INNOCENT SPOUSE IS ANY SPOUSE TRULY INNOCENT? All audio is streamed through your computer speakers. There were several attendance verification questions presented during the LIVE webinar to qualify for CPE of the LIVE event only. For the archived/recorded version of this webinar, the link at the end of this presentation will be to final exam on the topics and learning objectives covered during this webinar plus there are also 3 online review questions to answer per hour.

INNOCENT SPOUSE IS ANY SPOUSE TRULY INNOCENT? Presented by: Robert McKenzie 120 South Riverside Plaza Suite 1200 Chicago, IL

Learning Objectives At the conclusion of this webinar, you will be able to: Recognize how the recently updated IRS innocent spouse rules allow more taxpayers to receive relief from joint tax obligations. List four types of relief available. Determine the who, how, and when to file for relief. Determine the proper situation for use of IRC 6015 for innocent spouse, separation of liability, and equitable relief. Apply the latest rules for §6015(f) (equitable relief) and retroactive remedies available. Describe the procedure and forms for applying for relief. List options for client appeals. 2#2#

Four types of relief are available: 1.Innocent spouse relief 2.Separation of liability relief 3.Equitable relief 4.Relief from liability arising from community property law 3

IRC § 6015(b) Innocent Spouse Relief Joint return. Understatement of tax erroneous. No knowledge or reason to know. Inequitable. Election on IRS form within 2 years of beginning of IRS collection action. 4

Knowledge What does it mean to…establish that he/she did not know or have reason to know of the understatement, but does establish that he/she did not know or have reason to know the extent of the understatement... 5

IRC § 6015(c) Election of Separate Liability Joint return Spouses either – No longer married – Legally separated; or – Not members of the same household for the past 12 months preceding election Actual knowledge (IRS burden. Election within 2 years of commencement of collection activities No fraudulent transfers 6

6015(c) & the Knowledge Factor The IRS must show that the electing spouse did not know of the understatement by the other spouse. The knowledge requirement is lower than for spouses who remain together where the electing spouse has the burden to show that she did not know or have reason to know in order to receive relief 7

How much did she know and understand? Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. 8

IRC § 6015(f) Equitable Relief You do not qualify for b or c relief, and It would be inequitable to require you to pay This relief is available for either understatements or underpayments. 9

Factors that may be relevant to whether the Service will grant equitable relief Marital status Economic hardship Knowledge or reason to know Nonrequesting spouse's legal obligation Significant benefit Compliance with income tax laws 10

Factors weighing against relief… Attributable to the requesting spouse Knowledge, or reason to know Significant benefit. Lack of economic hardship. Noncompliance with federal income tax laws Requesting spouse's legal obligation 11

§ 6015(f) – How the law evolves Ewings Billings 2006 Extender legislation 12

Review Questions for Self Study CPE: Now’s the time to answer the review questions 1-3. Click here: *Please leave quiz window open and wait to submit until prompted to complete questions 4-6. Once all questions are complete submit and close quiz window.

13

14

15

Procedure Form 8857 Submitted to Cincinnati Dangers –Self prepared –Admissions against interests 16

17

ISSUES & PERSPECTIVES Time within which a taxpayer may request relief under IRC § 6015 (f) 18

ISSUES & PERSPECTIVES Distinction Between Should Have Known and Actually Knew Gives Rise to 6015(c) Relief. 19

ISSUES & PERSPECTIVES Non-electing Spouse Entitled to Challenge Grant of Innocent Spouse Relief to Former Non-electing Ex-Spouse May Intervene in Deficiency Case Where Other Spouse is Claiming 6015 Relief 20

ISSUES & PERSPECTIVES "Item Giving Rise to Deficiency" in Omitted Income Case Disputed 21

ISSUES & PERSPECTIVES Timothy Schultz, TC Memo (Tax Ct.) Toni Lynette Knight, TC Memo (Tax Ct.) Terrell v. Comm., 106 AFTR 2d 2010-XXXX (9th Cir.) Robert McGhee, TC Memo (Tax Ct.) 22

Applying for Relief - Administrative Form 8857 & Pub 971 Integrated Case Processing approach Beware of potential conflicts of interest which will arise when you represent both parties; you may not be able to represent either! 23

Applying for Relief - Litigation U. S. Tax Court Jurisdiction available upon original issuance of 90 day letter for deficiency Jurisdiction also available after a formal denial of Form 8857 –30 days to file after denial 24

IRC § 66 - TREATMENT OF COMMUNITY INCOME when the spouses live apart and do not share income for the entire taxable year. where one spouse is not notified of the nature and amount of items of community income. relief from the operation of community property law in certain other cases - analogous to the relief provision in section 6015(b) relating to joint filers. where the other requirements of section 66(c) are not met; analogous to the equitable relief provision in section 6015(f) relating to joint filers. 25

Review Questions for Self Study CPE: Now’s the time to answer the review questions 1-3. Click here: *Once all questions are complete please submit and close quiz window.

Additional Resources Q & A from IRS Pub 971, Innocent Spouse Relief (Page 33) Form 8857, Request for Innocent Spouse Relief (page 35) Characteristics of Relief Provisions (Page 39) Possible Prohibitions from Receiving Relief from Joint and Several Liability under IRC §§ 6015 and 66 (Page 41) Exhibit: Petition in response to Notice of Deficiency (Page 42) 26

Thank you for participating in this webinar. Below is the link to the online survey and CPE quiz : Use your password for this webinar that is in your confirmation. You must complete this survey and the quiz in order to qualify to receive CPE credit. National Society of Accountants 1010 North Fairfax Street Alexandria, VA Phone: (800)