December 07, 1998
Interim Guidelines for "Equitable Relief"
for Innocent Spouses
WASHINGTON - The Treasury Department and the Internal Revenue
Service have issued interim guidance for taxpayers seeking relief
under a new provision in the 1998 IRS Restructuring and Reform Act.
Treasury and the IRS also want feedback to help them develop final
guidance, with comments due by April 30, 1999.
"This is one more step in our implementation of the new innocent
spouse provisions, which is one of my top priorities," said IRS
Commissioner Charles 0. Rossotti. "Later this month we expect to
finalize both the form taxpayers will use to apply for relief as
well as a revised publication on this important subject. The
taxpayers affected have been among the nation's most vulnerable and
will benefit significantly from the enhanced relief the
restructuring legislation gave them."
The IRS will use this interim guidance to process requests that
it had suspended since the Restructuring Act was passed in July. The
IRS suspended action so that it could consider granting this relief
for taxpayers who otherwise would have been denied relief because
they did not meet other provisions in the law. There are currently
about 2,000 such requests pending. In a separate action, the
National Taxpayer Advocate issued the first Taxpayer Advocate
Directive, ordering the abatement of penalties in certain
circumstances for claims filed prior to December 7, 1998.
"This is an important step that provides new avenues of relief
in extraordinary situations to married or formerly married
taxpayers," said Treasury Deputy Secretary Lawrence Summers.
The interim guidance deals with a new remedy called "equitable
When a married couple files a tax return jointly, each spouse is
fully liable for any taxes owed, including any additional
assessments that may result after an audit. Two provisions in the
law offer relief to a spouse who did not know about erroneous items
that caused the extra tax ("traditional relief"), and to a divorced
or separated person to the extent an additional tax is allocable to
the other spouse ("separate liability").
Equitable relief may be appropriate when a person does not
qualify under these "traditional relief" or "separate liability"
provisions. For example, equitable relief may be granted when one
spouse did not know that the other spouse took the money intended
for paying the tax and used it for his or her own benefit instead.
The interim guidance lists threshold conditions for equitable
relief consideration, circumstances where equitable relief will
normally be granted, and additional factors to be taken into account
when determining whether or not to grant equitable relief in other
To be considered for equitable relief, a person must meet
several threshold conditions, generally including filing a joint
return, failing to qualify for the "traditional relief" or "separate
liability" relief, and having an unpaid tax liability.
The IRS will normally grant equitable relief if the tax was not
paid when the joint return was filed, the requester is divorced or
separated, the requester did not know that the tax would not be
paid, and the requester would suffer undue hardship if the relief
were not granted.
In other circumstances, the IRS will take into account
additional factors in determining whether equitable relief should be
granted. Those factors include marital status, hardship, spousal
abuse, divorce decree obligations, and knowledge of the underpayment
or understatement of tax.
Notice 98-61 gives the full text of the interim guidance, as
well as specifics on how to submit comments. The notice will be
available in the Tax Professional's Corner of the IRS Web site at
www.irs.ustreas.gov and will be published in the Internal Revenue
Bulletin 1998-51, dated December 21, 1998.
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