IRS relaxes penalties for ex-spouses of tax evaders

| 15 Feb 2012 | 09:03

    The Internal Revenue Service will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests. The change will make it possible for more people who have been separated, widowed or divorced to get relief from back taxes and penalties owed because they signed a joint tax return. The original form of “innocent Spouse” tax relief was made available to signers of a joint return who did not know or have any reason to know that there was an understatement on the return. This form of tax relief has been extended to include people who are legally separated or divorced or whose spouse is deceased. Relief may also be extended under other circumstances out of concern for fairness to the individual. A victim of spousal abuse might be covered that way, for example. “In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief,” said IRS Commissioner Doug Shulman. “This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and thechange will help innocent spouses victimized in the past, present and the future.” Following an IRS review earlier this year, the policy has been changed significantly by the elimination of a “two-year limit” on requests for innocent spouse tax relief. This means: The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency. The agency will reconsider relief requests that were previously denied solely due to the two-year limit. The IRS will automatically apply the new policy to taxpayers with cases currently in suspense so taxpayers do not need to reapply for relief. The government will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency may suspend collection action under certain circumstances. Until this change the regulations required that innocent spouse requests seeking equitable relief be filed within two years of the date the IRS first took collection action against the requesting spouse. That time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The elimination of the two-year limit is effective immediately, and details are in Notice 2011-70, posted on By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request. Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability.