The IRS has made a historic removal of a two year limitation rule the Innocent Spouse Relief starting July 2011. This removal of the 2-year rule applies for most qualifying taxpayers seeking to get protection under the relief. Prior to this tax code change, those seeking to be relieved from tax obligations through the Innocent Spouse Relief had to do so within two years from when the IRS contacted the spouses for collection. In practice, many spouses who were innocent to the tax liability because they were either unaware of the due taxes or were in abusive marriages (and could not refuse signing because of duress or pressured influence) could not qualify for relief because of the time limitation. One reason for this is that if the IRS contacted the “guilty” spouse for collection, he or she may conceal this from the other “innocent” spouse and thus, the innocent spouse would remain unaware of the collection process. When the “innocent spouse” finally becomes notified of the back taxes being collected, often times, it would be past the two year time limit and therefore, too late to claim the relief. However, with the removal of the 2-year time limit, many innocent spouse will now get their relief with no time constraints.
Time Limit Still Applies for Some
The IRS however, maintained that the two year rule will still apply for spouses who became aware of the IRS collection within the two year time frame and did not take any action. This rule however, will not apply for any spouse who is or was in an abusive marriage.
About Innocent Spouse Relief
The Innocent Spouse Relief is a tax relief provided to spouses who file taxes jointly with their partner. The current rules for the relief were introduced into the tax code in 2002. According to the tax code, when a couple files taxes jointly, they are both held responsible for the information in the tax return and should an issue arise from the tax return, they are both held liable individually (and the IRS can collect the back taxes from either or both of the spouses). However, under the Innocent Spouse Relief, if a spouse is unaware of false information claimed on the tax return (and the IRS discovers the false information in the returns), the spouse can be absolved from the consequential tax liability that may arise. The innocent spouse will need to file IRS Form 8857- “Request for Innocent Spouse Relief Form” and provide an explanation of their innocence in the tax liability. If there is enough evidence to show that the spouse could have been unaware of the due taxes or forced to sign the tax returns against his or her will, the IRS will relieve the spouse of the taxes due.
The Scope of the Relief
The IRS receives on average about 50,000 Innocent Spouse Relief applications every year. They however, reject close to 2,000 applications for the lapsing of the two year limitation. However, with this new inclusion to the tax code, many of these victims will now receive justice and get the relief. The IRS has stated that this new rule will take effect immediately and any cases that are still under review will now be considered under this new rule. Any spouse who had been denied the relief because of the time limitation prior to the announcement can now reapply for the relief.
Action towards Removal of the Time Limitation
The removal of the time limitation on the Innocent Spouse Relief came after a spirited campaign by politicians and activist groups. The opponents of the former two year rule argued that the limitation cut off many innocent spouses from getting justice. Earlier in 2011, a group of House Democrats wrote a letter to the IRS commissioner, seeking the IRS remove the two year time limit. This followed many debates and discussions on Capitol Hill and the media that sort to have the IRS remove this rule. After all of these tremendous efforts, the changes have come as a welcome relief to many.
