25.15.12 Appeals Procedures

Manual Transmittal

October 28, 2014

Purpose

(1) This document transmits revised IRM 25.15.12, Relief from Joint and Several Liability, Appeals Procedures.

Material Changes

(1) Updated references and made editorial changes (including grammar, spelling and minor clarification) throughout the IRM.

(2) The changes are listed in the table below:

IRM Reference Description of Change
IRM 25.15.12.5.1.2 Updated reference.
IRM 25.15.12.5.1.3 Updated reference.
IRM 25.15.12.9 Updated reference.
IRM 25.15.12.10 Revised to incorporate Interim Guidance AP-08-0714-0004, Implementation of the Appeals Judicial Approach and Culture (AJAC) Project Examination and General Matters - Phase 2.
IRM 25.15.12.13 Updated reference.
IRM 25.15.12.15.3 Revised to clarify what action is taken when an innocent spouse case is appealed prior to a notice of deficiency being issued by AUR.
IRM 25.15.12.15.4 Revised to clarify what action is taken when an innocent spouse case is appealed after a notice of deficiency is issued by AUR.
IRM 25.15.12.15.5 Revised to clarify what action is taken when an income case is appealed but the innocent spouse determination is not appealed.
IRM 25.15.12.15.8 Updated reference.
IRM 25.15.12.16.2 Revised to clarify what closing letters are sent on a stand alone innocent spouse case when the CDP/EH request is withdrawn.
IRM 25.15.12.16.3 Deleted requirement to update CDPTS based upon Interim Guidance AP-08-0214-0001, Appeals’ Discontinued Use of CDPTS.
IRM 25.15.12.19 Updated title of reference in (2).
IRM 25.15.12.20 Updated reference to training material.
IRM 25.15.12.20.2 Updated reference to training material.
IRM 25.15.12.20.3 Updated to include the release of Rev. Proc 2013-34.
IRM 25.15.12.20.6 Updated to include the release of Rev. Proc. 2013-34.
IRM 25.15.12.20.7 Updated reference to training material.
IRM 25.15.12.23.1 Updated title of reference in (2).
IRM 25.15.12.23.3 Updated reference to training material.
IRM 25.15.12.23.5 Updated reference to training material.
IRM 25.15.12.26.2 Updated (3) to remove unnecessary reference regarding SFR's and delinquent return processing.
IRM 25.15.12.26.3 Updated title for IRM 25.15.9.1.15
IRM 25.15.12.26.4 Removed instructions for APS to enter a paycode. APS no longer enters paycodes on ACDS.
IRM 25.15.12.26.11 Updated reference (2) i.
IRM 25.15.12.26.15 Updated reference (5).
IRM 25.15.12.26.16 Updated reference (1) last bullet.
IRM 25.15.12.28 Revised to clarify and updated title of reference in (3).
IRM 25.15.12.28.3 Added exception to clarify when Appeals will receive a reconsideration case without any consideration by CCISO.

Effect on Other Documents

This IRM supersedes the information in IRM 25.15.12, Relief from Joint and Several Liability, Appeals Procedures, dated September 30, 2013. Incorporated Interim Guidance Memorandum AP-08-0214-0001, Appeals’ Discontinued Use of CDPTS, which was issued February 21, 2014, and Interim Guidance Memorandum , AP-08-0714-0004, Implementation of the Appeals Judicial Approach and Culture (AJAC) Project Examination and General Matters - Phase 2, which was issued July 2, 2014, into this IRM.

Audience

Appeals Employees

Effective Date

(10-28-2014)

John V. Cardone
Director, Policy, Quality and Case Support

Overview of the Innocent Spouse Appeals Process

  1. This section covers the processes and procedures for handling appeals of determinations made in response to requests for relief from joint and several liability pursuant to IRC 6015 ("innocent spouse" appeals). Appeals makes a determination on these requests for relief when appropriate.

  2. Joint and Several Liability: Married taxpayers may elect to file joint returns with their spouse. See IRC 6013(a). Under IRC 6013(d)(3), each spouse filing a joint return is jointly and severally liable for the tax; that is, each spouse is responsible for the entire income tax liability even though all or part of the liability arises from income earned by or a deduction attributable to the other spouse.

  3. An election to file a joint return may only be revoked before the due date of the return, including extensions. However, an executor or administrator may revoke a joint return election made by a surviving spouse within one year of the due date of the surviving spouse’s return, including extensions (time for filing such return). See Treas. Reg. 1.6013-1(d)(5).

  4. IRC 6015 provides relief in certain circumstances from the joint and several liability imposed by IRC 6013(d)(3). Appeals technical employees (ATEs) make the final determination under the following provisions:

    • IRC 6015(b) – Innocent Spouse Relief – provides an election for relief from a deficiency/understatement of tax liability.

    • IRC 6015(c) – Separation of Liability – provides an election to allocate a deficiency/understatement.

    • IRC 6015(f) – Equitable Relief – provides IRS with discretion to grant equitable relief from deficiencies and underpayments if the relief provisions under 6015(b) or 6015(c) do not apply.

  5. IRC 6015 is effective for:

    • Unpaid balances as of July 22, 1998; and

    • Liabilities arising after July 22, 1998

  6. Under IRC 66(c), married taxpayers filing separate returns in community property states may request relief from the operation of state community property laws. This is also considered innocent spouse relief.

Common Terms Applicable to Innocent Spouse Cases

  1. The following commonly used terms apply to innocent spouse cases:

    1. Requesting spouse (RS) – The person who files the request for innocent spouse relief (Form 8857,) or otherwise properly raises the issue of innocent spouse relief. Sometimes this person is also referred to as the "electing spouse" .

    2. Non-requesting spouse (NRS) – The spouse or former spouse of the person who files the request for innocent spouse relief. Sometimes this person is also referred to as the "non-electing spouse."

      Note:

      Both spouses may request innocent spouse relief for the same tax period. Therefore, you can have two cases where one spouse is the RS on his/her claim and the non-requesting spouse (NRS) on their spouse’s claim.

    3. Appellant spouse – The taxpayer who requested Appeals consideration. This can be the requesting spouse, the non-requesting spouse, or both.

Types of Cases That Can Be Innocent Spouse Cases

  1. There are many different types of cases that can result in an appealed innocent spouse case. Innocent spouse cases are non-docketed or docketed, and post-assessment or pre-assessment. Appeals considers an innocent spouse issue as part of an appeal of any of the following types of cases (not all-inclusive):

    • Non-docketed denial of an innocent spouse request (post-assessment)

    • Non-docketed open examination (pre-assessment proposed deficiency case)

    • Docketed denial of an innocent spouse request (post-assessment)

    • Docketed proposed deficiency case with request for innocent spouse relief raised in the petition (pre-assessment)

    • Innocent spouse request in connection with a collection due process case (typically post-assessment)

  2. Married or formerly married taxpayers who file joint (or separate returns while married in community property states) may be relieved of income tax liability under certain conditions.

  3. If the RS is relieved of the income tax liability under IRC 6015, related penalties, additions to tax, additional amounts, and interest are relieved.

  4. If relief is denied in whole or in part to the RS, he/she may appeal the preliminary determination. The NRS may not appeal a decision to deny relief to the RS.

  5. If relief is granted in whole or in part to the RS, the NRS may appeal the preliminary determination to the extent relief is granted to the RS.

  6. Both spouses might appeal a partial-relief preliminary determination.

Disclosure of Information

  1. Do not disclose the following information:

    • The other spouse's new last name, location, or telephone number;

    • Any information about the other spouse's employment, income or assets.

  2. Do not disclose the RS’s personal information to the NRS. Similarly, do not disclose the NRS’s personal information to the RS.

  3. Information with respect to the joint return account, such as the balance due, can be disclosed to either spouse. See IRM 11.3.2.4.1, Individuals, for additional information regarding disclosure of collection activities with respect to joint returns.

  4. Request for information concerning divorced or separated spouses beyond that provided in IRC 6103(e)(8) should be referred to the Disclosure Office. See IRM 25.15.1.9.2, Disclosure Rules, for additional information regarding disclosure rules.

References Available to Appeals

  1. Appeals employees are responsible for researching and using information contained in all reference materials

  2. ATEs follow the Internal Revenue Code and Regulations, Rev. Proc. 2003-19, 2003-1 C.B. 371, Rev. Proc. 2003-61, 2003-2 C.B. 296, Notice 2012-8, 2014-4 I.R.B. 309, and the Internal Revenue Manual.

  3. This manual section is part of IRM 25.15, Relief from Joint and Several Liability, a cross-functional IRM that provides guidance on innocent spouse cases. In addition to the Appeals procedures contained in this section, refer to the following sections:

    IRM Title Topic Covered
    IRM 25.15.1 Introduction General information on relief from joint and several liability and relief from application of community property laws for all functions.
    IRM 25.15.2 General Procedures/Employee With Taxpayer Contact General guidelines for employees with taxpayer contact concerning innocent spouse issues.
    IRM 25.15.3 Technical Provisions of IRC 6015 Discusses innocent spouse provisions of IRC 6015 and provides detailed guidance and procedures for processing innocent spouse requests for relief.
    IRM 25.15.5 Relief from Community Property Laws/Community Property States Discusses relief from community property laws and the provisions of IRC 66.
    IRM 25.15.6 Field Examination Procedures Provides procedures for Revenue Agents or Tax Compliances Officers in Small Business/Self Employed (SB/SE) Operating Division Examination Areas offices for working cases involving requests for relief from joint and several liability.
    IRM 25.15.7 Compliance Campus Functions Provides procedures for Compliance Campus functions, including the Cincinnati Centralized Innocent Spouse Operation (CCISO), Correspondence Examination (SCEB), Automated Underreporter (AUR), and Customer Service Representatives.
    IRM 25.15.8 Procedures for Working Innocent Spouse Relief Cases Provides procedures for revenue officers in Collection Field function to handle case with a request for relief from joint and several liability.
    IRM 25.15.9 Account Processing of Requests for Relief from Joint and Several Liability Provides instructions for the processing of innocent spouse cases. Although the procedures are directed to CCISO, the guidance should be considered by other functions when processing innocent spouse cases.
    IRM 25.15.11 Taxpayer Advocate Service Contacts and Identity Theft Referrals Provides Taxpayer Advocate Service (TAS) procedures related to innocent spouse and identity theft issues.
    IRM 25.15.14 Innocent Spouse Tracking Systems Inventory Validation Instructions Provides guidance and procedures to IRS employees responsible for updating and ensuring the Innocent Spouse Tracking System (ISTS) is current and accurate.
    IRM 25.15.15 Mirror Modules for Requests for Relief from Joint and Several Liability Provides procedures for mirroring modules for requests for relief from joint and several liability.
    IRM 25.15.16 Telephone Contacts Provides procedures for employees who have contact with taxpayers by telephone in processing innocent spouse cases.
    IRM 25.15.17 Reconsiderations Provides procedures for processing a final determination or a claim previously closed as nonqualified when a RS submits additional information not previously considered as long as the Collection Statute Expiration Date (CSED) or Refund Statute Expiration Date (RSED) is still open.
  4. There are a number of other IRM sections that Appeals employees may need to use to resolve an innocent spouse case. See IRM 25.15.1.1.2, Other IRMs Pertaining to Examination Programs, for a list of potential references to consider (not all-inclusive).

  5. Additional information regarding procedural and technical aspects of the Innocent Spouse program is available on the IRS Innocent Spouse website at http://win.web.irs.gov/innocent_spouse.htm.

  6. Additional resources regarding Innocent Spouse Appeals cases are posted on the Appeals website at http://appeals.web.irs.gov/tech_services/innocentspouse/default.htm.

Account and Processing Support (APS) Responsibilities for Innocent Spouse Cases

  1. Account and Processing Support (APS) is responsible for establishing, maintaining and releasing control of innocent spouse cases in Appeals inventory, issuing final determination letters and processing account adjustments.

  2. APS is the coordination point in Appeals for Examination and Collection functions, Compliance campuses, Counsel Offices and the public.

    Caution:

    APS employees must use extreme caution when responding to telephone requests for information to avoid disclosing the requesting spouse’s (RS’s) new name or address, if any, to the non-requesting spouse (NRS) or the NRS’s separate representative. Similarly, do not disclose the NRS’s new name or address, if any, to the RS or the RS’s separate representative.

  3. Access to the following automated systems is needed to process innocent spouse cases in Appeals:

    1. ACDS (Appeals Centralized Database System), including its subsystems, such as Processing Employee Automated system (PEAs) and the Docket Information Management System (DIMS)

    2. IDRS (Integrated Data Retrieval System)

    3. AIMS (Audit Information Management System)

    4. ISTS (Innocent Spouse Tracking System)

    5. TL CATS (Counsel Automated Tracking System)

    6. CDPTS (Collection Due Process Tracking System)

IDRS/ISTS Controls

  1. The office initially receiving the Form 8857, Request for Innocent Spouse Relief, is responsible for inputting the following transaction codes. Normally, these codes are already input on innocent spouse cases received in Appeals. Upon receipt of an innocent spouse case, verify if these transaction codes were input, and if not, take steps to input them.

    • Transaction Code 971 with AC 065 – This transaction code identifies a processable innocent spouse claim has been filed. The input of TC 971 AC 065 stops all potential collection action and generates a L- Freeze Code which prohibits offsets and prevents notices from being issued except for Notice 521, Monthly Reminder on Installment Agreements and CP 71, Annual Reminder Notice of Balance Due.

      Note:

      The TC 971 with AC 065 requires the following: The taxpayer’s TIN who filed for relief (RS). A cross-reference entry is not required (leave bank) if the primary taxpayer is the RS. If secondary taxpayer is the RS, enter the TIN of the secondary spouse and the date the Form 8857 or equivalent was filed with IRS. See IRM 25.15.2.4.2, Innocent Spouse Indicator Transaction Code (TC) 971/972, for additional information regarding TC 971 AC 065.

    • Transaction Code 130 – Verify that this transaction code is on ENMOD for the NRS. It prevents an “erroneous” refund by freezing the entire account. The system automatically generates this transaction code when the proper TC 971 AC 065 and cross-reference is input on any MFT 30 account. If both spouses request relief, a TC 131 should be input to reverse the automatic TC 130s. See IRM 25.15.2.4.3, TC 130 Entire Account Frozen From Refunding, for additional information regarding TC 130 and TC 131.

    Caution:

    A TC 130 will not post if there is no balance due at the time TC 971 AC 065 posts. Therefore, if there is no balance due, you will have to manually input a TC 130.

  2. Innocent Spouse Tracking System (ISTS) – This is a mandatory, nationwide, cross-functional system developed to track and monitor the various stages of an innocent spouse case. The system is used to provide claim status information and statistical information. Appeals is responsible for updating the system. See IRM 25.15.14, Innocent Spouse Tracking Systems Inventory Validation Instructions, which describes the procedures for updating ISTS.

APS Establishes ACDS Controls

  1. APS is responsible for carding the case on ACDS, within the time frames established in IRM 8.20.5, Processing and Establishing New Receipts.

  2. Innocent Spouse is one of the categories of cases on the Appeals Inventory Report (AIR). It is shown on ACDS as Category "INNSP."

  3. For a case to be included in the INNSP category, the Feature Code must contain SD (Spousal Defense) and the TYPE Code cannot be:

    1. Collection Due Process (CDP) TYPE Code, i.e. DPLN (CDP Lien), DPLV (CDP Levy), or DPL2 (CDP Lien and Levy), or

    2. Offer in Compromise (OIC)

  4. It is important to ensure an Innocent Spouse key case is properly included in the appropriate category on ACDS.

  5. Whether a case is initially received as an innocent spouse case, or identified as an innocent spouse case during Appeals consideration of the case, the work unit number must properly reflect the feature code SD on the key case to ensure it is counted as an innocent spouse case on the Appeals Reports.

  6. A separate work unit number will be needed for the innocent spouse case when the issue is raised during Appeals consideration of a CDP case. See IRM 25.15.12.16, CDP/EH and Innocent Spouse Cases, which provides additional instructions for CDP with innocent spouse cases.

  7. If both spouses file a request for relief, even if the same tax years(s), control each case with a separate work unit number on ACDS. The ISTS also keeps separate records according to the Primary/Secondary (P/S) indicator.

Carding the Joint Return Work Unit as Key Case

  1. Taxpayers who file a joint return and one or both spouses request innocent spouse relief are controlled on ACDS in a work unit number that includes three records – one for the joint return, one for the RS and one for the NRS.

  2. The joint return is controlled as the key case. The RS and the NRS are each controlled as a related case within the same work unit number.

  3. The related case records are created for the following reasons:

    • To control the separate addresses of the RS and the NRS, for use when generating letters and forms from APGolf;

    • To control the separate statutes of the RS and the NRS. Separately control the NRS’s Assessment Statute Expiration Date (ASED) on ACDS on pre-assessment proposed deficiency cases. There is no need to separately control the NRS’s Collection Statute Expiration Date (CSED) on ACDS on post-assessment cases. See Exhibit 25.15.12-1, Innocent Spouse — ACDS Statute Date/Code Table. Use this exhibit to assist in determining the correct statute date/code to use.

Joint Return Key Case Record
  1. Establish the joint return as the key case record on CASES using the normal procedures on the case inventory screen and follow the additional instructions described below:

    • TPName – Enter the names as shown on the joint return.

    • ADDR – Leave blank.

    • TIN – Enter the primary TIN on the joint return as indicated on IDRS for the key tax period.

    • TIN2 – Enter the TIN of the secondary spouse on the joint return as indicated on IDRS for the key tax period.

      Note:

      The ACDS/ISTS match program requires the primary TIN on IDRS be entered in the TIN field on ACDS and the secondary TIN on IDRS (if applicable) be entered in the TIN2 field on ACDS.

    • TPTYPE – Select "Pri" in the drop down box if the RS is the primary TIN on the joint account or "Sec" in the drop down box if the RS is the secondary TIN on the joint account.

      Note:

      TPTYPE "Both" – is not applicable. If both spouses are requesting Appeals consideration, each is controlled under a separate work unit number.

    • MFT – Enter MFT 30.

      Note:

      The ACDS/ISTS match program requires that MFT 30 be entered on the key case record, even though in most cases, the MFT 30 joint account is already mirrored and each spouse is controlled on IDRS under his or her own separate MFT 31 account(s).

    • TYPE – Enter "I" for "Income Tax."

    • FEATRCD – Always enter SD for Spousal Defense (Innocent Spouse) on the key case record. Also enter feature code DP when the innocent spouse work unit number is created to separately control the innocent spouse case raised as a collection alternative in connection with a Collection Due Process case. Enter feature code RE when the case is a reconsideration. See IRM 25.15.12.28.5, Account and Processing Support (APS) Responsibilities for Reconsideration Cases Sent to Appeals, for additional information on reconsiderations. Enter any other feature code as applicable. A complete list of valid Feature Codes can be found on the ACDS Utilities menu.

    • REQAPPL – Enter the date of the request for appeal. Usually, for non-docketed cases, the date of the protest is used, if the request is written. For docketed cases, use the date the petition is filed. See IRM 8.20.3.3.16, REQAPPL (Request Appeal — Date Taxpayer Requested Appeal), for additional information on the rules regarding the appropriate date to use for this field.

      Note:

      If the case was established as another type of case prior to receipt of the request for innocent spouse relief, the original REQAPPL date is retained when it is appropriate to convert the original work unit to an innocent spouse work unit. In this circumstance, this field is not updated to reflect any subsequent requests for appeal. For example, if a request for innocent spouse relief is received on a small docketed case, convert the work unit to an innocent spouse work unit by updating the fields to correspond with the instructions in this section. If instead, it is appropriate to create a new work unit number to separately control the innocent spouse case, input the date of the request for appeal. For example, a separate work unit number is needed to control the innocent spouse case when the request for relief is received in connection with a CDP case. See IRM 25.15.12.16, CDP/EH and Innocent Spouse Cases, for additional information regarding procedures for CDP with innocent spouse cases.

    • RECEIVED – Enter the received date stamped on front of case (the date the case is received in Appeals).

    • SOURCE - Enter the appropriate Source Code. For example, enter SC if the source of the case is CCISO. If the source of the case is Field Examination, enter FE. Refer to IRM 8.20.3, Appeals Centralized Database System (ACDS), for additional information on the appropriate SOURCE to use.

    • DKTNO - If docketed, enter the docket number as it appears on the petition or docket list.

    • KEYTP - Leave blank.

    • KEYTIN - Leave blank.

    • KEYPER - Enter the earliest period of the joint return.

    • REPNAME and Address - Leave blank.

    • SNTYPE - This item is completed on all docketed cases or if a notice of deficiency or determination letter was issued on the joint return and it is in 90-day or 150-day status. Refer to IRM 8.20.3, Appeals Centralized Database System (ACDS), for additional information on the appropriate SNTYPE to use.

    • SNDATE - If applicable, enter the date the notice of deficiency or determination letter was issued.

    • NOTES - If the NRS appealed the RS’s determination, enter "NRS APPEAL." Enter any other information as applicable.

  2. On the case return information screen, follow the normal procedures and follow the additional instructions described below:

    • AIMS Indicator - Enter "E" if the case is not on AIMS and is not required to be on AIMS. This applies to most appealed innocent spouse cases received from the Cincinnati Centralized Innocent Spouse Operation (CCISO). If AIMS control is required on the joint return, enter either "Y" to indicate it is on AIMS or "N" to indicate it is not but should be on AIMS. If "N" is entered, take additional action to establish the case on AIMS.

    • TAXPER - Enter all tax periods as appropriate.

    • TAXPER Modifier - Leave blank if the original return or TRPRT print is in the file, or enter "N" if no original return or TRPRT print is in the file.

    • Statute Date/Code - See Exhibit 25.15.12-1, Innocent Spouse — ACDS Statute Date/Code Table.

    • BodCd – Enter the appropriate BodCd. For example, enter 296 if the case originated in CCISO.

    • Proposed Tax Def/-OA - See Figure 25.15.12-1, Proposed Dollars/Joint Return Work Unit.

    • Proposed Pen Def/-OA - See Figure 25.15.12-1, Proposed Dollars/Joint Return Work Unit.

    Figure 25.15.12-1

    Proposed Dollars/Joint Return Work Unit

    Pre-assessment Post-assessment
    Proposed Tax Enter the proposed deficiency of tax as shown on the examiner's report. Leave blank
    Proposed Penalty Enter the proposed penalty amount, is any, as shown on the examiner's report Leave blank

Requesting Spouse Related Record
  1. Establish a non-key related record for the RS using the same work unit number as the key case. Follow normal CASES procedures on the case inventory screen and follow the additional instructions described below:

    • TPName – Enter the current name of the RS.

    • ADDR – Enter the current address of the RS.

    • TIN – Enter the TIN of the RS.

    • TPTYPE – Blank. This field is not active if the MFT is not equal to 30. The RS is controlled with MFT 31.

    • MFT – Enter MFT 31.

    • TYPE – Enter "I" for "Income Tax."

    • FEATRCD – Enter SD for Spousal Defense (Innocent Spouse) on the RS related record.

    • REQPPL – Leave blank. The REQPPL date is only entered on the key case.

    • RECEIVED – Enter the received date stamped on front of case (the date the case is received in Appeals).

    • SOURCE - Enter the appropriate Source Code. For example, enter SC if the source of the case is CCISO. If the source of the case is Field Examination, enter FE. Refer to IRM 8.20.3, Appeals Centralized Database System (ACDS), for additional information on the appropriate SOURCE to use.

    • KEYTP – Enter the names as shown on the joint return.

    • KEYTIN – Enter the primary TIN of the joint return.

    • KEYPER – Enter the earliest period that relief was requested.

    • REPNAME and ADDRESS – For non-docked cases, use the name of the RS’s separate representative, if any, in last name, first name format in the first REPNAME field. For docketed cases, use the name of the attorney of record, if any. The name of an additional separate representative at the same address as the first representative may be entered in the second REPNAME field. In lieu of a second REPNAME, a title for the first representative, if provided, or additional address information may be entered in this field. Do not enter the representative’s telephone number in this field because it displays when a letter is generated on APGolf. Enter the representative’s address in the representative’s address fields following the REPNAME fields. Check the authorization level of the representative to verify that the representative is authorized to practice before Appeals prior to inputting. IDRS command code CFINK is used to determine whether an individual claiming to be a taxpayer’s representative is, in fact, authorized to represent or act on the taxpayer’s behalf, or to receive the information she/he requests. See IRM 2.3.31, IDRS Terminal Responses - Command Codes CFINK and RPINK for CAF Inquiry, and IRM 8.1.6.1.3, Representatives Qualified to Practice Before Appeals, for additional information.

    • NOTES – Enter RS. If the RS’s name is different than the name shown on the return as filed, also enter formerly known as (FKA) information.

  2. On the case return information screen, follow normal procedures and follow the additional instructions described below:

    • AIMS Indicator – Enter E, exempt from AIMS, or rarely, enter either Y or N. Y indicates the MFT 31 account is controlled separately on AIMS. N indicates the MFT 31 account is not but should be on AIMS. If N is entered, take additional action to establish the case on AIMS.

    • TAXPER – Enter all tax periods as appropriate.

    • TAXPER Modifier – Leave blank. The Tax Period Modifier is not applicable on the related record.

    • Statute Date/Code – See Exhibit 25.15.12-1, Innocent Spouse — ACDS Statute Date/Code Table.

    • BodCd – Enter the appropriate BodCd. For example, enter 296 if the case originated in CCISO.

    • Proposed Tax Def/-OA – Leave blank.

    • DDAMTCLM/DDAMTDIS – Leave blank.

    • APPLAMTCLM/APPLAMTDIS – Leave blank.

Non-Requesting Spouse Related Record
  1. Establish a non-key related record for the NRS using the same work unit number as the key case. Follow normal CASES procedures on the case inventory screen and follow the additional instructions described below:

    • TPName – Enter the name of the NRS.

    • ADDR – Enter the address of the NRS.

    • TIN – Enter the TIN of the NRS.

    • TPTYPE – Blank. This field is not active if the MFT is not equal to 30. The NRS is controlled with MFT 31.

    • MFT – enter MFT 31.

    • TYPE – Enter "REF" for "Reference."

    • FEATRCD – Do not enter SD on the NRS record, even if the NRS is appealing the RS’s preliminary determination or both spouses requested an appeal, but enter any other applicable feature code.

