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Gregory S. DuPont Oct. 8, 2019

The Internal Revenue Service (IRS) announced in July 2011 that it will “extend help to more innocent spouses” who were unaware that their husband or wife understated or underpaid taxes on their jointly filed returns by eliminating the two-year time limit that had previously applied to equitable relief requests under section 6015(f) of the tax code. To date, the IRS receives about 50,000 innocent spouse relief requests annually. Innocent spouse relief is designed to help married or divorced taxpayers who did not know that their spouse understated or underpaid an income tax liability on the couple’s joint return. Those taxpayers who qualify for the relief are freed from the responsibility of paying tax, interest, and penalties for the actions of their spouse. The equitable relief provision is a category available to taxpayers who fail to meet the stricter requirements of other provisions of the innocent spouse law.

Under regulations adopted in 2002, innocent spouse requests seeking equitable relief had to be filed within two years after the IRS first takes collection action against the requesting spouse. This time limit was designed to encourage prompt resolution while evidence remained available. However, taxpayers filing these claims have frequently argued that they were unable to seek relief within two years because they were either unaware of the collection notices or feared taking action due to a threatening or abusive spouse.

Under the new rule, 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, provided the collection statute of limitations for the tax years involved has not expired. However, taxpayers with cases currently held in suspense will be automatically afforded the new rule, and should not reapply. Additionally, the two-year limit will not be applied in any pending litigation involving equitable relief, and collection action may be suspended under certain circumstances even in cases where litigation is final.

Although the IRS plans to issue regulations formally removing this time limit, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the tax code continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

The announcement effectively reverses multiple appellate court decisions that found in favor of the IRS’s position. The IRS had argued that, while there is no statutory time limit in section 6015(f), two-year limitation periods that appear in sections 6015(b) and (c) also apply to (f). While the appellate courts have upheld this rule, the Tax Court has declared the limit invalid on several occasions. It was generally expected that the issue would produce divided rulings in the appeals courts, and might have been ultimately decided by the Supreme Court. This change in the position of the IRS settles the issue. For more information, contact one of our qualified tax professionals.