Honey, I Forgot To Pay The Taxes
February 3, 2012
Recent changes in IRS regulations make it easier to file for relief from prosecution when a spouse hasn't paid the proper income taxes and the innocent spouse didn't know about the violation or couldn't stop it.
The IRS has allowed people to seek relief from a spouse's wrongdoing since 1998, but it recently extended the time limit for filing the petition. Since the law was passed, about 50,000 individuals a year claim what is known as innocent spouse relief. About 2,000 claims a year are dismissed because they aren't filed in time.
It's frequently the wife or ex-wife who asks for the protection and is often someone who has been in an abusive relationship, says Mark S. Gottlieb, principal at MSG Consultants, a forensic accounting and business valuation firm with offices in the New York City area. Gottlieb has written a paper for financial advisors, lawyers and other interested parties about the changes, entitled An Attorney's Guide to The Recent IRS Changes Regarding Innocent Spouse Relief.
There are three types of innocent spouse relief: equitable relief, where it's deemed unfair to hold the spouse responsible for nonpayment or underpayment of taxes; separation of liability relief for those divorced or separated for at least 12 months; and innocent spouse relief where one spouse had no knowledge of the activity of the other's wrongdoing.
The change made recently is for people filing under equitable relief, and it affects the time in which a spouse has to file. The new rule says the IRS will consider equitable relief as long as the collection period on the debt remains open, which can be up to ten years.
The IRS will also consider a refund to the innocent spouse of the tax for up to three years from the time a return was filed or two years from the time the tax was paid. Some other changes were made that make it possible to apply the new time lines to claims that have already been filed.
"This will provide more elements of flexibility for the non-moneyed spouse and will make it possible for the law to be fairer to that spouse," says Gottlieb.
Seeking innocent spouse relief is a method of safeguarding the innocent spouse because it separates his or her property from the spouse's in the divorce (and) any property belonging to the innocent spouse can also be protected," the report notes.