IRS Throws in the Towel…
by Michael W. Blitstein, CPA
IRS has thrown in the towel on pursuing some innocent spouses for back taxes. The Service historically required a taxpayer who claimed it was inequitable to be held liable for unpaid tax attributable to their spouse, to seek relief within two years of the date IRS began its collection activity. However, many innocent spouses don’t know about the IRS’ collection efforts because their spouses conceal that information. Subsequently, they miss the two year deadline. A group of Congressional members and the IRS Taxpayer Advocate thought this was unreasonable and pressed the Service to eliminate the two year limitation. IRS has officially agreed to do so. The relief is retroactive. IRS will no longer apply the two year rule to any new or pending requests for equitable relief. Any requests that were denied may reapply for relief by filing Form 8857.
By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. The IRS can collect these amounts from either you or your spouse (or former spouse).
You must meet all of the following conditions to qualify for innocent spouse relief.
1. You filed a joint return which has an understatement of tax due to erroneous items of your spouse (or former spouse).
2. You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax
3. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.
4. A request for innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, ex-spouse, or business partner.
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