An Examination of the Factors That Impact Innocent Spouse Tax Relief Decisions in the US Tax Court

Abstract

Married couples receive tax benefits such as favorable tax rates, higher exclusions, higher phase-outs, and combined deductions. However, joint and several tax liability is a major issue facing these taxpayers. The term innocent spouse relief, within the Internal Revenue Code, is a direct result of one spouse failing to satisfy the joint liability for the married couple. Since both individuals are jointly and severally liable for the combined liability, the innocent spouse may be responsible for the liability in whole or in part. Our study examines this highly litigated arena of innocent spouse relief. To assist in this area of taxation, the Internal Revenue Service has provided taxpayers and tax practitioners with guidance. Revenue Procedure 2003-61 (2003-2 CB 296) outlines factors useful in determining whether innocent spouse relief should be granted. Additionally, this study creates a predictive model containing only three significant factors (economic hardship, knowledge/reason, significant benefit) capable of predicting with approximately 89% accuracy. These same three variables are significant after running multiple regression with p-values of 0.002 (economic hardship), 0.000 (knowledge/reason to know), and 0.001 (significant benefit). These factors provide valuable insight to practitioners when advising clients on challenging or accepting the Internal Revenue Service's decision. Additionally, abuse is marginally significant in the regression model. Also, judge gender and political affiliation are analyzed. However, the gender of the judge and political affiliation fail to be statistically significant using the chi-square test and regression model.

Citation

Dowis, W.B., Englebrecht, T.D. and Wiggins, M. (2021), "An Examination of the Factors That Impact Innocent Spouse Tax Relief Decisions in the US Tax Court", Hasseldine, J. (Ed.) Advances in Taxation (Advances in Taxation, Vol. 29), Emerald Publishing Limited, Leeds, pp. 135-153. https://doi.org/10.1108/S1058-749720210000029011