When spouses sign a joint tax return, they are both stating that what is included on the return is correct. They are also agreeing that they are jointly liable for any tax debts that may arise. Problems often arise,however, when one spouse handles all the couple’s finances, earns unreported income and then prepares the tax return and the other spouse–the “innocent” one–blindly signs the return without question. Years later there may be a divorce or separation and the “innocent” spouse finds herself with a massive tax bill based on the joint return. In such a circumstance, the law allows the innocent spouse to seek relief and avoid all or part of the tax liability.
This week, the IRS issued proposed regulations extending the statute of limitations from two years to ten years for taxpayers to request innocent spouse relief from joint liability. The old regulations required that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. If a taxpayer’s equitable relief innocent spouse request was previoulsy denied solely due to the two-year limit, the taxpayer may reapply using IRS Form 8857, Request for Innocent Spouse Relief.