innocent spouse relief 2 year rule changeEffective immediately, the IRS today reversed the 2-year statute of limitations on Innocent Spouse Relief equitable relief claims after the Seventh Circuit Court of Appeals ruled in favor of the IRS request to put a reasonable time limit on these relief requests last year. It seems the IRS made this policy change simply because sometimes former spouses may not know or find out about IRS collection efforts until years later.

 

Generally, when a married couple files a joint tax return both individuals are jointly and severally held responsible for the accuracy of the tax return (credits, deductions, and so forth) as well as any tax liabilities. If the couple gets divorced later, and the IRS audits the tax return and finds inaccuracies, both individuals will have to deal with the consequences (additional penalties, interest, and liabilities) in most cases. In some situations, one individual can get relieved of tax liabilities under Innocent Spouse Relief (ISR) if he or she meets specific criteria.

Before today, one spouse would have had to request Innocent Spouse Relief within two years from the time the IRS tried to collect the taxes owed. Fortunately today, the IRS changed its policy on this issue with IRS Commissioner Doug Shulman stating, “We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future.”

Innocent Spouse Relief Qualifications Broad Overview

To qualify for ISR, an individual must have filed a joint tax return that had understated tax liabilities (due to errors on the tax return). Furthermore, one spouse or former spouse filed the tax return without the relief individual (individual filing for ISR) knowing or having any knowledge of the inaccuracies at the time the tax return was signed and filed.

Summary of ISR Changes Today for Equitable Relief

  • Eliminate the 2-year time limit or statute of limitation on new equitable relief requests or current requests
  • Taxpayers who had their ISR claim denied because of the two-year rule may reapply with Form 8857
  • Collection efforts will be halted for pertinent final litigation and not apply the 2-year rule in pending litigation
For more information on this ruling see IRS Notice 2011-70.