On January 10, 2019 Governor Baker signed into law an amendment to the Massachusetts Innocent Spouse Law (GL c. 62C, § 84) which provides for more congruence with the Internal Revenue Code.
Previously, the law provided only an up-or-down result based on four rigid factors, namely if:
(i) the understatement is attributable to erroneous items of the other individual filing the joint return;
(ii) the individual seeking relief from the liability establishes that, in signing the return, the individual did not know, and did not have reason to know, that there was an understatement;
(iii) taking into account all the facts and circumstances, it is inequitable to hold the individual seeking relief from liability liable for the deficiency in tax for such taxable year attributable to the understatement; and
(iv) the individual seeking relief from liability elects, in such form as the commissioner may prescribe, the application of this provision not later than 2 years after the commissioner has begun collection activities, as defined by the commissioner, with respect to the individual making the election.
Previous law has been retained. In addition, a second subsection has now been added, allowing an innocent spouse to pay tax only on that portion of a tax deficiency properly allocable to him or her.
The amendment also—and most importantly—provides a third subsection granting the commissioner equitable powers to relieve a taxpayer of liability even if the taxpayer does not qualify for relief under the first two subsections.
The language reflected in the second and third subsections has been part of the Internal Revenue Code since 1998.
Because of the prior limitations in the General Law, there was the potential for taxpayers to reach different outcomes with the IRS and the Massachusetts DOR. Hopefully, this amendment will reduce such disparities going forward.
The amendment to the Innocent Spouse Law has been in process since early 2015 and it is due to the thorough and tireless work of the members of the MBA Taxation Law Section Council and MBA leadership that this amendment has been enacted.