The innocent spouse program makes determinations on requests for relief provided in the Code of Federal Regulation (CFR) Title 26, Subtitle F - Procedure and Administration, IRC 6015, Relief from Joint and Several Liability on Joint Return, and CFR Title 26, Subtitle A – Income Taxes, IRC 66, Treatment of Community Income.

An innocent spouse technician applies the law to the facts and circumstances submitted with Form 8857, to determine whether the individual should be relieved of any or all tax liability owed. See IRM 25.15.3, Technical Provisions of IRC 6015, or IRM 25.15.5, Relief from Community Property Laws, for more information.

CCISO handles all requests except those involving tax years with open audits conducted by a Revenue Agent or Tax Compliance Officer outside of the campus environment. In the case of open field examination audits, determinations will be made by the assigned employee.

The campus Innocent Spouse Program is an Examination Field Support Operation located at CCISO.

All requests for account adjustment(s) and/or refunds will be submitted to CCISO processors on an Innocent Spouse Operations (ISO) Adjustment Request (ISO-AR) with a full TXMOD print of the account attached.

The procedures in this IRM are general in nature and cannot cover all situations that may be encountered. Document all actions taken and consult with management when appropriate.

IRC 66(c), Treatment of Community Income relief provisions.

The CFR at 26 CFR sections 1.66-1 through -5, contain guidance on requests for relief from federal income tax liability resulting from the operation of community property law.

IRC 6015, Relief from joint and several liability on joint return.

26 CFR sections 1.6015-1 through -9, which provide guidance on requests for relief from joint and several liability and related proposed regulations, including 78 FR 49242 (issued on August 13, 2013) and 80 FR 72649-01 (issued November 20, 2015).

Rev. Proc. 2003-19, administrative appeal rights for the non-requesting spouse.

Rev. Proc. 2013-34, guidelines for taxpayers seeking equitable relief from income tax liability under section 66(c) or section 6015(f).

The Director, Examination - Field and Campus Policy, reports to the Director, Headquarters Examination, and is responsible for the delivery of policy and guidance that impacts the field and campus examination process. See IRM 1.1.16.3.5.1, Field and Campus Policy, for additional information.

Campus Exam and Field Support, which is under the Director, Examination - Field and Campus Policy, is the group responsible for providing Servicewide policy guidance on compliance processes that relate to campus examination operations and support Field Exam and Specialty Programs in SB/SE and Large Business & International (LB&I). See IRM 1.1.16.3.5.1.5, Campus Exam and Field Support, for additional information.

CCISO falls under the responsibility of the Director, Examination - Campus, with the Director, Examination - Field and Campus Policy, providing oversight to the innocent spouse processing IRMs.

Management in CCISO oversees employees processing Forms 8857, including creating and updating the Innocent Spouse Tracking System (ISTS) records, creating and maintaining cases on the Accounts Management System (AMS)/Innocent Spouse Application (ISA) Database, and making account adjustments according to the relief determination.

The Processing Technicians in CCISO are responsible for:

The IRS adopted the Taxpayer Bill of Rights (TBOR) in June 2014. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see the web page Taxpayer Bill of Rights FAQs.

The following is a list of common terms used in this IRM section:

The following table lists common acronyms and their definitions, used throughout this IRM:

The table below includes references for related innocent spouse and account adjustment IRMs and is not all inclusive:

For research of IDRS transcripts of accounts see Document 6209, IRS Processing Codes and Information.

Fully allowed requests can be classified as:

A request is considered to be partially allowed if the RS is still liable for any part of an original filing or additional tax assessment (including EITC reversal, withholding credit, accuracy-related penalty, etc.).

This section describes post determination actions required to close relief requests where relief is disallowed in full.

Form 12810, Account Transfer Request Checklist, is used to request transfer of part or all of a tax assessment to MFT 31 or NMF 20.

Consider the following for transfer restrictions and resolutions prior to completing Form 12810. It is not necessary to remove reversed transactions, e.g. TC 582 reversed by a TC 583.

