By: Albertina Webb, Esq.
The Internal Revenue Service has recently announced that it has changed the two year limit imposed on a spouse claiming innocent spouse status to help those innocent spouses try and get certain relief the provision provides. The innocent spouse relief is meant to protect spouses who are unaware that the spouse who earns the money has properly declared all taxes and/or filed their taxes properly. Most times during a divorce, the non-monied spouse learned that the wage earner has been properly declaring taxes or not declaring taxes at all. Because the parties are married, both parties would be subject to fines, additional taxes and penalties. The award of the “innocent spouse” would relieve that spouse from that obligation.
The IRS has reportedly conducted a review of the equitable relief provisions for the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. Significant changes are as follows:
1. The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
2. A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
3. The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.
The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on IRS.gov.
