The innocent spouse relief policy is an opportunity for individuals to be relieved of any liabilities, interest or penalties as result of filing a joint return with a current or ex-spouse. If a joint return is filed incorrectly or fraudulently, the IRS is authorized to prosecute each spouse individually. In addition, the IRS has a 2-year statute of limitations on filing a claim for innocent spouse relief, meaning that after 2 years, a spouse (or ex-spouse) is not eligible for this aid.
Cathy Marie Lantz received a $928,111 tax bill from the IRS as a result of Medicaid fraud committed by her ex-husband. Ms. Lantz signed a joint return with her husband, which therein made her liable towards any penalties and interest associated with her return. According to Ms. Lantz, she was not aware of her husband’s intentions to defraud the IRS. When Ms. Lantz filed for innocent spouse relief to the IRS, she was denied because it was beyond the 2-year statute of limitations. However after five years of legal battles, the IRS dropped the case and granted her relief of the immense tax bill.
The IRS reversed their prior decision due to new adjustments to the relief policy. Within this past year, the IRS has implemented a massive shift in the policy to accommodate more victims of dysfunctional marriages. Most notably is eliminating the 2-year statute of limitations for filing as an innocent spouse. This means there is an indefinite time period past filing the return where the spouse can file a claim with the IRS. Policies regarding equitable relief have been more lenient as well. In the past, a spouse would be ineligible for filing for equitable relief if he or she knew that the tax returns were false. However, the IRS has adjusted their policies to accommodate spouses in abusive marriages where one spouse is not only threatening but manipulative of their spouse’s finances and physical and mental health.