Tax practitioners, legislators and taxpayer advocates said the IRS’ announcement that it would no longer require taxpayer requests for innocent spouse equitable relief under IRC § 6015(f) to be made within two years of the beginning of collection activity was a long overdue change.
“It’s not surprising at all; the sad thing is that this could have been predicted,” said Carlton Smith, clinical associate professor of law in the Benjamin N. Cardozo School of Law in New York City and director of the school’s Tax Clinic. “I think it has been almost inevitable that there were going to be cases ending up with horrible fact patterns, mostly involving women, amid compelling circumstances that would make it almost impossible for the IRS to maintain its position,” Smith said.
On Monday, the IRS issued Notice 2011-70, saying it will now consider taxpayer requests for relief from liability on jointly filed returns under section 6015(f) at any time consistent with other applicable statutes of limitation.
In so doing, the Service renounced its long-held position, set out in Treas. Reg. § 1.6015-5(b)(1), that despite the lack of a statutory time limit in section 6015(f), the same two-year limit for filing applies to it as under the provisions for general innocent spouse relief of section 6015(b) and separation of liability under section 6015(c). Three appellate courts have upheld the rule, although the Tax Court has several times held the regulation invalid. In the notice, the IRS said it will remove the two-year limit from the regulation, and it described how taxpayers may seek relief in the interim.
Smith credited the work of National Taxpayer Advocate Nina Olson, who, at least since 2006, has made revising the rule a top priority in her semiannual reports to Congress on tax policy affecting taxpayers and taxpayer burdens. Olson issued a statement Monday commending IRS Commissioner Doug Shulman for stepping in to change the policy, as well as local advocates in the Taxpayer Advocate Service, taxpayers and members of Congress who advocated the change.
In an IRS news release, Shulman said the need for the change had become clear to him in recent months.
"This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers,” he said. “We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future."
The IRS said in the notice it would take appropriate action consistent with the notice with respect to pending litigation. On Monday, citing the notice, a government lawyer filed a request for a dismissal of a case in the Second Circuit Court of Appeals of Heather L. Coulter (docket no. 10-680), for whom Smith is co-counsel. Smith said he expects similar action will be taken in pending cases in several other circuits and in the Tax Court, where the most recent circuit court win by the IRS has been remanded.
Smith said he estimates, based on inquiries by Olson—the IRS does not track the number—that the IRS receives about 50,000 innocent spouse requests annually, of which Monday’s change affects probably about 2,000 each year.
In April, 49 U.S representatives led by Reps. Pete Stark, D-Calif., and Jim McDermott, D-Wash., wrote Shulman to urge the review that led to the change. In addition, Senate Finance Committee chairman Max Baucus, D.-Mont., and committee members Tom Harkin, D-Iowa, and Sherrod Brown, D-Ohio, also wrote to Shulman in April asking for the IRS review. In a press release, Rep. McDermott called the IRS's decision “a victory for fairness.”
Also in April, Reps. Michele Bachmann (R-Minn.) and Michael Fitzpatrick (R-Pa.) reintroduced a bill to revise section 6015(f) to say that a request under it carries no time limit.
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