The Internal Revenue Service has had a long history in dealing with innocent spouse tax relief.
In the past, the IRS had not been too kind to the innocent spouse however progress and changes have been made.
The implementation of the two-year rule is the right step in the right direction in helping the innocent spouse seeking tax relief.
Innocent Spouse Tax Relief
Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows.
Both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce.
This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns.
One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.
In some cases, a spouse will be relieved of the tax, interest, and penalties on a joint tax return.
Three types of innocent spouse relief are available.
1. Innocent spouse relief.
2. Separation of liability.
3. Equitable relief.
1. Innocent Spouse – By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse did something wrong on your tax return.
2. Relief by Separation of Liability – Under this type of relief, you allocate (divide) the understatement of tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse).
3. Equitable Relief – If you do not qualify for innocent spouse relief or separation of liability, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief.
Innocent Spouse Relief – FAQ’s
Innocent Spouse Relief Two-Year Limit Change
What is the new rule for the innocent spouse relief program?
The two-year time limit no longer applies for innocent spouse requests for equitable relief. Rather, the IRS will consider a request for equitable relief if the collection statute of limitations for the tax years involved has not expired, or if the taxpayer is seeking a refund, if the refund statute of limitations has not expired. Many taxpayers that were previously denied because of the two-year limit may now qualify for relief.
Does this apply to all requests for innocent spouse relief?
The change applies only to requests for equitable relief. The two-year limit continues to apply to requests submitted on other grounds. The change applies to new innocent spouse requests, based on equitable relief, requests currently under consideration by the IRS or the court, and to requests that were previously disallowed by the IRS due to the two-year limit.
Do taxpayers need to do anything if they previously asked the IRS to suspend consideration of their equitable relief request while the two-year deadline was being appealed in court?
No, if a taxpayer requested that the IRS suspend consideration of their equitable relief request while the two-year deadline was being appealed in court, the IRS will review the original request for relief and provide notification to taxpayers who had their request suspended at that time. The taxpayer should not resubmit a claim for relief.
Who should reapply for relief?
Taxpayers seeking equitable relief, who were previously denied due to the two-year limit, may now reapply by using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired, or if appropriate, the refund statute of limitations has not expired. The IRS will treat the taxpayer’s original request for equitable relief as a claim for refund for purposes of the refund statute.
Will collection activity continue if a taxpayer reapplies for relief?
When a taxpayer reapplies for relief after having a prior request denied because it was untimely, the IRS is prohibited by statute from taking any new collection action against the taxpayer for the tax years involved. Collection activity taken prior to the filing of the claim would remain in place (such as Levy or Lien). As a result, the statute provides that the collection statute of limitations for tax years will be suspended during the time the IRS is prohibited from collecting.
How can a taxpayer who filed a petition to the U.S. Tax Court, because his/her request was filed late, take advantage of this change?
For taxpayers who have a case docketed before the U.S. Tax Court, where the basis of the IRS’s denial of relief is that the request for equitable relief was untimely, the Chief Counsel attorney handling the docketed case, will reach out to the taxpayer or the taxpayer’s counsel. If the taxpayer has any questions, the taxpayer may contact the Chief Counsel attorney.
When will taxpayers be notified if they’ve been granted relief under this new provision?
The IRS will advise taxpayers within 90 days of the progress of their case. It may take some time to contact the person who was the applicant’s spouse during the tax year in question (as required by law). There will be no new collection activity while processing these types of requests. It may also take some time to work through and make final determinations with respect to cases currently in suspense.
Where can more information be obtainedd?
Notice 2011-70, Equitable Relief Under Section 6015(f), contains detailed information on this new change. In addition, the latest information on this change can be found on the Innocent Spouse section of the Individual’s page on IRS.gov.
