That Letter in the Mail
So, you read all about Innocent Spouse and other kinds of §6015 relief here or perhaps somewhere else. After all that reading you slowly let yourself hope that you could put an ugly chapter of your life behind you. After a while of thinking about it, you filed a claim. Then months later you see a letter in the mail from the IRS. You slowly open it up and you see the words:
“Your claim has been denied”,
and your heart sinks.
Reasons for Innocent Spouse and Equitable Relief Denials
This situation is all too common for a few reasons:
- Practitioner experience
- Claim complexity
- IRS training
- IRS administrative posture.
There is hope. In many cases, an initial denial is only that: an initial denial.
Practioner Experience and Claim Complexity of Innocent Spouse and Equitable Relief Claims
The first and second issues are the practitioner’s experience and the claim’s complexity. These two factors are together because they are often connected and deal with related issues.
Denials can occur in the case of a paid preparer if they are either:
- Inexperienced with Innocent Spouse filings or
- Not up to date with Innocent Spouse filings.
Complexity becomes especially important in the case of a family friend or self-preparer. Without a basic background in this area of tax law, it is difficult to evaluate how much is out there to know. While paid preparers can fall victim to these issues many have at least a working knowledge of what an innocent spouse claim is before they start. Some examples of the information a person might not be aware of:
- Innocent Spouse filings are technically complex.
- There are significant differences between Innocent Spouse, Injured Spouse, Separation of Liability, and Equitable Relief.
- The criteria are subjective and rooted in obscure case law.
- Innocent Spouse Form 8857 is a fishing expedition the IRS has set up to deny your claim
- Immaterial facts do not need to be disclosed.
Referencing the last two bullets; successful Innocent Spouse claims are not just about knowing how to fill in a form. They are about knowing:
- What not to fill out
- Keywords that may trigger an early denial
- Keywords that may cause issues later in the claim process.
You wouldn’t send the IRS a copy of your bank records with a tax return so don’t do the Innocent Spouse equivalent.
IRS Training in processing Innocent Spouse & Equitable Relief Claims
The third issue is IRS employee training. I try very hard not to harp on government employees in this blog. They often have a thankless job. However, the truth in this case at least is that many at the IRS lack proper training. The IRS evaluates claims are using a step by step guide. Strict adherence to that guide leaves little room for the color that the law can bring to the facts of the case.
The IRS fought for years to limit claims for Innocent Spouse Relief. All claims of objectivity aside it is very unlikely that the same lawyers arguing against these claims in court will turn out unbiased claim reviewers. Considering how many innocent spouse claim denials triumph in tax court it is not a stretch to infer the IRS is improperly denying claims at lower levels
To make things worse I suspect the actual number of inappropriately denied claims is higher for one simple reason. Those least able to get to tax court are most likely to be suffering economic hardship from the denial of a claim.
Lastly, employees can improperly weigh different factors. Cases exist where certain issues have improperly swayed the IRS. For example, the has denied claims solely based on the ability to pay. Even when other factors lent overwhelming support to the claim. All facts and circumstances are supposed to be evaluated together. Ability to pay alone is not a litmus test for relief.
If you are not familiar claim criteria, it is quite possible you will miss noticing an inappropriate denial.
What you don’t know you don’t know can hurt you the most.
IRS Administrative Posture towards Innocent Spouse & Equitable Relief Claims
The fourth issue is administrative posture. For a period of time, practitioners reported what appeared to be a pattern of automatic denial. The two key factors that went into this apparent pattern were:
- Denials regardless of the strength/facts/circumstances of the claim.
- Initial nondescript letters that even practitioners were confusing with final decisions.
Administrative roadblocks can make the process both technically and emotionally challenging.
Final Take Away
A skilled practitioner knows how to:
- Present a claim in the best possible light
- Advise on the likelihood that a denial will be sustained.
Taxpayers that appeal IRS decisions in U.S. Tax Court are often successful. While it may seem obvious those successes in Tax Court mean that the IRS improperly denied their claim at some point. This is exactly why having someone familiar with the real world claim process is so important. Understanding the history of Innocent Spouse appeals and IRS posture is key to not giving up too soon. More specifically, the knowledge that will give taxpayers or their authorized representatives that ability to see that bigger picture is:
- Why a case mirrors and other successful claims and
- Why a case is different from unsuccessful claims
While it is that true even if the initial claim was botched the court can hear new information outside of the administrative record during a review that isn’t the best plan to start with. The best plan is to properly outline the facts and case law so that the IRS considers them in pretrial appeals, as hazards to litigation, and concedes without the expense of tax court.
Conversely, if someone is not familiar with the claim process it may take longer as information needs to be continually resubmitted to the IRS after challenges to the claim are made.
You can see that innocent spouse claims are a multistage and technically complex process. They require:
- Navigating complex and moving due dates
- Understanding complex and changing case law
- Navigating which facts to disclose
- Managing inappropriate bias on the part of the reviewer
- Managing the emotional ups and downs by understanding the big picture