March 2012

IRS Discontinues Two-Year Time Limit for Innocent Spouse Relief Requests

The IRS has issued guidance* under IRC Section 6015(f) relating to the requisite timeframe during which a spouse must file for equitable innocent spouse relief. In reversing its prior position, the IRS states that it will no longer deny an individual’s request for relief merely because the request was filed more than two years after the IRS first acted to collect the liability from the individual.

Background

Generally, each spouse is jointly and severally liable for the tax, interest and penalties arising from filing a joint federal income tax return. IRC Sec. 6015(f) allows relief to a petitioning spouse, if, upon taking into account all the relevant facts and circumstances, it would be inequitable to hold that individual liable.

While IRC Secs. 6015(b) and (c) -- relating to innocent spouse and separate liability relief -- explicitly require that a requesting spouse elect relief no later than the date that is equal to or less than two years after the date the IRS began collection activities against the individual making the election, no such limitation is imposed with respect to IRC Sec. 6015(f). However, IRC Regulation Section 1.6015-5(b)(1) provides that a spouse requesting equitable relief must do so by filing Form 8857 (or a similar statement) with the IRS no later than the two-year period in keeping with the above-stated rule.

The Tax Court has recently -- and repeatedly -- invalidated Reg. Sec. 1.6015-5(b)(1). However, several of the federal circuit courts -- the third, fourth and seventh circuits -- have rejected the Tax Court’s view.

New Standard

The IRS will amend Reg. Sec. 1.6015-5(b)(1) to provide that individuals requesting equitable innocent spouse relief under IRC Sec. 6015(f) don’t have to submit a request for equitable relief within two years of the IRS’s first collection activity against the requesting spouse with respect to the joint tax liability. Individuals may rely on Notice 2011-70 pending modification of the regulations to formally remove the two-year deadline for requests for equitable relief.

Under the guidance, the IRS indicated that it will consider a request for equitable innocent spouse relief to be timely if it was filed with the IRS during the IRC Sec. 6502 period of limitation on collection or, for any credit or refund of tax, within the IRC Sec. 6511 period of limitation.

A taxpayer who has been denied equitable innocent spouse relief solely because he or she ran afoul of the two-year filing requirement may reapply for relief by filing IRS Form 8857, Request for Innocent Spouse Relief.

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*IR 2011-80; Notice 2011-70, 2011-32 IRB