Money Matters - Simplified

Prove Your Innocence, Get Income Tax Relief

Two-year rule for equitable relief is scrapped. Read on to know what it means and how it benefits you: the innocent spouse.

An “innocent taxpayer” is a taxpayer who had no knowledge of his spouse understating or underpaying income tax liability.

What Does the Change Mean
What happens in practice is that by the time one spouse comes to know about the actual tax collection, the time for equitable relief has expired. To plug the loophole, the IRS, in a burst of common sense, has scrapped the two-year rule for equitable relief.

When your spouse underpays or understates his or her income tax liability, you are not held responsible, if you prove your innocence as stated by the IRS.

The revenue and tax authority has changed the law to relieve the innocent spouse of accountability for joint tax liability. The change, effective immediately, lifts the two-year limit for certain provisions of innocent spouse relief request. The change applies to future claims and to claims rejected in the past.

However, as Robert W. Wood, the tax lawyer, says on Forbes blog, “The two-year rule for innocent spouse claims under other provisions continues to apply.”

And also, he continues, “If your equitable relief request was previously denied just because of the two-year limit, you can reapply as long as the tax statute of limitations is still open.”

The Guilty Spouse Targeted
If you don’t know or have no reason to know the happenings on tax front, you are out of the red; the IRS now hunts for those who are truly responsible.

The quotes Paul Talbert, a partner at the matrimonial law firm Chemtob Mass Forman & Talbert, as saying: “Often one spouse has little to no understanding of the family’s finances. Often she or he has no reason to know about tax fraud until divorce is started or he or she is in lawyer’s office reviewing financial documents. This change in the law allows the IRS to go after the people truly responsible for the fraud and spares the innocent victims.”

Another benefit is if your request for equitable relief was previously denied due to two-year limit, you can reapply for the same. You will have to see to it that, as writes, “the collection statute of limitations for tax years has not expired.”

Proving your innocence of your spouse’s income tax status is the prerequisite for getting tax relief. Washington Post’s Michelle Singletary says on this, “You have to establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understatement of tax.”