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IRS Changing its Stance Toward Innocent Spouses

Innocent spouses linked to those accused of tax crimes may have an easier time proving their innocence. In a statement released last month, the Internal Revenue Service announced a change in how they will evaluate "equitable relief" cases, which are situations where spouses who signed joint tax returns (along with those convicted of tax fraud) ask to be freed of joint liability for their spouse's wrongdoing.

Specifically, the IRS will now be more sensitive to situations where one spouse has abused the other (through physical, psychological or emotional abuse) or exerted "financial control" over money matters. In the past, the IRS routinely denied relief even though the requesting spouse knew the return she was signing was not correct. It now recognizes that in abuse cases, the requesting spouse (usually a woman) was in most instances not in a position to challenge false claims on tax forms or refuse to sign the return.

Previously, spouses seeking equitable relief were subject to a two-year statute of limitations. After years of work to make a policy change, National Taxpayer Advocate Nina Olson presented a letter to the IRS signed by 49 members of congress explaining that it was incorrect to use the two-year window in these cases. The IRS later rescinded the rule.

Additionally, IRS examiners will have greater discretion while weighing the various factors that determine the actions taken in such cases. In the past, examiners would assess each request by considering the negative, positive and neutral aspects of the case. If there were more negatives than positives, the request was typically denied. Going forward, relief may still be granted even if negative factors outnumber positive factors.

Source: New York Times "Innocent Spouses Get More Relief From IRS", February 11, 2012

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