Tuesday, January 31, 2012
If you file a joint income tax return with your spouse, even though the IRS can only collect the tax once, legally, each spouse can be held liable for the full amount of the tax. The Internal Revenue Code provides some relief for spouses where it would be inequitable to hold the spouse liable for the return. The IRS can grant relief in some circumstances and they consider the following 8 circumstances:
- Marital status
- Economic hardship
- Knowledge or reason to know
- Nonrequesting spouse’s legal obligation
- Significant benefit
- Compliance with income tax laws
- Mental or physical health.
Rev. Proc. 2003-61 says that these factors are nonexclusive and that other factors could be considered in deteriming applications for equitable relief. In practice however, the IRS and the U.S. Tax Court have only applied the 8 factors listed above. Economic hardship is the hardest factor to prove.
The IRS has recently revealed Notice 2012-8, which gives spouses ten years to file for innocent spouse relief. The spouse previously had to file the application within two years after the IRS first tried to collect the joint liability in question. The notice also relaxes the proof requirements for marital status, economic hardship, abuse, and significant benefit. With these new requirements, the IRS has lowered the bar to obtain a grant of innocent spouse relief, so spouses should apply again for relief if the ten-year collection statute has not expired on the taxes at issue.
See Stephen J. Dunn, IRS Lowers Bar, Forbes, Jan. 29, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.