Academic journal article Academy of Accounting and Financial Studies Journal

New Developments in Innocent Spouse Rules

Academic journal article Academy of Accounting and Financial Studies Journal

New Developments in Innocent Spouse Rules

Article excerpt


Both spouses are usually liable for taxes owed to the IRS on a joint tax return. However, the "innocent spouse doctrine" offers relief to a spouse when it would be inequitable to hold that spouse liable for taxes created by the other spouse. The innocent spouse laws have gone through numerous changes over the years and Congress made a major revision to the law in 1998. The revised law has made it easier to obtain innocent spouse relief when inequitable situations arise. This article traces the development of the innocent spouse provisions in the literature with emphasis on the legislative history. The article then explains the current innocent spouse rules and discusses the implications of Code Section 6015. Finally, the article summarizes new developments in the innocent spouse provisions with particular emphasis on a recent Tax Court decision in 2006 that deals with innocent spouse rules in community property states.


An innocent spouse is someone who has filed a joint return with his or her spouse and is being held accountable for a tax liability because of an erroneous tax return filed by the other spouse. The innocent spouse must prove that he or she had no knowledge of the error or omission and that it would be unfair to hold him or her accountable for the tax liability, penalties and interest. There are three different types relief available for these types of situations. These are innocent spouse relief, relief by separation of liabilities, and equitable relief. The type of relief available to an individual varies depending on various factors and circumstances, such as tax filing status, marital status and community property laws. This paper provides a review of the legislative history of the law, discusses the innocent spouse provisions, and looks at recent developments in the law.


Prior to 1918, joint returns were not allowed and each spouse was required to file his and her return separately. The Revenue Act of 1918 enacted provisions that permitted married couples to file joint tax returns. The law was unclear as to whether married couples could still file separately until Congress passed the Revenue Act of 1921. This Act clarified that a husband and wife may either file separate returns or a joint return. Initially, the IRS took the position that when a joint return is filed, both husband and wife have joint and several liability for the entire tax due on the return. The IRS viewed the joint return as pertaining to one taxable unit and thus both were responsible for the entire amount of the tax liability.

Many taxpayers disagreed with this approach and in 1935 a case involving the issue of joint and separate liability of tax was heard by the Ninth Circuit Court of Appeals. The case of Cole v. Commissioner centered on an attempt by the IRS to collect a joint return liability from the estate of a wife. The IRS argued that because a joint return does not segregate the respective income and expenses of each spouse, it is impossible to determine the respective tax liabilities of the individual spouses. The IRS also argued that joint and several liability is the price that a married couple pays for the privilege of filing a joint return. The Ninth Circuit Court of Appeals rejected these arguments for joint and several liability and ruled that it is possible to separate the tax liability of the respective spouses.

Disputes between the IRS and taxpayers continued due to the ambiguity of the issue and Congress attempted to clarify the issue further with passage of the Revenue Act of 1938. That Act clearly established the principle of joint and several liability on a joint tax return. This provision is still in place and is found in Code section 6013(d).

Prior to 1948, married couples filing jointly used the same income tax computation schedule as couples filing separately. …

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