    • REQAPPL – Leave blank. The REQAPPL date is only entered on the key case.

    • RECEIVED – Enter the received date stamped on front of case (the date the case is received in Appeals).

    • SOURCE - Enter the appropriate Source Code. For example, enter SC if the source of the case is CCISO. If the source of the case is Field Examination, enter FE. Refer to IRM 8.20.3, Appeals Centralized Database System (ACDS) for additional information on the appropriate SOURCE to use.

    • KEYTP – Enter the names as shown on the joint return.

    • KEYTIN – Enter the primary TIN of the joint return.

    • KEYPER – Enter the earliest period that relief was requested.

    • REPNAME and ADDRESS – For non-docked cases, use the name of the NRS’s separate representative, if any, in last name, first name format in the first REPNAME field. For docketed cases, use the name of the attorney of record, if any. The name of an additional separate representative at the same address as the first representative may be entered in the second REPNAME field. In lieu of a second REPNAME a title for the first representative, if provided, or additional address information may be entered in this field. Do not enter the representative’s telephone number in this field because it displays when a letter is generated on APGolf. Enter the representative’s address in the representative’s address fields following the REPNAME fields. Check the authorization level of the representative to verify that the representative is authorized to practice before Appeals prior to inputting. IDRS command code CFINK is used to determine whether an individual claiming to be a taxpayer’s representative is, in fact, authorized to represent or act on the taxpayer’s behalf, or to receive the information she/he requests. See IRM 2.3.31, IDRS Terminal Responses - Command Codes CFINK and RPINK for CAF Inquiry and IRM 8.1.6.1.3, Representatives Qualified to Practice Before Appeals, for additional information.

    • NOTES – Enter NRS. If the NRS is appealing the RS’s preliminary determination, enter "NRS APPEAL" in "NOTES" to distinguish the case as a NRS Appeal. If the NRS’s name is different than the name shown on the return as filed, also enter formerly known as (FKA) information.

  2. On the case return information screen, follow normal procedures and follow the additional instructions described below:

    • AIMS Indicator – Enter E, exempt from AIMS, or rarely, enter either Y or N. Y indicates the MFT 31 account is controlled separately on AIMS. N indicates the MFT 31 account is not but should be on AIMS. If N is entered, take additional action to establish the case on AIMS.

    • TAXPER – Enter all tax periods as appropriate.

    • TAXPER Modifier – Leave blank. The Tax Period Modifier is not applicable on the related record.

    • Statute Date/Code – See Exhibit 25.15.12-1, Innocent Spouse — ACDS Statute Date/Code Table.

    • BodCd – Enter the appropriate BodCd. For example, enter 296 if the case originated in CCISO.

    • Proposed Tax Def/-OA – Leave blank.

    • DDAMTCLM/DDAMTDIS – Leave blank.

    • APPLAMTCLM/APPLAMTDIS – Leave blank.

Carding the Separate Return Work Unit (For Married Taxpayers Who Filed Separate Returns in Community Property States)

  1. Special instructions apply to carding a case for married taxpayers who filed separate returns in community property states where one or both spouses is requesting equitable relief.

  2. This type of case requires special CASES procedures to create a work unit that includes two records — one for the RS and one for the NRS.

  3. The RS is controlled as the key case. The NRS is controlled as a related case.

  4. If both spouses are docketed under separate docket numbers, each spouse must be controlled as a separate key case work unit. Enter cross reference information in the "Notes" field.

Requesting Spouse Key Case Record
  1. Establish the RS as the key case record. The RS is the key case record even if the NRS is the appellant. Follow normal CASES procedures on the case inventory screen and follow the additional instructions described below:

    • TPName - Enter the current name of the RS.

    • ADDR - Enter the current address of the RS.

    • TIN - Enter the TIN of the RS.

    • TIN2 - Leave blank.

    • TPTYPE - Enter "Pri" for primary.

    • MFT - Enter MFT 30.

    • TYPE - Enter "I" for "Income Tax."

    • FEATRCD - Always enter SD for Spousal Defense (Innocent Spouse) on the key case record. Enter feature code DP when the innocent spouse work unit is created to separately control the innocent spouse case raised as a collection alternative in connection with a Collection Due Process case. Enter any other applicable feature code.

    • SOURCE - Enter the appropriate Source Code. For example, enter SC if the source of the case is CCISO. If the source of the case is Field Examination, enter FE. Refer to IRM 8.20.3, Appeals Centralized Database System (ACDS) for additional information on the appropriate SOURCE to use.

    • REQAPPL – Enter the date of the request for appeal. Usually, for non-docketed cases, the date of the protest is used, if the request is written. For docketed cases, use the date the petition is filed. See IRM 8.20.3.3.16, REQAPPL (Request Appeal — Date Taxpayer Requested Appeal), for additional information on the rules regarding the appropriate date to use for this field.

      Note:

      If the case was established as another type of case prior to receipt of the request for innocent spouse relief, the original REQAPPL date is retained when it is appropriate to convert the original work unit to an innocent spouse work unit. In this circumstance, this field is not updated to reflect any subsequent requests for appeal. For example, if a request for innocent spouse relief is received on a small docketed case, convert the work unit to an innocent spouse work unit by updating the fields to correspond with the instructions in this section. If instead, it is appropriate to create a new work unit number to separately control the innocent spouse case, input the date of the request for appeal. For example, a separate work unit number is needed to control the innocent spouse case when the request for relief is received in connection with a CDP case. See IRM 25.15.12.16, CDP/EH and Innocent Spouse Cases, for additional information regarding procedures for CDP with innocent spouse cases.

    • DKTNO - If docketed, enter the docket number as it appears on the petition or docket list.

    • KEYTP - Leave blank.

    • KEYTIN - Leave blank.

    • KEYPER - Enter the earliest period of the joint or separate return.

    • REPNAME and Address - Enter the name of the RS’s separate representative, if any, in last name, first name format in the first REPNAME field. The name of an additional separate representative at the same address as the first representative may be entered in the second REPNAME field. In lieu of a second REPNAME, a title for the first representative, if provided, or additional address information may be entered in this field. Do not enter the representative’s telephone number in this field because it will appear on letters generated using APGolf. Enter the representative’s address in the representative’s address fields following the REPNAME fields. Verify that the authorization level of the representative is authorized to practice before Appeals prior to inputting. IDRS command code CFINK is used to determine whether an individual claiming to be a taxpayer’s representative is, in fact, authorized to represent or act on the taxpayer’s behalf, or to receive the information she/he requests. See IRM 2.3.31, IDRS Terminal Responses - Command Codes CFINK and RPINK for CAF Inquiry and IRM 8.1.6.1.3, Representatives Qualified to Practice Before Appeals, for additional information.

    • SNTYPE - This item is completed on all docketed cases or if a notice of deficiency or determination letter was issued on the separate return and it is in 90-day or 150-day status. Refer to IRM 8.20.3, Appeals Centralized Database System (ACDS), for additional information on the appropriate SNTYPE to use.

    • SNDATE - If applicable, enter the date the notice of deficiency or determination letter was issued.

    • NOTES - Enter "RS" . If the RS’s name is different than the name shown on the return as filed, also enter formerly known as (FKA) information.

  2. On the case return information screen, follow the normal procedures and follow the additional instructions described below:

    • AIMS Indicator - Enter "E" if the case is not on AIMS and is not required to be on AIMS. This applies to most innocent spouse claims received from CCISO. If AIMS control is required on the separate return, enter either "Y" to indicate it is on AIMS or "N" to indicate it is not but should be on AIMS. If "N" is entered, take additional action to establish the case on AIMS.

    • TAXPER - Enter all tax periods as appropriate.

    • TAXPER Modifier - Leave blank if the original return is in the file, or enter "N" if no original return is in the file.

    • Statute Date/Code - Enter the separate statute date/Code for the RS. See Exhibit 25.15.12-1, Innocent Spouse — ACDS Statute Date/Code Table.

    • BodCd – Enter the appropriate BodCd. For example, enter 296 if the case originated in CCISO.

    • Proposed Tax Def/-OA - See Figure 25.15.12-2, Proposed Dollars/Separate Return Work Unit.

    • Proposed Pen Def/-OA - See Figure 25.15.12-2, Proposed Dollars/Separate Return Work Unit.

    Figure 25.15.12-2

    Proposed Dollars/Separate Return Work Unit

    Pre-assessment Post-assessment
    Proposed Tax Enter the proposed deficiency of tax as shown on the examiner's report Leave blank
    Proposed Penalty Enter the proposed penalty amount, if any, as shown on the examiner's report Leave blank

Non-Requesting Spouse Related Record
  1. Establish the non-key related record for the NRS on CASES using the same work unit number as used for the RS. Follow normal procedures on the case inventory screen and follow the additional instructions described below:

    • TPName - Enter the name of the NRS.

    • ADDR - Enter the address of the NRS.

      Note:

      Do not disclose the NRS’s current name or address to the RS, if different than on the return.

    • TIN - Enter the TIN of the NRS.

    • TPTYPE - Enter "Pri" for Primary. This field is active if the MFT is equal to 30.

    • MFT - enter MFT 30.

    • TYPE - Enter "REF" for "Reference."

    • FEATRCD - Do not enter feature code SD on this record, but enter any other feature code that is applicable.

    • REQAPPL - Leave blank.

    • SOURCE - Enter the appropriate Source Code. For example, enter SC if the source of the case is CCISO. If the source of the case is Field Examination, enter FE. Refer to IRM 8.20.3, Appeals Centralized Database System (ACDS), for additional information on the appropriate SOURCE to use.

    • KEYTP - Enter the name as shown on the requesting spouse’s return.

    • KEYTIN - Enter the TIN of the requesting spouse’s return.

    • KEYPER — Enter the earliest period of the RS.

    • REPNAME and Address - Enter the name of the NRS’s separate representative, if any, in last name, first name format in the first REPNAME field. The name of an additional separate representative at the same address as the first representative may be entered in the second REPNAME field. In lieu of a second REPNAME, a title for the first representative, if provided, or additional address information may be entered in this field. Do not enter the representative’s telephone number in this field since it displays when a letter is generated using APGolf. Enter the representative’s address in the representative’s address fields following the REPNAME fields. Check the authorization level of the representative to verify that the representative is authorized to practice before Appeals prior to inputting. IDRS command code CFINK is used to determine whether an individual claiming to be a taxpayer’s representative is, in fact, authorized to represent or act on the taxpayer’s behalf, or to receive the information she/he requests. See IRM 2.3.31, IDRS Terminal Responses - Command Codes CFINK and RPINK for CAF Inquiry and IRM 8.1.6.1.3, Representatives Qualified to Practice Before Appeals, for additional information.

    • NOTES - Enter "NRS." If the NRS’s name is different than the name shown on the return as filed, also enter formerly known as (FKA) information.

  2. On the case return information screen, follow normal procedures and follow the additional instructions described below:

    • AIMS Indicator - Enter E, exempt from AIMS, or rarely, enter either "Y" or "N." "Y" is used to indicate the account is controlled on AIMS, and "N" is used to indicate it is not but should be on AIMS. If "N" is entered, take additional action to establish the case on AIMS.

    • TAXPER - Enter all tax periods as appropriate.

    • TAXPER Modifier - If Appeals has the original separate tax return leave the Tax Period Modifier blank; If Appeals does not have the original separate tax return enter "N."

    • Statute Date/Code - Enter the separate statute date/code for the NRS. See Exhibit 25.15.12-1, Innocent Spouse — ACDS Statute Date/Code Table.

    • BodCd – Enter the appropriate BodCd. For example, enter 296 if the case originated in CCISO.

    • Proposed Tax Def/-OA - Leave blank.

    • DDAMTCLM/DDAMTDIS - Leave blank.

    • APPLAMTCLM/APPLAMTDIS - Leave blank.

Assignment of Innocent Spouse Cases

  1. Innocent Spouse cases must be promptly assigned for consideration, no later than 30 days from when the case is received in Appeals.

  2. Both the key case and related cases must be assigned to the same employee.

Appeals Innocent Spouse Letters and Forms

  1. On letters to the NRS when the RS's name is inserted, use the name of the RS as shown on the return. On letters to the RS when the NRS's name is inserted, use the name of the NRS as shown on the return.

  2. The following letters are approved for Appeals use and should be generated from the Appeals Generator of Letters and Forms (APGolf) sub-system of the Appeals Centralized Database System (ACDS). In addition, the letters are posted on the Publishing web site.

  3. General Rule is to send all required letters to the taxpayer's last known address of record. The Service is required to exercise due diligence to find and use the taxpayer's last known address. The last known address is the address on the most recently filed and properly processed tax return, unless the taxpayer has clearly and concisely notified the IRS of a change of address, or the Service may update the taxpayer's address of record by using United States Postal Service's National Change of Address database. See IRM 4.8.9.8.2, Taxpayer Address, for additional information.

  4. When mail sent to a taxpayer's last known address is returned undeliverable, ATE will:

    If, after all necessary research is completed... Then...
    Another address is determined Reissue the letter to the new address
    No new address is determined Continue to process the case and send all required letter to the taxpayer's last known address of record, unless the exception applies.

    Exception:

    If you are not granting relief to the RS, and mail to the NRS at the last known address was returned undeliverable and you are unable to locate a new address, there is no need to send either of the required letters (conference letter and final notice) to the NRS.

