IRS Rule Change Benefits Innocent Spouse Claimants

The spouses of accused tax cheats can rest a little easier, thanks to a rule change by the Internal Revenue Service that would eliminate the two-year time limit for filing “innocent spouse” claims.

The IRS offers innocent spouse relief to those who believe they should not be held responsible for the tax mistake or outright fraud of their spouse that resulted in a debt. Taxpayers who file a joint return are under the law liable for the debt on their return. In worst case scenarios, spouses could be responsible for the entire debt even if they did not earn money that year or the debt belonged to their husband or wife.

Under the previous rules, the innocent spouse had to file for relief within two years after the IRS first stared taking collections. According to the IRS, this time limit was designed to encourage “prompt resolution while evidence remained available.”

However, relief was available to spouses who could establish that they were unaware of the fraud or mistake. The IRS also considered the spouse’s financial or health situation, whether the couple was divorced or legally separated or lived apart in the past year, or possible domestic violence.

The rule change allows spouses were previously denied relief because of the two-year limit to reapply to the IRS using Form 8857, Request for Innocent Spouse Relief (if the statue of limitations for the tax years involved has not expired)

The IRS received about 50,000 innocent spouse applications a year. Of these, 2,000 are rejected because they were submitted beyond the two-year period. The National Taxpayer Advocate, an independent organization within the IRS that helps taxpayers in economic distress, advocated the change (as did a group of 48 House Democrats who last April submitted a letter to IRS Commissioner Doug Shulman to eliminate the two-year deadline).

“In practice, many individuals who otherwise qualified for equitable innocent spouse relief had no idea the IRS had initiated collection activity because the other spouse had concealed that information,” Nina E. Olson, who runs the National Taxpayer Advocate, said in a statement. “As a consequence, it was impossible for these individuals to bring a claim for relief before the two-year deadline to obtain consideration of the merits of their claims.”