New guidelines released by the IRS are intended to make equitable innocent spouse relief easier to obtain.
Revenue Procedure 2013-34 deals with the equitable innocent spouse relief available under IRC section 6015(f), and supersedes the prior Revenue Procedure 2003-61. The new procedure provides changes for the threshold requirements for equitable relief and establishes the framework under which the IRS will make streamlined relief determinations granting equitable relief from an under-reporting of income tax or an underpayment of income tax on the joint returns, or due to the operation of the community property law.
The procedure creates a streamlined process for taxpayers to utilize when requesting innocent spouse relief. The streamlined process will apply if the three requirements are met: (1) the parties are no longer married; (2) the requesting party would suffer economic hardship if relief was not granted; and (3) the requesting party did not know or did not have reason to know of the understatement of income or underpayment of tax.
The new procedure makes the third element of the process (did not know or had no reason to know) more favorable to the requesting taxpayer. Prior to this ruling, actual knowledge of an understatement or an underpayment of taxes would make the taxpayer ineligible for relief. The new procedure allows the requesting spouse to meet this equitable relief requirement by showing that the non-requesting spouse abused the spouse who is requesting relief from the IRS, or maintained control over the household finances by restricting the requesting spouse’s access to financial information, and because of the abuse or financial control, the requesting spouse was not able to challenge the treatment of any items on the joint return, or to question the payment of the taxes reported as due on the joint return.
Under section 4.01(7)(e) of the revenue procedure, relief would not be precluded for an item attributable to the requesting spouse if the non-requesting spouse’s fraud gave rise to the understatement of tax or deficiency. Section 4.04 of this revenue procedure broadens the availability of refunds in cases involving deficiencies by eliminating the rule in section 4.04(1) of Rev. Proc. 2003-61 that limited refunds in cases involving deficiencies to payments made by the requesting spouse under the installment agreement.
The new revenue procedure confirms that if the requesting spouse is applying for relief from a liability or a portion of a liability that remains unpaid, the request for relief must be made on or before the Collection Statute Expiration Date, or the date the period of limitation on collection of the income tax liability expires, as provided in section 6502. “Generally, that period expires 10 years after the assessment of tax, but it may be extended by other provisions of the Internal Revenue Code.”