IRS Repeals Two-Year Window on Innocent Spouse Claims

When married taxpayers decide to file a joint tax return, they both become 100 percent liable for any and all tax balances that are shown on that return. If the IRS later audits the return and imposes additional tax, the liability is again extended evenly among both spouses.

But what if a spouse signs a joint return, then divorces and years later the IRS assesses additional tax because your ex-husband "forgot" to include income from his side job?

In order to combat blameless spouses from being unduly harmed by the actions of the other, the IRS has provisions in place whereby one party can seek Innocent Spouse Relief. If granted, the innocent party is no longer held liable for the tax balance and is not made responsible for repayment.

Under new provisions that have been recently rolled out, the IRS has eliminated the stipulation that called for the claim to be filed within a two-year window. Previously, if over two years had passed since the IRS started to collect the debt, any Innocent Spouse claims would be rejected.

"In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief," said IRS Commissioner Doug Shulman in his July 25 press release. "This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. 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."

The IRS says that the repeal of the two-year window will be retroactive, and any taxpayers who had previously applied for Innocent Spouse Relief but were denied solely due to the two-year limit should now reapply.

Taxpayers seeking Innocent Spouse Relief should file Form 8857 with the IRS. Although the two-year window to file has been eliminated, taxpayers are still encouraged to submit a claim as soon as they become aware of a tax balance that they feel they are not responsible for.

Once the Form 8857 is filed, the IRS will contact the other spouse so that they can also participate in this process. The IRS is required to inform your spouse or ex-spouse of your claim, but will not reveal any personal or entity information to them, such as any new address or contact number.

In order to qualify for potential Innocent Spouse Relief, taxpayers must:

• Have filed a joint tax return with their spouse
• Show that the understatement of tax was the sole responsibility of the other spouse
• Or demonstrate that when you signed the return, you had no knowledge of the fact that a balance was owed to the IRS

More from this Contributor:

How to determine if you qualify for Innocent Spouse Relief

How to determine if you qualify for Injured Spouse Relief

How should alimony payments be treated for tax purposes?