IRS Changes Deadline to Seek Innocent Spouse Relief

IRS-10401When a married couple elects their filing status for federal tax purposes, they may only have in mind which option saves them the most.  Unbeknownst to many unwitting couples, however, is that, when filing jointly, each spouse also assumes liability for the total tax bill.

By way of example…

Say, for example, that Jack makes (and reports) $100,000 in wages, while Jane, his spouse, stays at home and has no income.  If they file jointly, Jane, though she didn’t make any of the income, will be jointly and severally liable with Jack for all tax due.  For some couples, this situation can leave Jane stuck holding the bag were Jack to run off.  Or, Jane may know nothing about what Jack makes or reports on their joint return, such as because of abuse.

Old two-year deadline

Both of these situations seem unfair to Jane.  The IRS recognizes this and provides an option for Jane to seek Innocent Spouse relief.  In a situation where Jane really did not know what Jack made or reported on their return, the IRS may decide, despite the joint filing status, not to hold Jane liable for any tax due.

On top of Jane showing that she did not know what Jack made or reported, the old rule also required that Jane apply with the IRS for innocent spouse relief within two years after IRS collection activities commenced.  However, this still left situations where Jane may not be aware of collection activities and then, through no fault of her own, could miss the deadline.

IRS eliminates two-year deadline

Recognizing this problem, on July 25, 2011, the IRS issued a release which indicates it is eliminating this two year deadline to seek innocent spouse relief in certain circumstances in which it would be inequitable to hold the unknowing spouse liable.  Innocent spouse relief will likely remain difficult to receive from the IRS.  However, especially in the right circumstances, the elimination of this deadline will be a benefit for taxpayers.

If you have questions about your tax situation, please call me at 415-781-4000.