IRS Expands Relief Available to Innocent Spouses Under Proposed Guidelines

The IRS has issued a proposed Revenue Procedure that would modify the requirements for when a spouse may seek equitable relief from tax, interest and penalties owed on a joint return as a result of actions of the requesting party’s spouse.

 Generally, each spouse is liable for all tax, interest and penalties arising from a joint return. In certain circumstances, “innocent spouse relief” may apply to relieve one spouse from a tax deficiency due to the actions of the other. Prior to the newly issued guidance, one of requirements for the innocent spouse to request relief was that the item of income giving rise to the tax liability must be sourced to the non-requesting spouse. The proposed procedure provides a new exception to this requirement and allows for relief  when the non-requesting spouse’s fraud gave rise to the understatement of tax or deficiency.

 If a taxpayer owes a tax deficiency due to the actions of his or her spouse or former spouse taken on a joint return, even if the income item is that of the taxpayer, the taxpayer should consider evaluating the ability to seek innocent spouse relief.