New York Follows IRS in Eliminating Two Year Time Limit on Innocent Spouse Equitable Relief Claims

The New York Department of Taxation and Finance recently announced that it will follow the IRS and eliminate the two year time limit for innocent spouse equitable relief claims.

For federal tax law purposes, a taxpayer can request innocent spouse relief by any of three methods:  (1) making a timely election within two years from the date the IRS has begun collection activities (and meeting other requirements), (2) electing to allocate a tax deficiency in proportion to each spouse’s contribution to the deficiency, or (3) by petitioning the IRS for “equitable relief” when relief is not available under the first two alternatives if it would be inequitable under the circumstances to hold the spouse liable.

Pursuant to 2002 regulations, an innocent spouse equitable relief claim (the third method above) had to be made within two years of the date that the IRS began collection activities.  But in July, 2011, the IRS repealed this requirement.  Notice 2011-70.

New York has similar innocent spouse rules.  New York Tax Law §654.  On September 27, 2011, New York announced that it will follow the IRS’ lead and also will eliminate the two year time limit on innocent spouse equitable relief claims.  TSB-M-11(11)I.  This change may apply to pending and past innocent spouse claims as well.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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