The Credit and Account Transfer Unit cannot transfer a TC 896 through TC 899 (offset to non-tax debt). This is usually associated with the original settlement (TC 150 transactions). Do not transfer the TC 150 and related transactions. If the entire account is being transferred because of a refund/offset after the due date, a Non-Restricted TC 340 may be required. If it is necessary to transfer the TC 150, see appropriate manager.

If transferring a TC 280 (bad check penalty) from the MFT 30 account, the related TC 670/671 causing the penalty must also be transferred.

The Credit and Account Transfer Unit cannot transfer a TC 766 with an Offset Trace Number (OTN)-Code (CD) number. If it is necessary to transfer the TC 766 with an OTN-CD number, see appropriate manager.

Transfer any Centralized Authorization File (CAF) indicator (TC 960/961/962) only if any of these pertain to the NRS. Verify who the valid CAF indicator belongs to on CC CFINK. These transactions along with the TC 460 will be listed on the "To" Account column for NRS only.

For bankruptcy transactions (TC 520/521) and closing codes pertaining to the NRS, see IRM 25.15.9.4.1, Bankruptcy: Freeze -V and/or -W, and follow the procedures referenced.

If transferring an undeliverable refund credit (TC 740) posted after a TC 300 or TC 290, transfer the entire account. A TC 740 applicable to the RS cannot be transferred. The TC 740 is a credit transaction following a TC 840/846 debit transaction. If there is a reason why the entire account cannot be transferred, see appropriate manager.

If transferring an account with a reversal of allowable interest paid (TC 777) posted with the TC 300 or TC 290, transfer the entire account. The TC 777 is a debit transaction now part of the balance due, and cannot be moved without the associated TC 776. If there is a reason why the entire account cannot be transferred, see appropriate manager.

If a TC 840 has posted to the account as the result of a refund of various payments to the RS, be alert to the fact the computer will always presume the last payments posted before the TC 840 are the payments refunded. CC INTSTD will reflect this. The computer has no way of knowing the payments refunded may not be the last payments made. Therefore, if a Non-Restricted TC 340 is required, and the payments refunded do not agree with CC INTSTD, it will be necessary to manually compute the interest.

If the NRS has a pending Installment Agreement (IA) TC 971 AC 043 or has an IA TC 971 AC 063, it is necessary to manually input these transactions to MFT 31 account using CC REQ77. These protect the taxpayer from levy action. If the NRS was taken out of the IA status, the account will reflect a TC 971 AC 163 on the MFT 30 account. Input this on the MFT 31 account.

Invalid NRS secondary TINs must be corrected before trying to post to MFT 31, if possible. If the NRS secondary TIN cannot be corrected, the account will be transferred to NMF 20.

If either taxpayer used an incorrect TIN (transposed numbers or typographical error) and through research the correct TIN is found, use CC ENMOD/ENREQ to correct the TIN. After posting, the TIN will be validated and the account can be transferred to MFT 31.

Typographical errors in the name control and/or use of a hyphenated last name can also be corrected using CC ENMOD/ENREQ to validate either TIN as long as the CC INOLEX, Social Security Administration (SSA), and Individual Master File (IMF) name controls match.

Invalid secondary TINs due to name control mismatches can be validated using CC IRCHG. To use IRCHG:

Prior to transferring an account to NMF 20:

If an account must be transferred to NMF 20, and it is necessary to transfer two or more tax assessments from the same module (TC 150, TC 290, TC 300 and their related transactions), prepare a separate Form 12810 for each tax assessment. NMF 20 accounts are set up to reflect only one collection statute per module. Be certain to indicate the correct CSED for each tax assessment.

The following transactions will affect the processing of a relief request. These indicate the NRS and/or RS have been relieved of all or part of the debt by Bankruptcy or OIC. The amount may subsequently be transferred to either taxpayer or the entire balance may be removed with an assessed debit cleared (TC 604). Ensure the actions taken by Compliance are in agreement with the innocent spouse determination. If the account has been transferred to MFT 31 for the RS, a TC 604 may be required. If the joint debt was written off, the case may be closed. If uncertain of the correct action to take, see appropriate manager.

