Courts continue inconsistent decisions as to validity of IRS regulation on requesting innocent spouse relief
Two-Year Limit No Longer Applies to Many Innocent Spouse Requests IR-2011-80, July 25, 2011 7/26/11
The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired.
Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.
By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.
Reg. § 1.6015-5(b)(1) requires that a spouse must request equitable relief under Code § 6015(f) no later than two years from the first collection activity against the spouse.
A divided Tax Court invalidated Reg. § 1.6015-5(b)(1), which required taxpayers seeking equitable innocent spouse relief under I.R.C. § 6015(f) to request such relief within two years of the IRS's commencement of the collection action. Lantz v. Commissioner, 132 T.C. No. 8 (Apr. 7, 2009). 4/8/09
To be eligible for relief under section 6015(b) or (c), the statute explicitly provides that the requesting spouse must elect relief not later than the date that is 2 years after the date the Secretary has begun collection activities with respect to the individual making the election. Sec. 6015(b)(1)(E) and (c)(3)(B). However, there is no such limitation in section 6015(f). " 'It is generally presumed that Congress acts intentionally and purposely' when it 'includes particular language in one section of a statute but omits it in another' ".
The Third Circuit in Mannella, 107 AFTR 2d 2011-519, 2011-1 USTC ¶50159 (CA-3, 2011), reversed the Tax Court's decision and held that the taxpayer's innocent spouse suit under § 6015(f), filed more than two years after she was notified that the IRS was initiating collection procedures against her, was untimely under Reg 1.6015-5(b)(1). The Third Circuit remanded the case to the Tax Court to allow the taxpayer to bring an equitable tolling claim. 5/30/11
The Seventh Circuit Court of Appeals reversed the Lanz Tax Court decision that invalidated Reg. § 1.6015-5(b)(1), which provides that a spouse must request equitable relief under Code Sec. 6015(f) no later than two years from the first collection activity against the spouse. Lanz v. Comm., 105 AFTR 2d 2010-2780 (7th Cir. 6/08/2010). 7/1/10
The Third Circuit citing Lanz ruled similarly in Mannella v. Comm., 2011-1 U.S.T.C. ¶50,159, (Jan. 19, 2011). 4/14/11
The Tax Court in Pullins, 136 TC No. 20, reiterated that Congress did not impose a two-year limitations period when it enacted Code § 6015(f) and the IRS should not have imposed one by regulation. 5/12/11
In Mayo Foundation (2011-1 USTC ¶50,143), the Supreme Court held that the appropriate standard of deference to review challenged regulations is the standard in Chevron USA (467 U.S. 837, 1984). Under Chevron, regulations are generally entitled to significant deference. The Tax Court in Pullins found that when it decided Lantz, it had used the Chevron standard, and concluded there was no need to reconsider Lantz in light of Mayo. 5/12/11
A number of Lantz-type Code § 6015(f) cases are scheduled for argument in the circuit courts of appeal: Coulter (Docket No. 10-680) in the Second Circuit on June 14; Jones (Docket No. 10-1985) in the Fourth Circuit on May 12; other cases pending include Buckner (Docket No. 10-2056) and Hall (Docket No. 10-2628) in the Sixth Circuit, and Payne (Docket No. 10-72855) in the Ninth Circuit. 5/12/11
Three senators wrote to Shulman on April 18, 2011 expressing concern that [t]]he two-year limitations period on claims for equitable innocent spouse relief prevents innocent spouses from receiving the relief they deserve," In a separate letter, 50 members of the House said that Congress did not intend to impose a two-year limitations period under Code § 6015(f).
Commissioner Douglas Shulman told lawmakers in an April 29, 2011 letter that the IRS is reviewing the two-year limitations period on claims for equitable innocent spouse relief.
The 4th Circuit upholds 2 year statute of limitations on innocent spouse relief 6/25/11
In Jones v. Comm., CA 4, 107 AFTR 2d ¶2011-930, the 4th Circuit Court of Appeals upheld the validity of Reg. § 1.6015-5(b)(1), applying 2-year deadline to Code § 6015(f) innocent spouse relief claims, and reversed and remanded the Tax Court decision to contrary, striking the regulation down and granting taxpayer's request for Code § 6015(f) relief that taxpayer filed outside 2-year deadline The 4th Ciruit found that Code § 6015(f) was sufficiently ambiguous to leave room for agency interpretation and that such interpretation, reflecting IRS determination that no deadline would create uncertainty and that instead 2-year timeline should apply, was reasonable. The Court rejected taxpayer's arguments that regulation was unnecessarily and inappropriately narrowed the relief that Congress had intended to provide in Code § 6015(f). However, taxpayer was entitled to be heard on her alternative argument that even if regulation were valid, she should still be given time extension under Reg. § 301.9100-3, and the case was remanded for consideration of that issue.