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Tax Controversy & Resolution: Relief from Community Property Laws

Relief from Community Property Laws §66(c)

Each spouse domiciled in a community property state is generally liable for income tax on one-half of the community income when the spouses do not file a joint return. However, the provisions of IRC § 66, Treatment of Community Income, grants spouses relief from the community property income splitting requirements in certain circumstances. IRC § 66 applies only to community income, as defined by state law.

IRC § 66(c), Community Property Relief is NOT available if the spouse:

  • Filed a joint return,

  • Transferred assets to the other spouse as part of a fraudulent scheme (See Treas. Reg. § 1.66-4(f)),

  • Entered into a Closing Agreement (other than an agreement pursuant to IRC § 6224(c) as to partnership items) that disposes of the same liability, or

  • Entered into an Offer-In-Compromise for the liability (See Treas. Reg. § 1.66-4(h)).

Other Liabilities and Collection Remedies
IRC § 66 does not negate liability that arises against a spouse under the operation of other (non-community property) laws. Where IRC § 66(c) applies, the items of community property upon which the Requesting Spouse (RS) receives relief are included in the income of the Non-Requesting Spouse (NRS), but only as long as the statute of limitations is open.

For example, IRC § 66 will generally not negate transferee liability if it applies. It does not negate any collection remedies based on state law against community property in the hands of the other spouse. See also Treas. Reg. § 1.66-1(c).


Husband and wife live in Arizona. Both owe taxes. Wife gets relief under IRC § 66. The Service may still collect the husband’s unpaid liability from all of their community property. See Cf. United States v. Stolle, 2000-1 U.S.T.C. ¶ 50,329, (C.D. Cal 2000) (with respect to IRC § 6015).

Effect of Innocent Spouse Relief - IRS May Still Collect Against Nonliable Spouse's Community Property 

  1. Innocent Spouse Relief may remove or prevent the assessment of tax against an innocent spouse. However, it may NOT affect the ability of the Service to pursue collection remedies against the nonliable spouse’s interest in community property.

    • See United States v. Stolle, 2000-1 U.S.T.C. 50,329, 86 A.F.T.R.2d 2000-5043 (C.D. Cal 2000).

    • This is true even if this has an adverse impact on the non-liable spouse who has received the innocent spouse relief.

      • Example: If a spouse receives innocent spouse relief in a state that would allow a private creditor to garnish the non-liable spouse's wages for a debt of the liable spouse, then the Service could still collect from this property.

  2. IRC § 6015(g) may NOT override the Service’s ability to offset payments made from community property under state law.

    • Subject to other limitations in the Code, IRC § 6015(g) allows taxpayers who have received innocent spouse relief to receive refunds of certain payments they have made toward the liability.

    • However, the Service may still be able to retain all or part of the payments that would otherwise be refundable under IRC § 6015(g) if they were made from community property and the Service has a state law remedy against the community property.

    • See Ordlock v. Commissioner, 126 T.C. 47(2006).

For further information see IRM 25.18.1, Basic Principles of Community Property LawIRC 66, Treatment of Community Income; Treas. Reg. 1.66, - Treatment of community income; Rev. Proc. 2013-34, guidelines for taxpayers seeking equitable relief from income tax liability under section 66(c) or section 6015(f).

General Provisions of IRC § 66
IRC 66 has three subsections that could affect the reporting of community property income:

  • IRC § 66(a) Exception to General Rule of Community Property Income Splitting Where Spouses Live Apart. ​​

  • IRC § 66(b) Denial of Community Property Benefits Where Spouse Not Notified

  • IRC § 66(c) Relief to Spouses from Reporting Half of Particular Items of Community Property Income.

Appeal Rights

  • Any spouse denied relief may file an appeal with the Appeals Division to administratively review the determination made under IRC § 66(c).

  • In order to seek a Tax Court review of a denial of treatment of community income under IRC § 66, an independent basis for Tax Court jurisdiction must exist, as when a statutory notice of deficiency or Final Determination in a Collection Due Process proceeding was issued. The Tax Court cannot review denial of IRC § 66 relief in a stand-alone proceeding. See Bernal v. Commissioner, 120 T.C. 102 (2003).

  • The Non-Requesting Spouse will be given appeal rights when IRS proposes to grant full or partial relief to the Requesting Spouse.

    • Note: The Non-Requesting Spouse does not have the right to appeal if the Non-Requesting Spouse is no longer liable for the tax liabilities at issue, e.g. they were discharged in the Non-Requesting Spouse's bankruptcy proceedings and/or offer-in-compromise.

Refunds Under IRC § 66

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