Tuesday, July 26, 2011

Freedom for the Innocent: IRS Relaxes Innocent Spouse Relief Qualifications

The IRS, in a dramatic announcement yesterday, finally repealed the regulations prohibiting the consideration of an application for innocent spouse relief made more than two years after the IRS’ initial attempt at collection. The new rule permits taxpayers to apply for innocent spouse relief at any time during the statute of limitation for the collection of a tax liability, which usually lasts 10 years.

Pursuant to Section 6015 of the Internal Revenue Code, a taxpayer may seek relief from joint and several liability associated with filing joint returns in certain circumstances. Under subsection (f), a taxpayer could seek equitable relief from understatements and underpayments when relief is not otherwise available. This section allows the IRS broad power to reduce or eliminate certain penalties when an appropriate case presents itself. However, this relief was dramatically limited by the Treasury Regulations, which placed a two-year window in which a taxpayer may seek such relief.

As part of the announcement, the IRS also stated that previously rejected applications for innocent spouse relief would be reconsidered, as long as the taxpayer re-files the IRS Form 8857 and the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will automatically fall under the new rule and do not need to reapply. Further, the IRS will not apply the two year limitation in pending litigation, and may suspend collection on certain judgments.

If you believe you may qualify for relief pursuant to the innocent spouse rules, download and file IRS Form 8857 found at http://www.irs.gov/pub/irs-pdf/f8857.pdf.

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