Available at: https://scholarship.law.stjohns.edu/bankruptcy_research_library/368/
Abstract:
Innocent-spouse relief is an equitable remedy provided by Internal Revenue Code section 6015(f), where the Secretary of the Treasury may "relieve [an] individual of . . . liability" if "taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency . . . ." Essentially, it provides a joint-filer who normally is jointly and severally liable for the tax liabilities of his or her spouse relief from liability if it would be inequitable to do otherwise.
This memorandum addresses:
(1) the limits of a bankruptcy court’s jurisdiction over innocent-spouse and other tax claims under Bankruptcy Code section 505, with regard to
(a) the bankruptcy court’s lack of initial subject matter jurisdiction over innocent-spouse relief claims, and
(b) the preclusion towards adjudicating a tax dispute that has been finally concluded; and
(2) a recent decision from the Western District of Pennsylvania which denied bankruptcy court jurisdiction over innocent-spouse claims. The decision appears to be an outlier and will not likely be followed by other jurisdictions.
Commentary:
A debtor's ability to have the bankruptcy court review for innocent spouse relief in the Fourth Circuit would seem to require both that he or she first attempts to utilize the IRS processes and also that there had not been a final pre-petition adjudication of that claim.
It would seem then that many Chapter 13 debtors would benefit from seeking this innocent spouse relief if:
- The Debtor filed a joint return with his or her spouse\
- The Debtor's taxes were understated due to errors on your return
- The Debtor didn't know about the errors, or
- The Debtor lives in a community property state
Errors that cause understated taxes include:
- Unreported income
- Incorrect deductions or credits
- Incorrect values given for assets
The question then for consumer debtor attorneys is whether this is an additional service that they can provide for their clients (with reasonable compensation) or if it should be referred to another lawyer or tax professional.
For related questions about Offers in Compromise in bankruptcy, see Bankr. E.D.N.C.: In re Mead- Validity of Pre-Petition Offer in Compromise of IRS Claim
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