IRS Tax Relief - IRS Makes Changes to Innocent Spouse -- IRS Help -- Innocent Spouse or Offer in Compromise
OFFER in COMPROMISE
There is a "Good News" announcement regarding the Innocent Spouse program by the IRS.
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The Internal Revenue Service (IRS) is giving some relief to an "innocent spouse" who otherwise may have been liable for a partner's back tax debt.
Effective immediately, the IRS has eliminated a rule that disqualifies taxpayers from innocent-spouse status if the "innocent spouse" has failed to file for relief within two years. This had been a provision that snagged people who otherwise qualified, including abused women.
"Today's change will help an innocent spouse victimized in the past, present and future," said IRS Commissioner Doug Shulman.
The agency's shift was welcomed by others who pushed for it, including National Taxpayer Advocate Nina Olson. Recently, the IRS had won federal appeals court cases involving the two-year deadline.
The change by the IRS affects taxpayers applying for so-called equitable relief, a category open to taxpayers who don't meet strict requirements of other provisions in the innocent spouse law.
An Internal Revenue spokesman said the IRS receives about 50,000 requests under the innocent spouse provision a year, although the number of actual taxpayers is smaller because a taxpayer often requests relief for more than one year. Many of these petitioners are women who are under financial pressure, and some have been abused.
Until the change, the IRS denied applicants who missed its deadline of two years after the first collection notices sent by the agency. But most taxpayers didn't know about the notices or the possible tax relief, and others feared a spouse's reaction.
An example of a past innocent spouse relief petition is the Cathy Marie Lantz case. Last summer, a federal appeals court upheld an IRS argument for the two-year deadline in the case of Cathy Marie Lantz, the former wife of an Indiana dentist. In 2000, her husband, Dr. Richard Chentnik, was arrested and convicted of Medicaid fraud, resulting in a $900,000 bill from the IRS. Ms. Lantz didn't file for innocent spouse relief because Dr. Chentnik told his former wife he had taken care of the back tax debt. He did not take care of the tax liability and he died shortly afterward.
IRS officials said the change to their innocent spouse policy will apply to past as well as current cases. In its announcement, the Internal Revenue Service (IRS) invited all taxpayers who were denied tax relief, solely because of the two-year limit, to reapply for innocent spouse protection. IRS officials also said they wouldn't apply the two-year rule to pending litigation and might suspend collections in cases the IRS has won in court.
Experts say the elimination of the two-year deadline may be the first of more IRS revisions to the innocent-spouse rules.
“In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief,” said IRS Commissioner Doug Shulman. “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 launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:
- The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
- A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
- The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.
- The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on IRS.gov.
Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The Internal Revenue Service (IRS) plans to issue regulations formally removing this time limit.
By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.
Innocent Spouse Relief is available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.
BEFORE YOU GET
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The IRS did not become "warm and fuzzy" overnight. Until we, at Flat Fee Tax Service, Inc., see if these rule changes actually result in any meaningful rulings that will help a spouse with their tax liability, we have reservations. At this time, Flat Fee Tax Service, Inc. will continue to recommend that the Offer in Compromise program be the choice for your Tax Relief for everyone who is struggling financially.
You should know that just because the IRS has succumbed to pressure and has changed the filing requirement for a Innocent Spouse relief, doesn't mean it will be any easier to obtain a favorable innocent spouse ruling.
An Offer in Compromise is based on a formula that takes into account a taxpayers ability to pay back a tax debt. If you cannot pay the IRS and it doesn't appear that your financial position is going to change "any time soon", the fastest way to a fresh start most likely will be through an Offer in Compromise.
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In our effort to get you the best tax resolution deal possible, Flat Fee Tax Service, Inc. will look at every possible angle and rule available to you. We will leave "no stone unturned" in our effort to help you.
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