    Note:

    This exception does not apply to notices of deficiency. Continue to issue notices of deficiency to the taxpayer's last known address, even if mail was returned undeliverable to that address and no new address is determined.

  5. Never destroy undeliverable mail; keep one copy of the letter and enclosures (except for publications, notices and self-addressed IRS envelopes) stapled to the undeliverable envelope (in correspondence order) with the undeliverable envelope stapled to the front of the letter.

Deceased Non-Requesting Spouses

  1. The NRS is entitled to receive all required letters, even if the NRS is deceased.

  2. Usually, you will find out that the NRS is deceased from the RS. A deceased taxpayer also may be identified on IDRS by one or more to the following:

    • The literal "DECD" after his/her name on INOLE and ENMOD

    • Date of Death on INOLE (Generated by an SSA record)

    • TC 540 on TXMOD or IMFOLT for the year of death

  3. If there is no indication on IDRS that the NRS is deceased, request as much of the following information as possible from the RS or representative:

    • Date of death and copy of death certificate

    • County in which the taxpayer died

    • County in which the taxpayer resided at time of death

    • A will, validated through the court

    • Name, address and telephone number of the fiduciary (executor, executrix, or administrator of the taxpayer's estate), if any

  4. If the NRS has not been identified as deceased on IDRS, send an update request with a copy of the death certificate to ask APS to:

    • Add the "DECD" indicator to IDRS using CC INCHG, and

    • Input TC 540 using CC REQ77 for the year of the taxpayer's death, unless the date of death is in the current year or there is a filing requirement for the year of death.

  5. It is important to determine the proper person to contact on behalf of the NRS because that person is responsible for protecting the rights of the deceased NRS by providing any relevant additional information and presenting the NRS's position.

  6. There may be an estate or a fiduciary for the deceased NRS. Ask the RS if he/she knows whether the NRS has an estate. In addition, research IDRS using CC INOLE with definer G, to determine if the Service is aware of an estate. If yes, research using CC CFINK for POA information under the EIN of the estate.

  7. A fiduciary (trustee, executor, administrator, receiver, or guardian) stands in a position of and acts as the taxpayer, not as an appointee or representative. A fiduciary does not need to complete a third party authorization unless the fiduciary wishes to authorize someone else to act in place of the decedent. If necessary, obtain the following:

    • Form 56, Notice Concerning Fiduciary Relationship, when necessary to prove the creation or termination of a fiduciary relationship

    • Court papers naming the person as the court-appointed or court certified personal representative for the deceased taxpayer.

    • Authorized representative forms, when necessary to verify an authorized representative.

    Caution:

    Use caution when determining the NRS's authorized representative from CFINK. A third party authorization expires with the death of the taxpayer.

  8. How to address letters to deceased taxpayers:

    If the NRS is Deceased and ... Then Address the Letter to the Deceased NRS To:
    • There is no estate

    • You do not know if there is an estate

    • The fiduciary is unknown

    Address the first name line to the deceased NRS at the NRS's last known address:

    Example:

    John Doe (Deceased)

    There is an estate Address the first name line to the estate of the taxpayer and address the second name line to the executor, fiduciary, or representative at the address of the person named on the second name line:

    Example:


    Estate of John Doe


    Joseph Elm, Executor
    The fiduciary is known Address the first name line to the deceased NRS and address the second name line in care of the fiduciary or representative at the address of the person named on the second name line:

    Example:


    John Doe (Deceased)
    c/o Jane Green, CPA

  9. On docketed cases notify the assigned Counsel attorney that the NRS is deceased.

  10. All actions and discussions with affected taxpayers and/or representatives should be fully documented on the ACDS case activity record. Recommended comments specific to cases involving a deceased NRS include:

    • NRS is deceased, date of death

    • If a required letter was not sent to the NRS, annotate the reason:

      Example:

      Letter 3289 was not sent to the NRS because no relief was granted to the RS and mail to the NRS's last known address was returned undeliverable and could not locate a new address.

Uniform Acknowledgment Letter (UAL)

  1. Letter 4141, Uniform Acknowledgment Letter, is used for non-docketed Innocent Spouse cases. The Appeals Team Manager (ATM) is responsible for generating and issuing Letter 4141 on the date the case is assigned on ACDS, which cannot be later than 30 days from the ACDS "Received Date" . See IRM 1.4.28.3.1, Assignment of Work Units and Issuance of Letter 4141(CG), Uniform Acknowledgment Letter (UAL), for additional procedures on issuance of UAL.

  2. Letter 4141 is also used for most docketed Innocent Spouse cases, unless an approved Uniform Acknowledgment Letter substitute is used, such as Letter 3808 or Letter 3808-A, combination acknowledgment/initial contact letters used in Campus Appeals offices. When UAL Letter 4141 is used, the ATM is responsible for generating and issuing it on the ACDS "Assigned Date" . In Campus Appeals offices, when approved Uniform Acknowledgment Letter substitute Letter 3808 or Letter 3808-A is used, the AO is responsible for generating and issuing it no later than 30 days from the ACDS "Assigned Date" .

  3. Carefully review the administrative file to ensure the letter is only generated for and mailed to the appellant spouse, the taxpayer who requested appeals consideration. For example, if the RS is appealing Compliance's full or partial denial of relief, Letter 4141 must only be mailed to the RS. If the NRS is appealing Compliance's full or partial allowance of relief to the RS, Letter 4141 must only be mailed to the NRS. Look for "NRS APPEAL" in "NOTES" on the joint key case record to determine if the NRS is the appellant spouse. If both the RS and the NRS are appealing Compliance's determination then Letter 4141 must be sent to both.

  4. When APGolf is used to prepare the letter, certain entries are made systemically on ACDS.

  5. Because the UAL letter for an innocent spouse case is generated from a non-time sheet (related) record, the employee must manually make a CAR entry regarding the issuance of the UAL. See IRM 1.4.28.3.1(4), Assignment of Work Units and Issuance of Letter 4141(CG), Uniform Acknowledgment Letter (UAL), for required entries.

  6. See Exhibit 1.4.28-1, Pre-Selected Enclosures for the UAL Based Upon the Category and Type of Case, for required enclosures for an innocent spouse case.

Initial Contact/Conference Letters

  1. Letter 965, Conference Letter Non-docketed Case, or other pattern conference letter available on APGolf. A conference letter may be used to schedule an informal conference with the appellant spouse, and it explains what they should do if they plan to provide additional information and supporting documentation, or be represented. It also may be used to request additional information to help support the taxpayer's position. Initial contact may be made by telephone in lieu of an initial contact conference letter.

  2. Letter 3791, Appeals Conference for Innocent Spouse Relief - to Non-requesting Spouse. This conference letter is sent to the non-requesting spouse when the requesting spouse appeals the preliminary determination if Appeals proposes to increase the amount of relief recommended. It is sent to provide the non-requesting spouse with an opportunity to provide any relevant additional information, present his or her position, or request an Appeals conference before the final determination.

  3. Letter 3792, Appeals Conference for Innocent Spouse Relief - to Requesting Spouse. This conference letter is sent to the requesting spouse when the non-requesting spouse appeals the preliminary determination if Appeals proposes to decrease the amount of relief recommended. It is sent to provide the requesting spouse with an opportunity to provide any relevant additional information, present his or her position, or request an Appeals conference before the final determination.

Determination Letters

  1. Letter 3288, Final Appeals Determination - to Requesting Spouse. This letter is used to advise the requesting spouse of the determination concerning relief from joint and several liability under IRC 6015 and to provide information about filing a petition with Tax Court.

  2. Letter 3289, Final Appeals Notice - to Non-Requesting Spouse. This letter is used to advise the non-requesting spouse of the determination concerning relief from joint and several liability under IRC 6015. There are no provisions in IRC 6015 that allow the non-requesting spouse to petition the United States Tax Court from a notice of final determination.

Agreement Transmittal Letters

  1. Letter 969, Letter Transmitting Agreement Form Non-Docketed Case. This letter is used in non-docketed cases to send an agreement form to the taxpayer or representative for signature.

Closing Letters

  1. Letter 913, Closing Letter - Agreed Cases. This letter is used in non-docketed cases to notify the taxpayer that his or her case is being closed.

Docketed Letters

  1. Use the same letters for an Innocent Spouse docketed case as used for a docketed case. In addition, the following letters may be used for docketed cases:

    • Letter 970, Conference Invitation Docketed Case. This letter offers a conference to discuss the possibility of settling the docketed case without trial. Initial contact may be made by telephone in lieu of an initial contact conference letter.

    • Letter 3808, S-Docketed Initial Contact Letter. This letter is an initial contact letter for use by Campus Appeals offices for docketed "S" cases. It contains a paragraph directing payments to be made to an IRS Campus. The appropriate IRS Campus is selected when the letter is generated from a drop-down list.

    • Letter 3808-A, S-Docketed Initial Contact Letter. This letter is an initial contact letter for use by Appeals offices for docketed "S" cases. It contains a paragraph directing payments be made to the Campus Appeals office address shown in the letterhead.

    • Letter 1220, Letter Sending Stipulation to Taxpayer for Signature/Docketed Case. Use this letter to send settlement documents to taxpayers for review, signature and return. A version of this letter with a paragraph to provide an estimate of the total amount owed including tax, penalties and estimated interest is also available on APGolf.

    • Letter 971, Letter Advising No Settlement Reached - Docketed Case. Use this letter to notify a petitioner that no settlement was reached and the case was referred to Counsel for trial preparation.

Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases

  1. Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases, is used to allow a RS who requested relief under IRC 6015 to indicate agreement with the IRS determination and waive, in writing, the collection restrictions contained in IRC 6015(e)(1)(B). Use of this waiver is only appropriate in post-assessment innocent spouse cases. Appeals cannot require a taxpayer to waive his or her rights. When the RS signs Form 870–IS, Waiver of Collection Restrictions in Innocent Spouse Cases, it is anticipated that the RS will not petition the Tax Court. It should be noted, however, that Form 870–IS, is not a final determination letter. Thus, even if the RS signs the Form 870–IS, the RS may petition the Tax Court at any time after six months from filing the claim or within 90 days from the date the Service issues a final determination letter. Nonetheless, once the IRS receives the signed Form 870–IS, the Service may resume collection against the RS. It should also be noted that the suspension of the collection statute expiration date (CSED) stops 60 days after the form is signed on behalf of the Commissioner.

  2. A faxed signature can be accepted (up to the Servicewide established threshold amount for acceptance of consents by fax, currently up to $250,000).

  3. When a signed Form 870-IS is received from the RS ensure there has been no alteration of the original.

  4. The ATE must secure a signed Form 870-IS with instructions that include complete information on Tax Court rights on all agreed cases for which partial or full relief is granted.

    Note:

    The ATE will no longer attempt to secure a Form 870-IS on fully denied request for relief, even if the RS is in agreement with the determination. Instead, the ATE will issue a final determination letter, except on combo cases.

  5. See IRM 25.15.3.10, Waivers, for a complete discussion and detailed guidance and procedures for use of Form 870-IS.

Customized Form 5402, Appeals Transmittal and Case Memo, for Innocent Spouse Cases

  1. The Appeals Technical employee (ATE) is responsible for providing Account and Processing Support with the necessary disposition information to update ACDS, ISTS and IDRS. Refer to IRM 25.15.14, Innocent Spouse Tracking System Inventory Validation Instructions, for guidance to IRS employees charged with the responsibility of updating and ensuring the Innocent Spouse Tracking System (ISTS) is current and accurate.

  2. Use of the Customized Form 5402, Appeals Transmittal and Case Memo, for Innocent Spouse cases, is mandatory. See IRM 8.6.2.2, Customized Form 5402, for more information. The ATE must provide the following information so APS can update ISTS:

    • ISTS ADP Code - Required entry in the ADP field is one of the following:

    Required Entry Explanation
    A Allowed in Full
    D Disallowed in Full
    P Partially Allowed
    • ISTS Code Section - Required entry in the Code Section is one of the following:

    Required Entry Explanation
    6015b IRC 6015(b)
    6015c IRC 6015(c)
    6015fd IRC 6015(f) understatement/deficiency
    6015fo IRC 6015(f) underpayment/original liability
    66ceqr IRC 66(c) equitable relief — community property
    66cins IRC 66(c) innocent spouse — community property

    Note:

    On disallowed deficiency cases, Do Not use "(f)" when entering the code section. Use "(b)" or "(c)" as appropriate.

    Exception:

    If the case is an understatement that is untimely under (b) and (c) but timely under (f), use (fd).

    Note:

    In any other combination of partial allowance/disallowance, the activity code input will be the one which reflects the highest dollar amount allowed. For example, if the total amount of a claim is $1,000 and $500 is allowed under IRC 6015(b), $250 is allowed under IRC 6015(f) and $250 is disallowed, then the activity code input will be "P6015B " , with the appropriate reason code for partial disallowance under IRC 6015(b).

    • ISTS ADP Reason Code - Required entry under Reason Code if the ADP is P or D are listed below:

      Reason Code Explanation
      A Liability attributable to the RS
      B RS received significant benefit from the unpaid/unreported liability

      Note:

      Don't use with IRC 6015(c).

