While IRS tax Form 8857, Innocent Spouse Relief, hasn’t changed, the IRS announced a more relaxed timeline for its submission. Our prior posting on Form 8857 predicted this. Tax courts felt the two year limitation on Innocent Spouse Relief was restrictive. The IRS acquiesced, and in my opinion, turned a necessity into a PR virtue.
Form 8857, Innocent Spouse Relief Overview
Form 1040 carries potential financial and even criminal repercussions. During separation or divorce, one spouse may want to dissociate from a prior Married Filing Jointly tax return, and submits Form 8857 requesting Innocent Spouse Relief. The basis for innocence is subjective and established through four pages of intimate questions supplemented by non-financial documentation. Here’s a prior posting on general divorce tax issues.
Form 8857 Probably Deserves CPA Preparation
Our posts advocate self tax preparation when appropriate. But due to the potential financial and legal consequences, and inherent complexities of Form 8857 itself, we feel professional CPA preparation is prudent.
Predicting Taxation Changes
CPAs watch the trends in tax law via tax court cases and Private Letter Rulings. Sometimes we can exploit a gray area before it becomes a Tax Regulation. In the case of Innocent Spouse Relief, millions of tax dollars escaped the IRS by challenging the two-year timeline of Form 8857 before it became official.
We’re a CPA firm with a Virtual Office that expands our Wilmington NC Geographical Base
Please read a few postings to evaluate our expertise and proactive philosophy. We offer a free initial CPA phone consultation on Form 8857 or any tax issue. (910) 399-2705.
Here’s the cut and pasted IRS announcement.
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 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.
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.
While IRS tax Form 8857, Innocent Spouse Relief, hasn’t changed, the IRS announced a more relaxed timeline for its submission. We predicted this in our prior posting on Form 8857. Tax courts felt the two-year limitation on Innocent Spouse Relief was restrictive. The IRS acquiesced, and in my opinion, turned a necessity into a PR virtue.
