Innocent Spouse Statute of Limitations Ended By IRS

The IRS has announced it is terminating its 2 year statue of limitations requirement for the innocent spouse claimant program. This is a huge benefit to innocent spouses around the country, a real change in the rules. 

What is the innocent spouse claimant program with the IRS? It is a program that allows spouses who were unaware their ex-spouse didn’t pay taxes due to escape liability for those taxes. The IRS has traditionally been a very strong believer in marriage. In fact, that strength was so strong that it assumed both spouses were communicating and acting together. If one failed to pay the tax due to the IRS, the agency would hold both spouses jointly and severally liable for the debt. 

Divorce is a nasty thing in most cases. As you know, the actions taken by individuals in a divorce can be downright brutal. Creating liabilities for one spouse by not paying taxes or running up credit obligations is something that happens a lot. Nothing screams revenge more than getting saddled with the debts of your ex. In the case of taxes, this can be a real problem because the debt never really goes away. 

After years of criticism, the IRS finally established an innocent spouse appeal method. If spouses could show they were uninvolved, then the IRS would let them off the hook. The process was very difficult and most could convince the IRS of their innocence. Eventually, the IRS created a more reasonable test and spouses who had done nothing wrong were able to escape the untoward conduct of their ex-spouses.

Alas, there was one big problem. The IRS would only allow people to claim the innocent spouse position if they did so within 2 years of the first collection activity on the unpaid tax. The problem with this approach, of course, is the spouse often is unaware of the collection efforts if the couple has split up. Given this, more than a few have asked a rather pointed question about how, exactly, someone is supposed to act on something they do not know exist!

The issue finally came to a head when taxpayers and their lawyers started filing lawsuits against the IRS. The lawsuits have been pending for some time, but the trend in them is clear. The courts seem to be coalescing around the fact the two year limitation is purely an arbitrary one used by the IRS and the courts don’t like arbitrary anything. In light of this, we now have the IRS suddenly making this announcement. 

Should the IRS get credit for loosening things up or is it only doing so because the courts are acting? I’ll leave the answer to you. What we can say is it is a good day for those seeking to claim the innocent spouse position.