      BT At the time the return was signed, the RS had no reason to believe the tax would be paid
      DA Disqualified assets transferred to avoid paying tax
      E It is equitable to hold the RS liable

      Note:

      Don't use with IRC 6015(c).

      FT Fraud/fraudulent transfers of assets between the spouses
      K Knowledge of item giving rise to deficiency
      MS Marital status not met for IRC 6015(c)
      O Other (should only be used with managerial approval)
      OC Offer in compromise was previously accepted for the RS
      P Paid in full after claim was received
      RB Refund barred by Internal Revenue Code (IRC)
      RJ Res judicata
      S Statute barred for filing Form 8857
      V Verification missing

      Note:

      If denying recaptured credits only under IRC 6015(b) or IRC 6015(c) use K if the RS knew about the unreported issue that caused the reversal of the credits. Use A if the RS did not know about the unreported issue that caused the reversal of the credits. Under IRC 6015(f) use E.

  3. The ATE is no longer required to complete the following field on the Innocent Spouse Customized Form 5402:

    • Amount Claimed

    • Appeals Amount Allowed

    • Appeals Amount Disallowed

  4. The ATE must review the account for levies, liens, OICs, IAs, missing payments and collection statute dates to determine whether these issues have an impact on the innocent spouse case. Address these issues and any special processing instructions on the Customized Form 5402 prior to sending the case to APS for closing.

  5. Allocation of any payments and credits must also be identified, and detailed information provided to APS in the closing instructions.

  6. Instructions for completing the Innocent Spouse Customized Form 5402 are posted on the Utilities menu of ACDS.

Appeals Case Memorandum for Innocent Spouse Cases

  1. ACMs should address the taxpayer's position, the government position and Appeals analysis and final determination. See IRM 8.6.2, Conference and Settlement Practices, Appeals Case Memo (ACM) Procedures, for more detailed information on ACM guidelines.

  2. A sample Appeals Case Memorandum (ACM) for Innocent Spouse cases is posted on the Appeals Innocent Spouse web site.

  3. Any changes made to Compliance's determination will require an Appeals Case Memorandum to fully explain and support the rationale on which the changes were made.

  4. Sometimes, but in very limited use, the Form 5402, Appeals Transmittal and Case Memo can serve as the ACM when everything that needs to be said about the case fits into the Remarks Section of the form. Examples include:

    • No response from the spouse who requested the appeals conference.

    • Full concession by the spouse who requested the appeals conference.

    • No consideration case (no relief available to grant the RS).

    • A very simple case: attribution and/or the RS does not meet the threshold requirements to be considered for relief.

  5. If a brief narrative is appropriate, please remember to include both the RS's and the NRS's position. All factors under IRC 6015(f) should be addressed.

  6. A Schedule of Adjustments is not needed on an assessed innocent spouse case. A schedule may be needed if ATE is working the income issue along with the innocent spouse on a pre-assessed case.

Preliminary Review by the AO

  1. If either spouse chooses to protest Compliance's determination and requests an appeal, review the determination using applicable standards and Appeals guidelines.

  2. Innocent spouse cases will normally be worked on a first in first out basis.

    • However, when Taxpayer Advocate Service (TAS) identifies a case requiring expedite treatment, the case is worked as expeditiously as possible. The determination for expedite treatment is based on the facts and circumstances of the case. TAS identifies a case requiring expedite treatment as TAS Criteria 1 or marks the Operations Assistance Request (OAR) with EXPEDITE printed in red on top of the request. Refer to IRM 13.1.7.2, TAS Case Criteria, for description of types of TAS criteria.

      Note:

      See IRM 13.1, Taxpayer Advocate Case Procedures, for more information about TAS.

    • In addition, docketed cases sent back to CCISO that are forwarded to Appeals are also worked as expeditiously as possible. This happens, for example, in cases where the RS raises relief under IRC 6015 for the first time in a docketed deficiency case.

  3. The following are actions the AO must take during preliminary review (not all-inclusive):

    • Verify the statute.

    • Verify that the statement of disagreement is in the case. An exception is the CDP/INNSP combination cases.

    • Verify that the request for relief is timely for IRC 6015(b) and IRC 6015(c). See IRM 25.15.1.6.2, Time Period for Making the Request, for information regarding making a timeliness determination.

    • Verify that the request for equitable relief under section IRC 6015(f) or section IRC 66(c) was filed before the expiration of the period of limitation for collection under section IRC 6502, or if applicable, the period of limitation for credit or refund under section IRC 6511.

    • Review systems (i.e. ACDS, IDRS, ISTS) for accuracy. This includes verifying that the case is in stage 15 on ISTS.

    • Verify that the case is in the correct category and that the case summary cards are correctly carded into ACDS. See APS carding instructions in IRM 25.15.12.5, APS Establishes ACDS Controls, to determine if the case summary cards are accurate.

    • Verify the mailing address for each spouse and update, if necessary, on ACDS and IDRS.

    • Conduct a preliminary review of the file to determine if additional information is needed.

  4. Determine if there is a CI freeze on the account. If yes, is the account mirrored? If not, is there documentation in the file to indicate CI agrees to allow the account to be mirrored at processing? If yes, consider the case. If not, return the case to CCISO or the source function if the case did not originate in CCISO, as a premature referral.

First Collection Activity or the "Two-year Rule"

  1. The RS must file a request for relief with the IRS under subsections of IRC 6015(b) and IRC 6015(c) no later than two years from the date of the first collection activity against the RS after July 22, 1998. Not all attempts to collect by the IRS trigger the two-year period.

  2. Exercise caution when determining if a request for relief is untimely. Collection activity that may start the two-year rule includes applying (or offsetting) a RS's separate income tax refund to the joint tax for which the RS is seeking relief, an offset of a joint tax refund to the joint tax if the RS had an interest in the overpayment, i.e., wages with withholding that contributed to the refund, IRC 6330 notices, filing of a suit by the United States against the RS, and claims in judicial proceedings.

  3. See IRM 25.15.3.4.4, Collection Activity, for more information on this topic.

    Note:

    The Two-year Rule no longer applies to requests for equitable relief under IRC 6015(f) or IRC 66(c). These requests must be filed before the expiration of the period of limitation for collection under IRC 6502, or if applicable, the period of limitation for credit or refund under IRC 6511.

Refund Offsets

  1. The two-year period for filing a section 6015(b) or (c) claim will not run if the IRS did not properly give notice of the right to file a request for innocent spouse relief on or about the time the refund was applied to the joint tax.

  2. Refund offset notices issued after March 7, 2005 start the two-year period for filing an innocent spouse request for relief because notice of the right to file a claim for relief is provided with the refund offset notice. Requests filed more than two years after such notices are considered untimely for IRC 6015(b) and IRC 6015(c) requests.

  3. If the offset occurred prior to March 7, 2005, the claim is considered timely unless there is evidence that the Service notified the RS, or the RS was otherwise aware, of his or her right to file an IRC 6015 claim at the time of the offset.

  4. When denying untimely requests for relief due to refund offsets made after March 7, 2005, attempt to confirm that the Service notified the RS of the right to file an IRC 6015 request for relief at that time of the offset. Confirm the Service sent the RS a refund offset notice with Publication 1 or with language on the notice advising the RS of the RS's right to file a request for relief under IRC 6015 by asking the RS if he or she has a copy of the notice and by trying to locate the appropriate CP code on the RS's transcript of account.

Initial Contact

  1. Initial contact with the appellant spouse may be made by either correspondence or telephone.

  2. If preliminary review of the case suggests a change in the determination is likely, send either Letter 3791 to the NRS or Letter 3792 to the RS, whichever is applicable.

    1. If the RS alone requests a conference, the NRS is notified of the RS's request for a conference by CCISO. Rev. Proc. 2003-19 requires the NRS be notified if Appeals is considering increasing the relief recommended. Letter 3791 is used for this purpose.

      Note:

      If, upon initial review of the innocent spouse case, the AO is considering changing the determination to a more favorable result for the RS, immediately send Letter 3791 to the NRS.

    2. If the NRS alone requests a conference, the RS is notified of the NRS's request for a conference by CCISO. If there is consideration to reduce the relief recommended in the preliminary determination by the examiner, notify the RS by Letter 3792 and give him/her an opportunity to present further arguments and information.

      Note:

      If, upon initial review of the innocent spouse case, the AO is considering changing the determination to a less favorable result for the RS, immediately send Letter 3792 to the RS immediately.

  3. If both spouses request an Appeals conference, hold the conferences separately, with both parties permitted to submit information and supporting documentation. Initial contact with both spouses may be made by either correspondence or telephone.

  4. Most Innocent Spouse Appeals conferences are conducted by telephone or correspondence. Face-to-face conferences are more appropriate for cases involving complex issues or a substantial volume of documentation. However, if the taxpayer and/or representative prefer a face-to-face conference, advise the taxpayer/representative that he or she is expected to appear at the Appeals conference in person. See IRM 8.6.1.4, Conference Techniques Used by Appeals Technical Employees (ATEs), for additional information.

Appeals Consideration

  1. This is an overview of actions the ATE takes during consideration of the case (not all inclusive).

  2. Consider the facts and circumstances of the case and all pertinent information when making a determination.

  3. There is only one issue to consider in an innocent spouse claim: is the requesting spouse an innocent spouse? Rev. Proc. 2013–34 provides a nonexclusive list of factors/criteria to use in making an innocent spouse determination. The factors/criteria are not new issues. An alternative theory or argument is not a new issue. In resolving disputes, you may consider new theories and/or alternative legal arguments that support the parties' positions when evaluating the hazards of litigation in a case.

    Example:

    If Compliance denies relief, the RS has the right to dispute the denial which requires a review (alternative argument or theory of the factors/criteria). The RS provides information that will support his or her arguments.

    Example:

    If Compliance grants relief, the NRS has the right to dispute the relief which requires a review (alternative argument or theory of the factors/criteria). The NRS provides information that will support his or her arguments.

    Reminder:

    You must give each spouse or ex-spouse an opportunity to respond to any information provided by the other spouse. However, ensure that you do not disclose current life or personal situation information about each spouse, such as current address to the other spouse.

  4. If the RS and/or the NRS attempt to argue that the tax liability is not correct, explain that the only issue before Appeals is the innocent spouse determination. Inform the taxpayer that they may file an audit reconsideration with the Examination function.

    Note:

    The above only applies to stand alone cases in which an innocent spouse claim is made.

  5. If Compliance's preliminary determination was not a merit based determination, then you must return the case to Compliance for a merit based determination. Appeals should never make the first determination on an innocent spouse claim.

    Example:

    The RS was denied relief for res judicata. During the Appeals conference, the RS was able to establish that he/she did not meaningfully participate in the proceeding and that Compliance never addressed the factors/criteria.

  6. See IRM 8.6.1.6.4, Taxpayer Provides New Information, for additional information on returning cases to Compliance.

  7. Consider whether the government faces litigating hazards under the following provisions:

    1. Under section IRC 6015(b) or (c), a RS may elect relief for a deficiency/understatement of tax liability (but not an underpayment), and section IRC 6015(f), a RS may request relief for a deficiency/understatement or an underpayment. In response to a Notice of Final Determination under any subsection, the RS may petition the Tax Court to contest the determination. The Tax Court may also consider a section 6015 claim under any subsection in a deficiency proceeding or a CDP proceeding.

      Note:

      The Tax Court will review the section 6015 claim using a de novo standard of review under all subsections.

    2. IRC 66(c), traditional or equitable relief for married taxpayers filing separate returns in community property states, does not allow the taxpayer to petition the Tax Court for a redetermination in a stand alone proceeding. See Bernal v. Commissioner, 120 T.C. 102 (2003) for additional information. Instead, IRC 66(c) relief may only be raised in the Tax Court in a petition from a notice of deficiency.

  8. Fully explain joint and several liability and the criteria for relief under applicable IRC sections.

    Note:

    The RS can not withdraw a request for relief after the preliminary determination letter has been issued.

  9. Fully document the determination in workpapers.

  10. Prepare required reports, letters, agreement forms, computations, etc.

  11. Send separate notices to each spouse as required by law. See Rev. Proc. 2003-19; Treas. Reg. § 1.6015-6; and IRC 6015(h)(2).

  12. Prepare a Customized Form 5402 for the Innocent Spouse case using ACDS APGolf.

  13. Fully explain the reasons for the determination to either grant or deny relief in the Appeals Case Memorandum (ACM), as needed, or on the Customized Form 5402, if the case is very simple or the taxpayer concedes in full. See IRM 25.15.12.7.9, Customized Form 5402, Appeals Transmittal and Case Memo, for Innocent Spouse Cases, for additional requirements for an ACM.

  14. Upon reaching a final decision, Appeals:

    1. Solicits and executes a waiver, Form 870-IS with instructions that include complete information on Tax Court rights on all agreed cases for which partial or full relief is granted from the RS. No longer attempt to secure a Form 870-IS on fully denied requests for relief, even if the RS agrees with the determination. Instead, issue a final determination letter for relief, except combo cases.

      Note:

      If the case has multiple tax years with several different determinations that include a denied year(s) and the RS is in agreement with all determinations, then you can include the denied tax year(s) for administrative purposes on Form 870-IS.

    2. Issues the final determination letter to the RS if no waiver is signed or determination is fully denied, except combo cases.