The Credit and Account Transfer Unit can only transfer 50 transactions on Form 3413, Transcription List, (Account Transfer In). If there are more than 50 transactions to be transferred, transfer enough payments to the MFT 31 so the number of transactions is less than 50. Use CC ADD/ADC34 with a "1" in the Credit Freeze Code field on the credit side of the transfer to keep the payments from refunding off the MFT 31. Print an entire INTSTD before the technician transfers the payments and keep with case file in the event a Non-Restricted TC 340 is required.

A transfer of the entire account may be required, if there is a reversal of penalties with the TC 290 or TC 300, and the reversal amount differs from the amount originally assessed with the TC 150 transaction.

Bankruptcy cases are identified with a -V and/or -W freeze.

If an account has a -V and/or -W freeze, check for an open bankruptcy indicator TC 520 with closing codes 60-67, 81, 83 or 85-89. The TC 520 will also contain a CSED-EXT-IND. Valid entries are P for primary, S for secondary or B for both. Determine if the RS or NRS filed the bankruptcy.

If the account has been transferred to the RS on MFT 31 because the NRS received a discharge of the debt as a result of bankruptcy, process per the instructions listed below:

If the account has been transferred to the RS on NMF 20 because the NRS received a discharge of the debt as a result of bankruptcy. See IRM 21.7.12 Non-Master File (NMF) Adjustments, for more information.

Verify that AMS has been updated to document a telephone call to the taxpayer (RS and/or NRS) that has the –O Freeze, determining whether or not they are actually in a disaster zone. If the taxpayer states that they are not in a disaster zone, follow normal processing procedures. If the taxpayer is in a disaster zone continue with the following instructions.

Update ISTS and ISTSR Input Record as follows:

Update TXMOD as follows:

Route case to designated team for suspense cases.

If the account has an open -Y freeze:

The following is a list of transactions related to OIC:

If TC 48X or TC 78X transactions are present for the NRS, the transactions will be transferred to MFT 31 or NMF 20. Provide a print of the MFT 30 TXMOD to the designated Processing Team technician to have the TC 48X(s) and TC 78X(s) input to MFT 31 or NMF 20.

When an accepted OIC is fully paid, including payment of deferred installment payments and completion of the terms of any collateral agreements, the tax liabilities are adjusted to zero. The OIC file is placed into a monitoring status. See IRM 5.19.7.13, 5-Year Monitoring Status, for more information.

One of the terms of the offer agreement requires the taxpayer to timely file returns and timely pay taxes for five years after the acceptance of the OIC or until the offered amount is paid in full, whichever is longer. Breach of this future tax compliance provision permits the Service to reinstate the original tax liability. See IRM 5.19.7.14.4, Failure to Adhere to Compliance Terms, for more information.

Due to the possible reinstatement of the original tax liability because of noncompliance, the initial adjustment bringing the balance in the account to $0 is not considered an abatement of the tax assessment. Process all cases involving an accepted OIC (TC 780) as follows:

If the account has been transferred to the RS on NMF 20 because the NRS' liability was adjusted through an OIC, see IRM 21.7.12, Non-Master File (NMF) Adjustments.

Continue with closing procedures based on the determination made. See IRM 25.15.9.3.1, Fully Allowed Requests, IRM 25.15.9.3.2, Partially Allowed Relief, or IRM 25.15.9.3.3, Relief Disallowed, for more information.

In determining if any payments or credits can be refunded, all payments and credits need to be applied to tax in the order that they have been received. This includes the order of assessment.

A RS and a NRS each have a separate interest in any overpayment on the joint account. As a result, each spouse may have a different Refund Statute Expiration Date (RSED) for claiming a credit or refund for the account when a payment or a credit applied from another account is not joint, but rather is shown to have been paid by or is attributable to only one of them.

The amount to be credited or refunded is limited to the tax paid (which includes tax, penalties and interest) during the two year period prior to filing of the request for relief, or three years from the return filed date, whichever is later. See IRM 25.6.1.10.2.7, Claims for Credit or Refund - General Time Period for Submitting a Claim, for more information.

An overpayment, including any interest allowed on the credit by the Service, credited to an underpayment of another year, constitutes a payment on the date the credit is allowed. See IRM 25.6.1.7.2(5), Time When Payments and Credits are Considered to be Made, for more information.

If the RS is entitled to relief, but the RSED has expired on payments made or credits attributable to the RS, the amount will remain on the account to be applied against the outstanding liability. Do not transfer the payment/credit to excess collection. This would result in the amount being collected twice.

If freeze conditions exist that make a refund inappropriate or prevent a refund from being issued by Master File, either resolve the freeze or issue a manual refund. See Document 6209, IRS Processing Codes and Information, Section 8, for more information.

When possible, rather than issuing a manual refund, transfer credits back to the year producing the offset and allow the computer to refund the overpayment or transfer to another year. This will ensure the allowable interest on the refund is correctly computed.

Apply any credits to any existing separate or joint liabilities for which the RS does not have an open innocent spouse request for relief. Satisfy the liabilities on the earliest CSED.

Installment Agreement (IA) user fees will not be refunded except for IRS error, (i.e. fee taken twice). See IRM 5.19.1.6.4.6, IA Payment Methods and User Fees (UF) Overview, DPC 41 - 57 on a payment indicate IA user fees.

A taxpayer's overpayment may be applied to any of the following: outstanding Federal tax, non-tax child support, Federal agency non-debt, State income tax obligation or Unemployment Compensation prior to crediting the overpayment to a future tax pursuant to a taxpayer's election or making a refund.

Information on refund offsets may be found in IRM 21.4.6, Refund Offset.

Payments and credits can be applied to a taxpayer’s account in three different ways.

Conduct the following research in order to determine the disposition of the payments.

Undesignated voluntary payments, involuntary payments or credits are applied in the following manner:

A designated payment is a voluntary partial payment designated in writing by the taxpayer to be applied in a particular manner, (i.e., specific tax period, kind of tax, or among tax, penalty and interest within a period) when the payment is insufficient to satisfy the balance due. See Paragraph (3) for designated payment codes.

A Designated Payment Code (DPC) is mandatory for the following transaction codes

DPCs indicate

Refer to IRM 3.8.45.10.1, Designated Payment Codes (DPCs), for a list of codes and meanings.

Credit transfers are requested on an ISO-AR. The credit transfer request can be in addition to the account transfer/adjustment information shown on the form. Information must be documented in the case file by the technician if relief was allowed under IRC 6015(b), IRC 6015(c), or IRC 6015(f), and if refund/offset of credits is appropriate.

An ISO-AR requesting a credit transfer can also be received without the case file when a refund has offset from the RS’ individual tax return to the joint account after Form 8857, Request for Innocent Spouse Relief, was filed.

Refer to IRM 21.5.8, Credit Transfers, for detailed instructions on credit transfers. Use CC ADD24 or Integrated Automation Technologies (IAT) tool to transfer the credit.

If TC 971 AC 065 has not posted to the account use a posting delay code of one cycle on both sides of the credit transfer.

If a TC 131 is required (posted to incorrect account or not timely released) along with the credit transfer, use a posting delay code of one cycle on both sides of the credit transfer. See IRM 25.15.2.4.3(5), TC 130 Entire Account Frozen From Refunding, for more information on TC 130 Reversal Requirements.

All refund requests will be received on a completed ISO-AR.

All payments being refunded must be verified as being received solely from the RS.

It may be necessary to issue a manual refund to the RS if Master File is unable to refund the credit. See IRM 21.4.4, Manual Refunds, for detailed instructions on manual refunds. Some of the reasons a manual refund would be necessary are:

Do not issue a manual refund from a tax module where no TC 150 has posted. This creates an –X freeze and a TC 290 .00 will be unable to post to release it. If payments must be refunded on an expedite basis and conditions on the module prevent the issuance of the refund from the module, transfer the payments to a module where a TC 150 has posted and the module is in zero balance.

Compute allowable interest, if appropriate, using either the CC COMPA or the Automated Computational Tool (ACT).

Interest may be computed from other than the availability date of the overpayment when the original tax return was filed late or in unprocessable form. See the table below for determining which date to calculate interest from.

