IRS scraps two-year deadline for innocent spouse claims

The IRS is ditching a policy that gave taxpayers who were unaware their spouse was engaged in tax cheating or evasion two years to file for protection, the agency announced Monday. 

Critics of the previous time limit — which included a large group of lawmakers and the nation’s taxpayer advocate — had called it imbalanced, noting that the IRS had 10 years to try to collect unpaid taxes and arguing that unsuspecting taxpayers could easily be kept in the dark for two years by their spouses.

Generally speaking, the two-year clock for those looking to file this particular innocent-spouse claim, which is available only to joint filers, started after the IRS began its collection process.

“This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers,” Doug Shulman, the IRS commissioner, said in a statement. “We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future."

Under the new IRS policy, the usual deadlines for IRS collection and refund requests will apply to innocent-spouse claims.

In addition to scrapping the two-year limit, the IRS will also not move to collect in some innocent-spouse cases where a ruling already has been made. According to Monday’s announcement, taxpayers who had their request for protection denied solely because they did not meet the two-year deadline also can resubmit their claim, if the IRS collection window has not expired.

Nina Olson, the national taxpayer advocate, and a pair of veteran House Democrats applauded Monday's move, with Olson calling it “a welcome occasion where everyone has emerged a winner.”

"This is a huge victory that removes an arbitrary obstacle for innocent spouses, primarily women, and helps us move toward a more equitable tax system,” Rep. Pete Stark (D-Calif.), a senior member of the tax-writing House Ways and Means Committee, said in a statement.

Rep. Jim McDermott (D-Wash.), another Ways and Means member, and Stark had prodded Shulman to withdraw the two-year rule in an April letter signed by more than 45 other House Democrats.

Sen. Max Baucus (D-Mont.), the chairman of the Finance Committee, and two other Senate Democrats also called on the IRS to look into the matter, while Rep. Michele Bachmann (R-Minn.) introduced legislation this year to get rid of the two-year time limit.

The Treasury Department and the IRS installed the two-year deadline in 2002 regulations, after Congress did not set insert a time limit for this particular claim in legislation aimed at helping innocent spouses.