    3. Notify the NRS of the final determination.

    4. Completes processing of partially or fully allowed claims

    5. Completes the required updates to the Innocent Spouse Tracking System (ISTS).

Notice and Participation of NRS

  1. IRC 6015(h)(2) requires the NRS be notified and given an opportunity to participate in administrative proceedings for requests for relief filed under IRC 6015. Service employees have been directed to contact the NRS in order to ensure the case is fully developed and the NRS’s rights are considered under all the innocent spouse provisions.

  2. Treasury Regulation 1.6015-6(a)(2) provides that the Service must notify the NRS of the preliminary and final determination with respect to the RS's IRC 6015 request for relief. If Compliance determines that the RS is eligible for full or partial relief, the NRS can file a protest and receive an administrative conference in Appeals.

    Note:

    The NRS does not have the right to appeal if the NRS is no longer liable for the tax liabilities at issue, e.g. they were discharged in the NRS's bankruptcy proceedings and/or offer-in-compromise, or the NRS's CSED has expired. Return such nondocketed cases to CCISO as premature referrals.

  3. Appeals' decision is final for the NRS. The NRS does not have the right to petition the Tax Court. See Rev. Proc. 2003-19 and Maier v. Commissioner, 119 T.C.267 (2002), aff'd., 360 F.3d 361 (2d Cir. 2004) for additional information.

  4. In docketed cases, if the NRS is not already a part of the judicial proceedings, Chief Counsel notifies the NRS of the petition filed by the RS and offers the NRS an opportunity to intervene by filing a Notice of Filing of Petition and Right to Intervene with the Court, the NRS, and the RS. See IRM 25.15.12.25.2, NRS Notice and Intervention, for additional information.

  5. Contact with the NRS with respect to the joint return does not constitute third party contact under IRC 7602(c).

Potentially Abusive NRS

  1. In some cases, the file may contain information which shows that the RS was previously abused and fears harassment or retaliation from the NRS in response to filing of the request for relief. Special procedures were developed to send letters from a centralized location to help protect the RS’s address, location, and contact information. First contact the RS to determine if there is a need to take additional precautions to protect the RS’s address, location, and contact information. If additional precautions are needed:

    • Field ATEs should follow the procedures in (3), below.

    • Campus ATEs should follow normal procedures since their letters are already mailed from a centralized location.

  2. The NRS must be notified and given an opportunity to present further arguments and information if the ATE is considering increasing the relief recommended.

  3. If it is necessary to contact the NRS and there is a need to take additional precautions to protect the RS’s address, location, and contact information, field ATEs will prepare conference Letter 3791 or decision Letter 3289, Notice of Final Determination, as follows and send it as an attachment in an encrypted e-mail to the Cincinnati APS Processing Team Manager (PTM):

    1. Use the Cincinnati Campus Appeals office address and Innocent Spouse Coordinator's contact information on the letter. The address and contact information are found on the Appeals web site on the Innocent Spouse page.

    2. Use the name and title of the Deputy Chief of Appeals in the letter's signature block.

  4. The PTM signs Letter 3791 on behalf of the Deputy Chief of Appeals and mails it by regular mail. The PTM or assigned employee faxes a copy to the ATE, monitors the response for 45 days, and forwards any response to Appeals. To monitor the response, APS will:

    1. Create a case on PEAs with TYPE = OTH, sub-type blank, and

    2. Place it in suspense for 45 days, with suspense reason code S04 - Waiting on taxpayer for information/response.

    3. If a response is received from the NRS, send an encrypted e-mail to the ATE to inform him or her of receipt of the response, mail the NRS's response to the ATE, remove the PEAs case from suspense and close it on PEAs.

    4. If no response is received in 45 days, send an encrypted e-mail to the ATE to inform him or her that no response was received from the NRS, remove the PEAs case from suspense and close it on PEAs.

  5. The PTM signs Letter 3289 on behalf of the Deputy Chief of Appeals. The PTM or assigned employee mails the letter by regular mail to the NRS and faxes a copy to the ATE.

Tacit Consent Factors

  1. Tacit consent means that the joint return is valid even though the RS may not have signed it himself/herself because the consent is implied by or inferred from the RS's actions or statements.

  2. Here are some questions you should consider when determining whether tacit consent applies:

    • Did the RS have a filing requirement? Did the RS file a MFS return? Please note that in a community property state a spouse is required to report their share of the community property, not just their income.

    • Did the RS participate in the preparation of the return by providing return information?

    • Was there a tax benefit, i.e., reduced income tax or Earned Income Tax Credit?

    • Did the RS have another reason to file jointly, e.g., divorce decree, immigration purposes, etc.?

    • Did they file joint returns in prior or subsequent years?

    • Did the RS sign other tax related documents, such as in other locations on the return, forms filed after the return was filed, extension requests, and installment agreements?

    • Are there any return schedules that belong to or include the RS?

    • Were there any gains or losses belonging to the RS?

    • Are there any income items on the joint return belonging solely to the RS?

    • Was the RS a victim of domestic violence or abuse? If so, the RS may have tacitly consented in order to avoid being abused.

Forgery

  1. If the RS alleges forgery, he/she should have provided a statement addressing the forgery issue.

  2. Review the case for tacit consent.

  3. The burden of proof is on the taxpayer to prove forgery and no intent to file a joint return.

  4. See IRM 25.15.7.5.5, Forgery and IRM 25.15.7.10.13.5, Forgery, for additional information.

Innocent Spouse Raised During Consideration of a Non-docketed Case

  1. If the taxpayer raises the issue of Relief from Joint and Several Liability during an appeal of a non-docketed proposed deficiency case, secure a completed Form 8857, Request for Innocent Spouse Relief, or a similar statement containing the same information, signed under penalties of perjury.

Premature Referral - Jurisdiction Released to Examination

  1. Generally, for a non-docketed proposed deficiency case, the case is returned to the originating Examination function for consideration of the Relief from Joint and Several Liability issue. Jurisdiction is released, since this is a new issue which requires Examination work.

  2. If unusual circumstances exist (e.g., short statute), Appeals and Examination decide the best way to handle the request on a case-by-case basis.

AUR/Innocent Spouse Cases

  1. When Automated Underreporter Unit (AUR) and Cincinnati Centralized Innocent Spouse Operation (CCISO) are simultaneously considering issues on the same taxpayer(s), regarding both a proposed deficiency (AUR) and a request for Innocent Spouse relief (CCISO), coordination between the functions is necessary. AUR is responsible for all issues except innocent spouse. Coordination with Appeals becomes necessary if the taxpayer(s) appeals either the AUR or CCISO determination, or both. An appeal can be received before or after AUR issues a notice of deficiency; therefore the case can be received in Appeals either post-assessment or pre-assessment.

  2. When AUR receives a Form 8857 or similar written statement. AUR notifies CCISO. AUR's procedures for issuing a notice of deficiency vary depending upon whether CCISO has made a determination at the time AUR is ready to issue the notice of deficiency. See IRM 25.15.7.3, Automated Underreporter (AUR) or Compliance Campus Examination Operations (CCEO)Cases - Overview and IRM 4.19.3.20.1.20, Innocent Spouse Relief Cases, for additional information

CCISO Has Not Made Determination

  1. When AUR is ready to issue a notice of deficiency and CCISO has not yet made a determination on the Innocent Spouse request for relief, AUR checks IDRS CC: ISTSRA to determine the latest stage, and then:

    1. If stage 01 - 04 — AUR issues the notice of deficiency (to both taxpayers) and contacts CCISO to inform them a notice of deficiency was issued.

    2. If the stage is 05 or higher, AUR contacts CCISO first to determine if the notice of deficiency should be issued. AUR does not issue the notice of deficiency during the time period for the RS or NRS to appeal CCISO's preliminary determination.

      Note:

      If the case is in stage 11, AUR does not issue the notice of deficiency until 51 days after the Stage 11 date.

      Note:

      When CCISO has made a full relief determination, AUR issues a notice of deficiency to only the non-requesting spouse.

  2. When AUR issues a notice of deficiency and CCISO has not made a determination, AUR will issue Letter 4314C only to the RS. This letter informs the RS of the impending notice of deficiency and that CCISO is in the process of making a determination based on their claim.

CCISO Made Determination

  1. When CCISO makes a determination before AUR has issued the notice of deficiency, AUR follows the instructions in IRM 25.15.7.3, Automated Underreporter (AUR) or Compliance Campus Examination Operations (CCEO)Cases - Overview.

    1. When CCISO denies or partially allows relief and neither spouse requests an Appeals conference, AUR prepares and sends the notice of deficiency to both spouses, following normal AUR procedures.

      Note:

      When CCISO makes a partial determination, AUR will issue Letter 4314C only to the RS. This letter informs the RS of the impending notice of deficiency and explains that although CCISO has made a determination, the notice of deficiency must include the full deficiency amount.

    2. When CCISO has made a full relief determination and the NRS does not request an Appeals conference, AUR will issue a manual a notice of deficiency only to the NRS.

    Note:

    This case only comes to Appeals if the taxpayer(s) appealed the AUR determination or filed a petition in response to the notice of deficiency.

Appealed IS Case/Notice of Deficiency Not Issued

  1. When CCISO informs AUR prior to the issuance of the notice of deficiency that the IS determination was appealed:

    1. CCISO will send the innocent spouse file to Cincinnati Campus Appeals Office following IRM 25.15.7.10.11.2, Forwarding Appeals Request to Appeals.

      Note:

      CCISO will not send the case to Appeals until the time to appeal has expired.

    2. AUR will continue to process their case.

  2. AUR will:

    1. Provide photocopies of the AUR case contents.

    2. Ensure all AUR related issues are addressed.

    3. Notify the Cincinnati Campus Appeals Office of any changes to the case based on further taxpayer correspondence. If changes are made AUR will notify the Cincinnati Campus Appeals Office of the changes.

    4. At the end of the CP2000 suspense period, send Letter 2626C. Include a special paragraph using the following verbiage:

      Example:

      "An appeal of the Innocent Spouse determination was filed. While the appeal is pending, we will continue processing the underreported income issue(s). We will send a notice of deficiency to both spouses within the next two to four weeks, which outlines your rights to petition the United States Tax Court."

    5. Issue a notice of deficiency by updating the case with PC 75.

    6. Provide a copy of the notice of deficiency to the Cincinnati Campus Appeals Processing Section.

    7. Maintain and monitor the case.

    8. Notify Appeals of any subsequent changes to the original deficiency amount (i.e.: recomputed notice/supplemental report, case closed "No Change," etc.).

    9. Follow normal procedures to assess the joint account if the taxpayer does not petition the U.S. Tax Court on the AUR issues.

      Note:

      If the IS appeal is still pending at the end of the Statutory Notice suspense period, AUR will send the RS Letter 1802C and include a special paragraph using the following verbiage:

      Example:

      "An appeal of the Innocent Spouse determination was filed. While the appeal is pending, you may receive collection notices because our automated system requires and sends certain notices when the tax is assessed."

Appealed IS Case/Notice of Deficiency Issued

  1. If, after AUR issued the notice of deficiency, CCISO or AUR is informed that either the RS or the NRS has appealed the IS determination:

    1. CCISO will send the innocent spouse file to Cincinnati Campus Appeals Office following IRM 25.15.7.10.11.2, Forwarding Appeals Request to Appeals.

      Note:

      CCISO will not send the case to Appeals until the time to appeal has expired

    2. AUR will continue to process their case.

  2. AUR will:

    1. Issue an interim letter informing the taxpayer that proceedings before Appeals do not waive or extend the period within which a petition may be filed with Tax Court.

    2. Provide copies of the AUR case contents, including a copy of the notice of deficiency. If a copy of the notice of deficiency is not available at the time AUR provides the copy of their case file, AUR will fax a copy to Cincinnati Campus Appeals Processing Section when available.

    3. Maintain and monitor the case.

    4. Notify Appeals of any subsequent changes to the original deficiency amount (i.e.: recomputed notice/supplemental report, case closed "No Change, " etc.).

    5. Follow normal procedures to assess the joint account if the taxpayer does not petition the U.S. Tax Court on the AUR issues.

      Note:

      If the IS appeal is still pending at the end of the Statutory Notice suspense period, AUR will send the RS Letter 1802C and include a special paragraph using the following verbiage:

      Example:

      "An appeal of the Innocent Spouse determination was filed. While the appeal is pending, you may receive collection notices because our automated system requires and sends certain notices when the tax is assessed."

Appealed AUR Non-docketed Case with IS Issue

  1. When taxpayer appeals the income tax case prior to issuance of the notice of deficiency and IS determination, AUR will inform CCISO that the income tax case has been appealed. AUR will send the income tax case to Appeals.

  2. CCISO will:

    1. Make a preliminary determination and issue letters to the taxpayers.

    2. Wait until the time to appeal has expired for both taxpayers.

    3. Forward the IS case to the same Appeals office as the AUR case if either taxpayer appeals.

    4. Issue the final determination letter to the RS and final notice to the NRS if no appeal.

    5. Suspend the case for 106 days.

    6. Forward the IS case for closure to the Appeals Office working the income tax case, if Appeals has not resolved the income tax case when it is time for CCISO to close the IS case.

  3. Appeals will be responsible for issuing the notice of deficiency, if needed.

  4. Appeals will be responsible for adjusting the taxpayers' account based upon the final determination made by CCISO.

AUR Docketed Case with IS Issue

  1. When the taxpayer petitions the U.S. Tax Court on the AUR issue prior to the IS determination, AUR will inform CCISO that the taxpayer has petitioned the tax court.

