IRS Concedes: Innocent Spouse denial subject to full judicial review

In a major victory for those whose claims for innocent spouse relief are denied by the IRS, it has conceded that the denial is subject to judicial review by the Tax Court, and that the review is not limited to the record that had been developed at the administrative level.

Under the Internal Revenue Code, each person who joins in signing a joint federal income tax return is jointly and severally liable for any income tax liabilities related to the year for which the return is filed. Spouses who become subject to claims for tax related to income earned by a spouse (or ex-spouse) may qualify for relief under certain circumstances under the “innocent spouse” rules.

Because the requirements needed to qualify for innocent spouse relief are rigid, in many cases the IRS will deny relief, forcing the party who is facing tax liability for income earned by the other party to turn to the Tax Court for judicial review. The nature of this review was the subject of litigation in Wilson v. Commissioner, in which the Ninth Circuit affirmed the Tax Court’s holding that its review was de novo, enabling the Court to consider evidence outside the administrative record that had been developed in the case.

In AOD 2012-007, the IRS acquiesced in the Ninth Circuit decision, conceding the greater role of the court in reviewing the determinations of the IRS. This acquiescence gives those claiming innocent spouse relief greater assurance that their specific circumstances can be reviewed by the judicial system, and will not be limited to a cursory review of the IRS’ decision.