The IRS announced Monday that it will make it easier for some taxpayers who were not aware of their spouse’s misreporting of taxes to seek innocent-spouse relief. The innocent spouse rule can relieve taxpayers of their tax liabilities, interest and penalties as a result of filing a joint tax return with their current or ex-spouse.
While the IRS previously required taxpayers to file for this form of relief within two years after the IRS sent a collection notice, this deadline prevented taxpayers in the dark about their spouse’s tax debts from seeking this protection.
On Monday, the IRS eliminated the two year deadline for taxpayers who seek innocent spouse status under the “equitable relief” provision. This type of relief is often sought by taxpayers who were victims of domestic abuse. The new change is effective immediately, with details available in IRS Notice 2011-70.
As IRS Commissioner Douglas Shulman stated in USA Today, “When people are in tough circumstances, we need to be willing to work with them.” California Congressman Pete Stark issued a press release stating that this change removed “an arbitrary obstacle for innocent spouses, primarily women, and helps us move toward a more equitable tax system.” This decision was also reported in the Wall Street Journal and Forbes, among numerous other publications.
Innocent spouse issues arise when married couples file a joint return. This type of filing makes both individuals jointly and individually responsible for all the taxes owed, even if one spouse made the majority or the entire amount of taxable income. If the IRS determines several years after the joint return was filed that there was a deficiency in tax, the IRS is authorized to go after each spouse individually for the full amount of taxes penalties and interest.
Innocent spouse relief was enacted for situations where it would be unfair to hold a spouse liable for the tax liability that was created. Innocent spouse tax relief can relieve the spouse from taxes, penalties and interest that were acquired from a joint tax return.
In order to file qualify, the party filing for innocent spouse relief must meet the requirements for at least one of the following types of innocent spouse relief: 1. “Classic” Innocent Spouse Relief; 2. Relief by Separation of Liability; or, 3. Equitable Relief.
To obtain the relief described above, the regulations require that the requesting spouse submit Form 8857 or the alternative written statement. If the party is seeking Classic” Innocent Spouse Relief or Relief by Separation of Liability, the filing must occur no later than two years from the date of the first collection activity against the requesting spouse concerning the joint tax liability.
In general, for each assessment, the requesting spouse is entitled to only one final administrative determination. The requesting spouse who has made an election for relief on the grounds of lack-of-knowledge of the erroneous item or to obtain separate return determination, or who seeks equitable relief, may petition the Tax Court for a redetermination of joint and several liability.
Taxpayers seeking to file for innocent spouse relief are well advised to seek the counsel of a tax attorney in California or elsewhere to assist them in this process. Reid & Hellyer is home to two certified tax law specialists in California, more than any other law firm in the counties of Riverside and San Bernardino.
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