This week, a new Revenue Procedure was released which makes the process for filing for equitable innocent spouse relief even easier. The new procedure deals with the equitable relief available to taxpayers under IRC §6015(f) and §66(c). Rev. Proc. 2013-34 changes innocent spouse procedures in three key aspects.
First, the Rev. Proc. creates a streamlined process for taxpayers to utilize when requesting innocent spouse relief. The streamlined process will require that three requirements are met. First, the parties must no longer be married. Second, the requesting party must show that they would suffer economic hardship if relief was not granted. Finally, the requesting party must that for §6015(f) relief, that they did not know or have reason to know of the understatement of income or underpayment of tax. For those in community property states who are seeking relief under §66(c), the third prong is satisfied with a showing that the requesting spouse did not know or have reason to know of the existence of community property income.
Second, the new procedure gives more leeway in the third requirement of the streamlined process. Prior to this ruling, it would be a damaging blow to the requesting spouse if they had actual knowledge of an understatement or an underpayment of taxes. The new procedure allows for a spouse to meet the third prong of the equitable relief requirement by showing that the non-requesting spouse controlled the finances by restricting access to the couple’s financials and that the requesting spouse could not challenge the correctness of the tax return or the payments of taxes due to fear of abuse or retaliation.
The third and final major provision of the procedure deals with refunds to spouses requesting innocent spouse relief. Prior to the new procedure, an innocent spouse could only recover funds paid by the requesting spouse under an installment agreement. Now, a requesting spouse can receive refunds in both underpayment and understatement cases that he or she paid after July 22, 1998, regardless of method of payment.
As discussed in a previous article, the IRS and Treasury have been progressively taking steps toward making the innocent spouse relief process more taxpayer-friendly. This new procedure certainly echoes that sentiment.