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October 03, 2012

Innocent Spouse Relief Update: IRS Lifts Two-Year Limit on Innocent Spouse Claims

If you are married, you are likely filing a joint U.S. federal income tax return with your spouse to take advantage of the benefits this filing status allows.  Did you know that filing a joint return means that the obligation to pay the tax liability is on both spouses, regardless of who earned the income?  This obligation is known as joint and several liability.  In signing a joint return, both spouses are held responsible for all taxes, interest, and penalties that may be due.  If you have been contacted by a revenue officer with the Internal Revenue Service, you may be surprised to learn that you are liable.  Revenue officers are in charge of collecting past due tax liabilities for the IRS.  Relief from liability for the tax, interest, and penalties on a joint return can be granted by the IRS if you qualify as an "innocent spouse" under the tax laws.  As tax lawyers in Columbus, Ohio, we often encounter situations where requesting innocent spouse relief makes sense.  This article focuses on the recent developments in tax law for requesting innocent spouse relief. 

Innocent Spouse Relief: A Primer

Innocent spouse relief falls under one of three categories.  First, relief can be requested under § 6015(b).  Pursuant to § 6015(b), innocent spouse relief is available to the requesting spouse if: (i) a joint return was filed for the years for which relief is requested; (ii) an understatement of tax attributes to erroneous items of the non-requested spouse; (iii) the requesting spouse establishes that he/she did not know and had no reason to know of the understatement at the time the return was signed; (iv) it would be inequitable to hold the requesting spouse liable for the deficiency in tax attributable to the understatement considering all the facts and circumstances; and (v) the requested spouse files a request for innocent spouse relief no later than two years after the date the Service has begun collection activities against the requesting spouse.

Second, relief can be requested under § 6015(c). Pursuant to §6015(c), innocent spouse relief is available to the requesting spouse under this section if (i) a joint return was filed; (ii) there is an unpaid deficiency attributable to items of the non-requesting spouse; (iii) taxpayers must be divorced, widowed, legally separated, or living apart for 12 months preceding the election; (iv) the requesting spouse must not have actual knowledge of the item or items giving rise to the deficiency; (v) the requesting spouse has the burden of proving how the deficiency should be allocated (the requesting spouse must prove items giving rise to the understatement are attributable to the non-requesting spouse); (vi) there can be no fraudulent transfer of assets; (vii) there can be no transfer of “disqualified” assets; and (viii) the requesting spouse applies for relief no later than two years after the date of the Service’s first collection activity, with respect to the requesting spouse.

Third, relief can be requested under § 6015(f) for unpaid taxes or deficiencies for spouses who are not eligible under the two previously mentioned provisions.  Equitable relief allows the IRS to review the facts and circumstances and grant relief where it appears that holding the innocent spouse liable for unpaid taxes would be inequitable.  The same two-year limitation on claims for innocent spouse relief applies to § 6015(f).

IRS Abandons Two-Year Requirement in § 6015(f) Cases

In July of 2011, the IRS issued Notice 2011-70 indicating that it will no longer require spouses to submit requests for equitable relief within two years from the date the IRS begins initial collection activity against the requesting spouse.  If you are contemplating filing a future request for innocent spouse relief, you can now file the request without regard to when the first collection activity was taken.  Requests must be filed within the period of limitation on collection in § 6502 (generally 10 years after assessment) or, for any credit or refund of tax, within the period of limitation in § 6511 (generally 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later).

Contact Nardone Law Group, LLC

Nardone Law Group represents individuals and businesses in federal tax issues, including spouses filing requests for innocent spouse relief. Revenue officers with the Internal Revenue Service are responsible for and in charge of collecting past due taxes.  If you think you have a claim for innocent spouse relief, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including innocent spouse relief. Contact us today for a consultation to discuss your case.

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October 03, 2012

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