Use Manual Refund Request Referral to request the refund. See Exhibit 25.15.9-1 , Job Aid for "ISO Manual Refund Request Referral" for additional information. The form can be found on the Innocent Spouse Operations Sharepoint site at https://organization.ds.irsnet.gov/sites/SBSEfeEP/ExamTasks/FSP/ISO/SitePages/Home.aspx.

Attach the following to the Manual Refund Request Referral form before scanning:

If the refund is being issued from a joint module, input TC 971 AC 037 using IDRS CC REQ77. This will show the TIN of the recipient of the manual refund on the joint account. Use the current date as the Transaction Date. Enter the TIN of the person receiving the refund.

After completing the Manual Refund Request Referral, the manager will review and sign. It must be signed by the authorized manager listed in Box 4 on the form. See Exhibit 25.15.9-1, Job Aid for "ISO Manual Refund Request Referral" , for more information.

After the manual refund packet is complete, scan the packet to create an electronic PDF file.

Update TXMOD case control activity to "WTG840" .

Monitor the account for the TC 840 to post. If leaving an account in debit balance, TC 840 will set an -X freeze. If the -X freeze needs to be released, use REQ54 to input TC 290 .00 as needed, with:

Complete the ISO-AR "Actions Completed By" section, which documents the date of input.

Continue to work case after TC 840 posts, or, if the only action requested was the manual refund, close the IDRS base activity "840POSTED" . Place the case in the appropriate receptacle to be returned to the appropriate team.

For credit transfer(s) and/or manual refund(s) on NMF 20, obtain a NMF transcript from the Campus maintaining the NMF 20 account.

For information on mirrored payments and credits, see IRM 25.15.15.5.2, Mirrored Payments and Credits.

If transferring a fully or partially allowed account to MFT 31 or NMF 20, accruals of Failure to Pay (FTP) penalty and interest need to be posted to the MFT 30 account.

To post accruals, input a TC 290 .00 with:

There are three rates of FTP penalty that can be charged. Use CC COMPAF to compute:

If a FTP penalty is being charged concurrent with the Failure To File (FTF) penalty, the amount of the FTF penalty is reduced by the amount of the FTP penalty charged per month. The rate does not change, see IRC 6651(c)(1). If a FTP penalty is not being charged concurrently (as in a TC 300 examination assessment), the FTF penalty rate is 5 percent per month on the unpaid tax as of the normal return due date, for a maximum of 5 months, or 25 percent.

If the return is more than 60 days late, a minimum FTF penalty or 100 percent of the underpaid tax, whichever is less, applies. See IRM 20.1.2.3.7.4, Minimum Penalty, for more information.

When transferring accounts to MFT 31, notice status 21, 56, and 58 cannot be transferred. The original 1 percent start date which triggers a 1 percent FTP penalty will be lost. Indicators the FTP penalty must be computed at 1 percent are:

The taxpayer may receive the 1/4 percent rate for the IA if the original return was filed timely, including extensions. An indication the taxpayer was allowed the 1/4 percent rate is the TC 971 AC 063 on the MFT 30 account. The Full Scope technician will document the history sheet whether the IA was entered into by the RS or NRS.

The following are some situations the technician may encounter affecting the calculation of the FTP penalty. These are not all-inclusive. See IRM 20.1.2, Failure to File/Failure to Pay Penalties, for additional information.

Interest is charged on an underpaid tax from the last date prescribed for payment, without regard to extensions (generally the normal return due date).

An original tax return (TC 150) resulting in a refund issued after the normal return due date affects the underpayment interest on a subsequent assessment for the same tax year.

If there is a credit elect (TC 836) on the MFT 30 account, interest may need to be manually computed depending on what quarter the amount applied as a credit elect is needed in the subsequent year. See IRM 20.2.5.7.2, Rev. Rul. 99-40 and Credit Elects (May Sequa), for more information.

