE Blank Blank
STATCODE DOCKT ASESD
66(c) - Not Assessed STATDATE Blank Assessment Statute Date
STATCODE DOCKT Blank or EXAM

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