  2. AUR will route the docketed case to the Appeals office designated on the docket list.

  3. CCISO will:

    1. Make a preliminary determination.

    2. Coordinate with Counsel to determine if CCISO will send determination letters to the RS and the NRS or forward the case to Appeals.

    3. If instructed by Counsel, forward case to the same Appeals Office as the AUR case.

Special "Carding" Procedures for APS on IS/AUR Cases

  1. Source functions route non-docketed AUR/Innocent Spouse cases to Cincinnati Campus Appeals Processing Section and docketed Innocent Spouse cases to the Appeals office indicated on the docket list. Refer to the Campus Case Routing guidelines posed on the Appeals web site.

  2. Create one work unit for the "AUR/Innocent Spouse" case.

  3. Most Innocent Spouse cases are routed to Cincinnati Campus Appeals Processing Section. Cincinnati APS usually receives the CCISO Innocent Spouse case first, due to the close proximity of the Cincinnati Campus Appeals Office to CCISO.

  4. Card the case following the Innocent Spouse carding procedures described earlier in this IRM. Because it is typical to receive the CCISO file first, pending receipt of the AUR file, APS will:

    1. Note in ACDS "Awaiting AUR information/response"

    2. Print a copy of the joint case summary card and place in a follow-up folder

    3. Forward the administrative file for assignment.

    4. Set a follow-up date equal to ten (10) calendar days from the received date. If the AUR file is not received by the follow-up date, contact AUR to determine the reason for the delay and initiate appropriate action to resolve the problem.

    5. When the AUR file is received, send it to ATE who was assigned the case and update ACDS that information was received.

    6. If the case is docketed, immediately after carding, forward the CCISO file to Counsel for answer. Upon receipt of the AUR file, update ACDS if needed and associate the AUR file with the CCISO file. The case might be in Counsel jurisdiction or Appeals jurisdiction, depending upon when the AUR file is received.

    Caution:

    A TC 130 will not post if there is no balance due at the time TC 971 AC 065 post. Therefore you will have to manually input a TC 130.

Appeals Technical Employee Assignment and Consideration

  1. The case is either -

    • Assigned to a Cincinnati Campus ATE;

    • Transferred to another ATE based upon workload considerations; or

    • If a face-to-face conference is requested or the issues are considered very complex, transferred to a Field Appeals Office, generally according to the address of the spouse who requested the appeal, ideally after both parts of the case are received. See IRM 8.6.1.4.1, Reasonable, Convenient Conference Opportunities (Circuit Riding), for more information on holding conferences on dates and in locations that are reasonably convenient to taxpayers and representatives.

  2. Consideration is given to the Innocent Spouse issue and any other appealed issues in the case.

  3. If the Innocent Spouse issue is the only issue being considered by Appeals. Take the following action:

    1. Monitor IDRS for assessment.

    2. If account is assessed prior to closing of the IS issue, update the statute date/code on your case summary cards to reflect that the case is now assessed.

    3. Follow-up with Innocent Spouse AUR contacts as needed. A list of contacts can be found on the W&I Innocent Spouse Website contact page under the link "IS AUR Contacts."

  4. Ensure all required notices are sent to the non-appellant spouse.

Agreement Reached

  1. If Appeals has both the IS and AUR issues and an agreement is reached with both spouses regarding a proposed deficiency:

    1. When relief is denied in full or in part, include a statement on Form 870, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, explaining the amount of innocent spouse relief allowed. This statement serves to notify the RS of the result and is in lieu of a NRS decision Letter 3289.

    2. When relief is allowed in full, include a statement on closing Letter 913 to notify the RS of the result in lieu of Form 870. Include a statement on the NRS's Form 870 in lieu of a NRS decision Letter 3289 to explain the amount of innocent spouse relief allowed to the RS.

    3. Send closing Letter 913 to each spouse.

    4. Close the case using standard closing procedures for proposed deficiency cases.

  2. Show the deficiency on Form 870 as follows:

    • If Innocent Spouse relief is fully allowed, show the full deficiency on the NRS’s Form 870. Include a statement that full innocent spouse relief is allowed on the NRS's Form 870 in lieu of a NRS decision Letter 3289. Also send closing Letter 913 to the NRS. Send the RS a closing Letter 913 stating his or her case was closed with no deficiency and that full innocent spouse relief is allowed.

    • If Innocent Spouse relief is fully denied, the full joint deficiency is shown either on one joint Form 870 signed by both spouses, or the full deficiency is shown on two separate Form 870 signed separately by each spouse. Include a statement on the Form 870 that no innocent spouse relief was granted. This statement serves to notify the RS of the result and is also in lieu of a NRS decision Letter 3289. Send closing Letter 913 to each spouse.

    • If Innocent Spouse relief is partially allowed, show the full deficiency on the NRS’s Form 870 and show only the portion of the deficiency not relieved on the RS’s Form 870. Include a statement that partial innocent spouse relief is granted on both Form 870s. This statement serves to notify the RS of the result and is also in lieu of a NRS decision Letter 3289. Send closing Letter 913 to each spouse.

  3. If Appeals only has the innocent spouse issue for consideration and agreement is reached, in addition to normal closing procedures when AUR has not yet assessed the account:

    1. Contact AUR for information regarding when AUR will make the assessment.

    2. Inform APS on Form 5402 of the status of assessment.

    3. Instruct APS on Form 5402 to adjust the account after it has been assessed based upon the final determination.

Partial Agreement or Agreement Not Reached

  1. If agreement is reached with only one spouse, secure Form 870 from that spouse and issue a notice of deficiency to the other spouse. Send closing Letter 913 to the spouse who agrees. See IRM 25.15.12.23, Notice of Deficiency Under IRC 6015. This section provides language to include in the notice of deficiency for the unagreed spouse.

  2. If agreement is not reached with either spouse, issue a notice of deficiency, jointly or separately, as required. The language in the notice of deficiency serves to notify the RS of the result and is in lieu of a separate NRS Determination Letter 3289. See IRM 25.15.12.23, Notice of Deficiency Under IRC 6015. Refer to this section to determine whether to issue the notice(s) of deficiency jointly or separately and for language to include in the notice of deficiency(s). The deficiency, if any, is assessed by Appeals if defaulted.

  3. If a notice of deficiency is issued, APS monitors the case and defaults it, or if petitioned, updates ACDS and forwards it to Counsel for trial preparation, using standard procedures.

  4. If Appeals only has the innocent spouse issue for consideration and agreement is not reached, in addition to normal closing procedures when AUR has not yet assessed the account:

    1. Contact AUR for information regarding when AUR will make the assessment.

    2. Inform APS on Form 5402 of the status of assessment.

    3. Instruct APS on Form 5402 to adjust the account after it has been assessed based upon the final determination.

CDP/EH and Innocent Spouse Cases

  1. IRM 25.15.12.16, CDP/EH and Innocent Spouse Cases and its subsections uses the position Appeals Officer (AO) to describe the ATE assigned the IS WUNO and Settlement Officer (SO) to describe the ATE assigned the CDP WUNO, to distinguish the responsibilities.

  2. A taxpayer may request a Collection Due Process (CDP) hearing or an equivalent hearing using Form 12153, Request for Collection Due Process or Equivalent Hearing. When a taxpayer raises innocent spouse before, during or after filing a CDP request, you most likely have what is referred to as a "combo" case that requires coordination of the two separate parts of the case.

    Note:

    The CDP must be for the RS.

  3. A taxpayer may always raise IS in a CDP hearing unless the IS issue was previously:

    • Heard by Appeals and a final determination letter issued, or

    • Considered by Compliance and a final determination letter was issued to the RS in a SNOD or final determination letter prior to the Service's receipt of the CDP request, or

    • Decided by the Tax Court

  4. See IRM 8.22.8.9, Innocent Spouse (IS), for additional procedures related to the CDP/EH part of the case.

  5. You do not have a "combo" case if the IRS previously made a determination on IS in a notice of deficiency or final determination letter. If ISTS is in stage 12 prior to the CDP request then the IRS has already made a final determination as to spousal defenses by issuing a final determination letter.

  6. You can identify an open CDP with a Transaction Code (TC) 520 with Closing Code (CC) 76 or 77 (without a reversing TC 521) on TXMOD or IMFOLT. Closing code 76 is a lien and 77 is a levy. A TC 971 Action Code (AC) 275 (without a reversing TC 972 AC 275 or a TC 971 AC 276 or TC 971 AC 277) on TXMOD or IMFOLT also indicates there is an open CDP hearing. A TC 971 AC 630 may also be present, but only if the hearing involves a proposed levy action.

    Note:

    If a TC 520 is present on TXMODA or IMFOLT, it will be paired with an indicator "B" if both spouses requested a CDP hearing, "P" if only the primary spouse requested a CDP hearing or "S" if only the secondary spouse requested a CDP hearing.

  7. A TC 520 will not be present if the taxpayer has requested an equivalent hearing. You must rely on TC 971 codes to determine if there is an open equivalent hearing. A TC 971 AC 278 (without a reversing TC 972 AC 278 or a TC 971 AC 279 or TC 971 AC 280) on TXMOD or IMFOLT indicates there is an open equivalent hearing. A TC 971 AC 631 may also be present, but only if the equivalent hearing involves a proposed levy action.

  8. If the CDP hearing request was received by Automated Collection System (ACS), there will also be an open IDRS control on TXMODA with activity beginning with CDP or EH (equivalent hearing). The final activity on that control should be 2APPLS indicating ACS sent the CDP to Appeals.

  9. When Form 8857 is received in Collection prior to or simultaneously with the Form 12153, Request for a Collection Due Process or Equivalent Hearing, or other valid written request for CDP/EH hearing, ACS or Field Collection screens it, makes Integrated Data Retrieval System (IDRS) updates, and forwards the request to the CCISO for consideration within 10 business days of receipt.

  10. When Form 8857 is received in Appeals after the CDP/EH case is already in Appeals or ACS/Field Collection did not send to CCISO, Appeals will:

    1. Date stamp Form 8857 or ensure it was date stamped by Collection

    2. Request input of feature codes "SD" and "DP" to the CDP WUNO

    3. Send the Form 8857 and a copy of Form 12153 and copies of any returns or audit reports included in the CDP/EH case to CCISO for an IS preliminary determination, using transmittal Form 3210, Document Transmittal within 10 business days of receipt.

    4. Send the case on Form 3210 marked "EXPEDITE – CDP CASE" for a preliminary determination to:
      IRS - Cincinnati Innocent Spouse Operation
      Attn: CDP Coordinator, Stop 840F
      201 West Rivercenter Blvd.
      Covington, KY 41011

      Note:

      You may fax Form 8857 to CCISO at (859) 669-5256 if there are no supporting documents, e.g. no return file. The request must be marked "Expedite-CDP case." .

    5. Notify the taxpayer by phone or letter that the IS claim is being forwarded to CCISO for investigation and that both the requesting spouse (RS) and nonrequesting spouse (NRS) will be contacted by CCISO. Advise the taxpayers that CCISO will issue a preliminary determination letter to the taxpayers and the claim will be returned to Appeals for a final determination in CDP.

    6. CCISO will inputs TC971 AC 065 on receipt of the case.

    7. CCISO will establish the case on the Innocent Spouse Tracking System (ISTS).

Coordination of CDP/EH and Innocent Spouse Procedures

  1. Appeals delays any hearing on non-spousal defense issues or collection alternatives until a determination is made regarding the innocent spouse request.

  2. If the CDP hearing request was joint, the hearing may proceed for the NRS. However, the final determination may not be made until the IS claim has been considered. The collection potential from the RS may affect the viability of a proposed collection alternative.

  3. The SO will suspend the CDP case while the innocent spouse case is considered. The SO enters CARATS action/sub-action codes SU/PI using the date the Form 8857 is sent to CCISO. Update the status code to E/OTH.

    Note:

    If the case is transferred to another employee to monitor, the receiving employee places the case in suspense.

  4. CCISO will mirror accounts, prior to sending the IS portion of a CDP/IS case back to Appeals. See IRM 8.22.8.9.4, Mirrored Modules, for additional information on mirrored modules.

  5. Mirroring allows collection activity to continue for the NRS if not otherwise suspended for a timely CDP hearing.

  6. CCISO should not issue a final determination letter on combo cases. If CCISO has inadvertently issued a final determination letter, the SO will contact CCISO to get the Administrative file or at least a copy of the work papers and determination letter. The CDP will be suspended, until after the expiration of the period for the taxpayer to petition for a judicial review of the IS determination. If the taxpayer:

    1. Petitions: the CDP remains in suspense until the Tax Court decision becomes final.

    2. Does not petition: the SO takes the CDP case out of suspense and sends the administrative file for the innocent spouse case on Form 3210 to Cincinnati Campus APS, who establish the innocent spouse case in ACDS and forwards to ATM for assignment.

Working Innocent Spouse - CDP/EH "Combo " Case

  1. Appeals is responsible for the final IS determination in CDP.

  2. Following receipt of the innocent spouse administrative file from CCISO, Cincinnati Campus APS will

    • Card a separate IS WUNO following normal carding procedures

    • Cross-reference the CDP WUNO in "NOTES" field.

