IRS eases liability rule for spouse's tax debt

AP News
Posted: Jul 25, 2011 6:24 PM
IRS eases liability rule for spouse's tax debt

The Internal Revenue Service is making it easier for some "innocent spouses" to escape responsibility for the tax debt of their husband or wife.

Under the law, taxpayers who file joint returns are generally liable for the tax debts of their partners. However, spouses may qualify for relief if they didn't know their partner was cheating on their taxes, or didn't participate in the scam. In some cases, spouses can escape responsibility if they can prove they were in abusive relationships and didn't believe they had an option not to sign a return.

The IRS has required innocent spouses to apply for relief within two years of the agency starting a collection action. On Monday, the IRS eliminated the two-year time limit for some applications after lawmakers and advocates complained that many abused or divorced spouses may not become aware of IRS collection efforts for years.

"These are taxpayers, most often women who are in abusive situations, who find themselves in tax debt to the IRS through no fault of their own," said IRS Commissioner Doug Shulman. "They still need to prove that they didn't know about this situation, they weren't complicit in the situation, that they really were an innocent victim."

To qualify for relief, taxpayers must apply for an "innocent spouse" designation. There are several types of taxpayers who can qualify for the designation, and some will still have to abide by the two-year time limit. Those include taxpayers who were simply unaware that their spouse had failed to report income, but found out about IRS collection efforts within the two-year limit.

Among those who may be eligible for additional time are spouses in abusive relationships or those who had no reason to believe their spouses didn't pay the tax bill and were never notified about IRS collection efforts.

For these people, the IRS said it will no longer apply the two-year limit on new applications or pending ones. People who had their applications denied in the past because of the time limit can reapply, the agency said.

The IRS receives about 50,000 innocent spouse applications a year. About 2,000 are rejected each year because they didn't meet the deadline for applying, though the IRS says some of those applications might have been rejected for other reasons.

Nina E. Olson, the National Taxpayer Advocate, has advocated the change for years, arguing that the time limit hurt people who had been misled or intimidated by their spouses.

"In practice, many individuals who otherwise qualified for equitable innocent spouse relief had no idea the IRS had initiated collection activity because the other spouse had concealed that information," said Olson, who runs an independent office within the IRS. "As a consequence, it was impossible for these individuals to bring a claim for relief before the two-year deadline to obtain consideration of the merits of their claims."

In April, a group of 48 House Democrats sent Shulman a letter urging him to eliminate the two-year deadline.

"It is critical that taxpayers who are the victim of fraud are given the strongest protections possible under the law," said Rep. Jim McDermott, D-Wash., one of the lawmakers who helped circulate the letter. "Today's decision is a victory for fairness and will provide innocent taxpayers with enough time to seek the relief that they deserve."