IRC 6404(g) suspends interest and certain penalties for tax years ending after July 22, 1998 in cases where the Service fails to provide a notice of liability to the taxpayer within 36 months (18 months prior to November 26, 2007), beginning on the later of:

If the notice is not provided to the taxpayer before the close of the 18- or 36-month period, interest and certain penalties are suspended for the following period:

Programming was created to allow the computer to perform this suspension. A TC 971 AC 064 is input on the account with the transaction date as the mailing date of the 6404(g) notice. Input TC 971 AC 064 only if the 6404(g) notice was issued after the 18- or 36-month period; however, keep in mind that TC 971 AC 064 may have been prematurely input on some Examination/AUR cases. There are three scenarios innocent spouse processing personnel must watch regarding IRC 6404(g).

If an account contains the following conditions, it must be worked by a Processing Team technician.

Once a notice and demand is issued, the taxpayer has a limited amount of time to pay the amount shown before additional interest is charged. Notice status codes are 19, 20, 21, 54, 56 and 58. See IRM 20.2.5.4, Notice and Demand and Underpayment Interest, for more information.

The Non-Restricting TC 340 is an enhancement to Master File programming to allow a systemic interest update on a tax module after it has been restricted. Input of the Non-Restricted TC 340 requires a manual computation of interest up to the date in the INT-TO-DATE field, and the module balance (including tax, penalty and interest) entered in the COMP-INT-AMT field. Entering the module balance in the COMP-INT-AMT field causes Master File to resume normal interest computation on that amount from the date entered in the INT-TO-DATE field. See IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340 for specific input instructions and limitations. The following situations require a Non-Restricting TC 340 to be input to MFT 31:

The Non-Restricting TC 340 should only be used in instances where normal interest computation can be resumed by Master File. Interest computed at 120 percent of the normal rate (e.g. Tax Motivated Interest) is not compatible with a Non-Restricting TC 340. A TC 34X can identify these accounts on CC TXMODA for a money amount posted with Item References 221 TX-MOTVTD-TRANS and 222 TX-MOTVTD-INT. Compute the interest and request a restricting TC 340 be posted to MFT 31. Complete Form 12810, Account Transfer Request Checklist, with the interest transactions and item reference codes and amounts required. See IRM 20.2.5.6.3, Non-Restricting Transaction Code (TC) 340, for additional limitations.

Take the following actions if a Non-Restricting TC 340 is required and the entire account is being moved to MFT 31 including the interest (TCs 190, 196, 197, 336, 337):

Take the following actions if a Non-Restricting TC 340 is required, but the technician is not moving the posted interest transactions from MFT 30 to MFT 31:

An account problem may be identified by either First Read or Full Scope while researching the taxpayers' account. Account problems can include math errors from the original return processing, duplicate assessments, missing/incorrectly applied payments, incorrect/incomplete tax assessments made by the Examination or AUR operations or Form 1040-X, Amended U.S. Individual Income Tax Return, for Accounts Management adjustments.

The ISO-AR identifies the account issue. The ISO-AR must clearly explain what the problem is and what action the processor must take.

The Financial Technician must send back-up documentation to justify the actions requested, e.g., copy of the tax return, substantiation for math error, proof of payment. The Financial Technician may or may not send the entire case file.

The processor will review ISO-AR for completeness and take the necessary actions to resolve the account problems.

The following are reminders when making a tax adjustment. See IRM 21.5, Account Resolution, for more information.

If the entire case file is sent, document the history sheet if the case must be returned to the examiner, or if it can be closed in the Processing Team. If the case file is not sent, document the adjustment request for actions taken, initial and date.

Follow the instructions on the ISO-AR. Use the following information to determine which taxpayer to establish a MFT 31 or NMF 20 account to transfer the barred assessment to:

If abatement of NMF 20 is required, obtain a current NMF transcript from the campus maintaining the NMF 20 account. If mirrored assessment, obtain transcripts for both taxpayers.

When the transcript is received showing the abatement, close the case using the following steps:

If the unagreed spouse was assessed on MFT 31, abate the tax using IDRS CC REQ77 per Form 3465 instructions. Close the case in the same manner as above.

Check CC IMFOLT for the last CSED. CC IMFOLT will show the next, last and first CSED to expire. CC TXMOD only shows the current CSED.

Take the following actions