    • Add feature code "DP" to the IS WUNO

    • Forward the IS case to an Appeals Team Manager (ATM) for assignment to an AO.

  3. Form 12509 provides the taxpayer with the opportunity to request an Appeals hearing in a non-CDP case. In CDP, the taxpayer has already raised an IS issue that Appeals must consider. The taxpayer's response on Form 12509 is helpful to establish the reason for disagreement, but Appeals must make a CDP determination on the IS issue whether or not the RS returns Form 12509.

  4. The AO will work the IS case according to normal procedures. At the conclusion of working the case, the AO will:

    • Prepare Form 5402, Appeals Transmittal and Case Memo, which will include instructions to APS regarding all required account adjustments and Innocent Spouse Tracking System (ISTS) updates.

      Note:

      The 5402 will be approved by the AO's ATM. The ATM will not input an ACAP date for the IS WUNO.

    • Prepare an ACM explaining the IS determination.

    • Secure Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases, on all agreed cases for which partial or full relief is granted.

    • Prepare an electronic narrative explaining the IS determination for inclusion in the final CDP closing letters which the SO will prepare. The AO can use The Case File Attachments feature in ACDS to attach a narrative to the case. You can locate the case file attachment feature by clicking the red cases button in ACDS. The case file attachment is located on the main cases menu page under other functions.

    • Use CARATS action code MS, not AC/FR, when transferring the IS case to the SO.

    • Prepare Form 30/40 to transfer the IS case through APS to the SO.

  5. The SO prepares all closing letters on combo cases. The SO will include the IS determination in the final CDP closing letters. The type of letters used when closing a CDP/EH case with an innocent spouse issue is discussed in IRM 8.22.9.4.2, Closing a CDP with Innocent Spouse. Both spouses will be entitled to a closing letter regardless of whether one, or both, submitted the CDP hearing request.

  6. The SO will close all assigned WUNOs, including the IS WUNO with all appropriate closing information pertaining to the IS disposition.

  7. A CDP request can be withdrawn up to the point the determination letter is issued. If the taxpayer(s) withdraws the CDP request, the SO will research to determine the status of the IS case:

    • If the IS case is still in CCISO, the SO will deliver or fax a copy of the withdrawal Form 12256 within 2 business days to notify CCISO of the withdrawal. CCISO will retain the IS case and work it following their normal procedures.

    • If the IS case is assigned to an AO, the SO will deliver or fax a copy of the withdrawal Form 12256 within 2 business days to notify the AO of the withdrawal. The AO will remove the "DP" feature code from the IS case. The AO will make a final determination and close the case following normal innocent spouse procedures.

    • If the CDP/EH request is withdrawn after the AO has returned the IS case to the SO, the SO will close the IS case by adopting the AO's determination and send the following closing letters:

      CDP/EH Withdrawn - Innocent Spouse Closing Letters
      Agreed - Form 870-IS Unagreed
      RS Letter 913, Closing Letter - Agreed Cases Letter 3288, Final Appeals Determination - to Requesting Spouse
      NRS Letter 3289, Final Appeals Notice - to Non-Requesting Spouse Letter 3289, Final Appeals Notice - to Non-Requesting Spouse
  8. APS issues the closing/determination letters and updates ACDS to reflect the issuance. APS will:

    1. Update CDP WUNO with SNTYPE = 090A and SNDATE = the date the determination letter was issued, instead of SNTYPE = 030A on the CDP work unit, in order to suspense the file for the longer period allowed to petition Tax Court under the Innocent Spouse provisions.

    2. Update IS WUNO with SNTYPE = 090A and SNDATE = the date the determination letter was issued.

Closing Innocent Spouse/CDP Cases

  1. All Innocent Spouse cases along with related CDP cases are routed to the Cincinnati APS for closure and should remain together.

  2. APS will:

    1. Close the CDP and IS work units on ACDS.

    2. Update the Innocent Spouse Tracking System (ISTS). See IRM 25.15.14, Innocent Spouse Tracking Systems Inventory Validation Instructions for procedures.

    3. Input all required IS and CDP adjustments/transactions. See IRM 8.22.3, Back-End Processing for Collection Due Process and Equivalent Hearing Cases, for additional information on CDP transactions.

    4. When all adjustments/account transfers have been completed and posted to IDRS close IS and CDP work units on PEAs.

    5. The administrative files should be filed according to standard procedures.

    Note:

    A MFT 31 account does not automatically mean the case is an INNSP case. If a previous determination was made and the case is only in Appeals as a CDP case, do not send the case to Cincinnati for final processing.

Hoyt Investors and IRC 6015(c)

  1. Three Tax Court Memo decisions were issued in May and June 2005 that awarded attorney's fees to the petitioner's attorneys, in part because the Service denied IRC 6015(c) relief because of actual knowledge. These cases involve Hoyt investors and are as follows:

    • Foy v. Commissioner, T.C. Memo. 2005-116 (5/19/2005),

    • Owen v. Commissioner, T.C. Memo. 2005-115 (5/19/2005),

    • Bulger v. Commissioner, T.C. Memo. 2005- 147 (6/20/2005).

  2. The Service has the burden of proof when denying a IRC 6015(c) claim because of actual knowledge. When the deficiency results from an erroneous deduction or loss, the Service must establish that the requesting spouse knew the facts that made the deduction or loss unallowable.

  3. When a Hoyt investor is received where CCISO denied relief under IRC 6015(c) because the requesting spouse had actual knowledge, carefully examine the actual knowledge determination. If it is determined the requesting spouse did not know the facts (e.g., overvalued livestock or same animals sold to different partnerships) that made the loss unallowable, then do not deny relief because of actual knowledge. Instead consider if the requesting spouse is entitled to "full relief" or "partial relief" .

    Example:

    If the Hoyt investment was a joint investment between the requesting and non-requesting spouse, then the requesting spouse is still liable for 50% of the deficiency, subject to other considerations, such as the transfer of a "disqualified asset" as discussed in IRC 6015(c)(4) or the tax benefit exception in IRC 6015(d)(3)(B). Remember, under the tax benefit exception the portion of the deficiency allocated to the requesting spouse can increase or decrease. For example, if the requesting spouse is the wife and she was a homemaker without any income, she received no "tax benefit" from the Hoyt loss and her portion of the deficiency is allocated to the non-requesting spouse. In those circumstances, relief is granted. Further questions on actual knowledge and the operation of the tax benefit exception can be addressed to local counsel.

Barred Statute One Signature (BSOS)

  1. If a deficiency assessment was made to a joint account based on the signature of one spouse on a waiver of assessment, the assessment is not a valid assessment with respect to the non-signing spouse. Similarly, if an amended return was processed with only one signature, the amended return may only be processed for the signing spouse. Refer to IRM 25.15.1.2.9, Joint Assessment/One Signature, for additional information. These erroneous assessments usually cannot be corrected since assessment is generally barred by the statute of limitations. These are referred to as "Barred Statute One Signature (BSOS)" cases. When applicable, in lieu of completing Form 3999, Statute Expiration Report, a copy of the "Barred Statute Memo" is completed by the ATE, approved by the manager, and placed in the administrative file. See the "Barred Statute on Erroneous Assessments" memo format posted at http://win.web.irs.gov/innocentspouse/innocent_memorandums.htm. Advise the RS, "Our records indicate you did not sign the consent to assess and collect the proposed tax, penalties, and interest. Therefore you are no longer liable for the additional assessment." Advise the NRS, "Our records indicate you signed the consent to assess and collect the proposed tax, penalties, and interest. There is no record of your spouse signing a consent to assess and collect the liability. The statute of limitations has expired to assess and collect it from your spouse. Therefore, you are solely liable for the additional assessment."

  2. These cases do not meet Innocent Spouse criteria but the RS is nevertheless relieved of the liability because the assessment period expired. The barred assessment is moved to MFT 31 for the spouse whose signature is on the report.

  3. For additional information regarding these cases see IRM 25.15.7.10.13.3, Barred Statute One Signature (BSOS) and IRM 25.15.9.1.4, Barred Statute One Signature (BSOS).

Separate Assessment Module Overview

  1. In January 2001, the MFT 31, Separate Assessment Module, was added to the Individual Masterfile (IMF). MFT 31 contains split spousal assessments previously processed to the Automated Non-Master File (ANMF) which meet one or more of the following conditions:

    • Collection action is prohibited against only one spouse.

    • Each spouse is liable for different amounts.

    • Extensions or suspensions result in different Collection Statute Expiration Dates (CSEDs) or Assessment Statute Expiration Dates (ASEDs) for each spouse.

  2. See IRM 21.6.8, Individual Tax Returns - Split Spousal Assessments (MFT 31), for detailed information about MFT 31 accounts.

  3. Check non-master file (NMF), as well as MFT 30 and MFT 31 to secure information relating to joint accounts.

Master File 31

  1. MFT 31 is an individual (IMF) master file tax (MFT) account code. MFT 31 is used for assessments against an individual taxpayer on a joint module and is generated by one or more of the following:

    • Bankruptcy — either spouse is discharged or dismissed from bankruptcy.

    • Offer in Compromise (OIC) — either spouse makes an offer on a liability.

    • Criminal Restitution - an assessment of criminal restitution ordered payable to the IRS has been made.

    • Tax Court— either spouse is going to Appeals or petitions the tax court. (Exam/Appeals/Automated Underreporter (AUR)).

    • Innocent Spouse— an assessment is made against a joint module but one spouse is relieved of the liability fully or partially.

    • Exam agreed/unagreed cases - when only one spouse agrees to the tax deficiency, while the other spouse does not agree, but does not appeal or file a petition.

    • Taxpayer Assistance Order— either spouse files Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).

    • Installment Agreement — either spouse requests an installment agreement.

    • Currently Not Collectible (CNC) — account qualifies for CNC based on either spouse's financial status.

  2. There are three types of MFT 31 accounts:

    • Split/Transfer - MFT 31 accounts created or in process prior to January 2005 or a qualifying NMF MFT 20 account (CSED expired after January 1, 2005);

    • Mirrored - Bankruptcy by only one spouse, innocent spouse claim, agreement to tax adjustment by only one spouse, OIC filed by only one spouse, joint OIC defaulted by one spouse, Form 911 filed by only one spouse, one spouse requests an installment agreement or one spouse qualifies for CNC;

    • Exam/Appeals/AUR - one spouse is going to Appeals or petitions the tax court, or a court order of criminal restitution.

  3. As of January 1, 2005, the triggering event will determine when the account is moved from MFT 30 to MFT 31 and what type of MFT 31 account is established. The TC 971 action code will identify the triggering event. See IRM 21.6.8.3(3), What is MFT 31, for a list of triggering events.

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.

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.

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.

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 Module B - Full Scope, Lesson 6, Allocation of Underpayment and/or Understatement of Tax of Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (10–2012) 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.

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.

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 Module B - Full Scope, Lesson 6, Allocation of Underpayment and/or Understatement of Taxof Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (10–2012) 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.

IRC 6015(f)

  1. Proposed guidance issued in Notice 2012-8 which supersedes the existing guidance (Rev. Proc. 2003-61) for individuals seeking equitable innocent spouse relief under IRC 6015(f) has been finalized in Rev. Proc. 2013-34 which was released in September 2013. All claims under IRC 6015(f) should be evaluated using Rev. Proc. 2013-34.

  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 Rev. Proc. 2013-34 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 refunds of payments made with the joint return, joint payments or payments that the NRS made. 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 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.

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.

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.

IRC 66(c) Equitable Relief Provisions

  1. Proposed guidance issued in Notice 2012–8 which supersedes the existing guidance (Rev. Proc. 2003-61) for individuals seeking equitable innocent spouse relief under IRC 66(c) has been finalized in Rev. Proc. 2013-34 which was released in September 2013..

  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.

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 Module B - Full Scoop, Lesson 6, Allocation of Underpayment and/or Understatement of Tax of Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (10-2012) 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.

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 Apppeals 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.

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.

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.

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.

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, Settlement Computations and Statutory 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.

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.

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 Module B - Full Scope, Lesson 6, Allocation of Underpayment and/or Understatement of Tax of Compliance's Innocent Spouse coursebook, Training 26553–102 (10-2012) 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.

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.

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 Module B - Full Scope, Lesson 6, Allocation of Underpayment and/or Understatement of Taxof Compliance's coursebook, Innocent Spouse, Student Guide, Training 26553–102 (10-2012) 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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

    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.

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, Payments, Credits and Claim of Refund, 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).

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.)

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

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

    4. APPEALS AMTCLM — Leave blank.

    5. APPEALS AMTDIS — Leave blank.

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.

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.

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.

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.

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.

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.

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 25.15.9.1.22, 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

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.

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.

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.

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 25.15.9.1.8, Collection Statute Expiration Date, for guidance on determining the last CSED.

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 25.15.9.1.17, Manual Refunds.

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.

Reconsiderations

  1. A Final Determination 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, Relief from Joint and Several Liability - Reconsiderations, for additional information on Reconsiderations.

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.

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.

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.

    Exception:

    If the case was not reviewed under Notice 2012-8 or Rev. Proc. 2013-34, then CCISO will not send the case to Appeals. CCISO will reconsider the claim under Rev. Proc. 2013-34.

  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.

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.

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.

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.

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.

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.

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.

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.

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).

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