The Revised Innocent Spouse Equitable Relief Rules

Renewed Controversy over the Knowledge Factor

Wei-Chih Chiang, DBA, and Yingxu Kuang, DBA, and Ziyun Yang, PhD

Recently, the IRS issued Revenue Procedure 2013-34 to provide guidance on innocent spouse equitable relief (IRB 2013-43). Among the changes intended to provide greater leniency to taxpayers, one potentially controversial change relates to the “knowledge factor.” In the past, actual knowledge of an item giving rise to a deficiency was heavily weighted against equitable relief by the Tax Court. (For a more detailed discussion, see T. D. Englebrecht, K. Pierce, and W. C. Chiang, “Ignorance Is Better for Innocent Spouse Equitable Relief,” Practical Tax Strategies, March 2007, vol. 78 no. 3, pp. 156–167.) Under the new rules, actual knowledge will not be weighed more heavily than any other factor. Because of the significance of this modification, how to apply the new weighting rules could raise practical issues.