IRS ends rule that hurt 'innocent spouses'

By AccountingWEB staff

A rule that disqualifies taxpayers from being considered innocent spouses if they don't file for relief within two years has been eliminated, effective immediately, the IRS announced.

These innocent spouses, who filed joint returns, may have been liable for their partner's tax debt under the old rules. The two-year deadline prevented abused women and others, who were otherwise qualified, from getting what is called equitable relief from the tax agency.

"This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers," IRS Commissioner Doug Shulman said in a published statement. "We know these are difficult situations for people to face, and today's change will help innocent spouses victimized in the past, present, and the future."

Under the old rules, IRS denied applicants who missed the deadline.

As Forbes tax blogger Robert W. Wood put it, "Up until now, the IRS required claims for innocent spouse relief within two years of first IRS collection activity. But you might have no idea the IRS was trying to collect if your spouse was concealing it! Previously, the IRS said that was too bad: two years is two years."

The Wall Street Journal reported an example of someone snagged by the provision. Cathy Marie Lantz was married to Indiana dentist Richard Chentnik, who was arrested and convicted of Medicaid fraud, resulting in a $900,000 bill from the IRS. Her husband told her he had handled the issue, so she didn't file for innocent spouse relief. He died shortly afterward. A federal appeals court came down in favor of the IRS, but the agency decided on its own to make the change.

National Taxpayer Advocate Nina Olson and a group of lawmakers have been pushing for the change. Olson called the IRS move, "a welcome occasion where everyone has emerged a winner," The Hill reported.

The IRS is encouraging taxpayers who were denied relief based solely on the two-year rule to reapply. The rule will apply to past and current cases. Even if IRS litigation over innocent spouse relief is final, the IRS may suspend collection activity.

You can read the details of the new rule.

You may like these other stories...

School tax breaks get House support as Democrats objectRichard Rubin of Bloomberg reported that the House of Representatives on Thursday voted to expand and simplify tax breaks for education as Republicans continue to pass...
Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.