Innocent Spouse

Post Date: 8/23/13
Last Updated: 8/26/13

Summary

Cross References
- IRC §6015
- REG-132251-11

On August 13, 2013, the IRS released new proposed regulations under the innocent spouse rules. In general, a husband and wife are allowed to file a joint federal income tax return, or choose to file married filing separate. If they choose to file a joint return, each spouse is jointly and severally liable for the tax on the return, including any additions to tax, penalties, and interest. Thus, the IRS is authorized to collect the entire amount of tax plus any additions, penalties, and interest from either spouse, regardless of which spouse is responsible for the income, deductions, credits, or basis that resulted in the liability.

There are several exceptions to the general rule:
- IRC section 6015(b) allows an innocent spouse to elect relief from joint liability if understatements of tax are attributable to erroneous items of the other spouse and the innocent spouse had no reason to know of the understatement and, taking into account all the facts and circumstances, it is inequitable to hold the innocent spouse liable.
- IRC section 6015(c) allows an innocent spouse who is divorced, legally separated, or no longer living with the other spouse to elect liability for his/her share of the tax as if the spouses had originally filed separate tax returns.
- IRC section 6015(f) provides that an innocent spouse may request equitable relief from a tax understatement or underpayment when the innocent spouse does not qualify for relief under the other two provisions and it would be inequitable to hold the innocent spouse liable considering all the facts and circumstances. An example of equitable relief under Section 6015(f) is when there is domestic abuse in the marriage.

IRC section 6015(b) and section 6015(c) both impose a 2-year deadline for a taxpayer to elect innocent spouse relief. Under the 2-year deadline, an innocent spouse has two years from the date of the IRS’ first collection activity to make the election. In contrast, IRC section 6015(f) does not contain an explicit deadline to request equitable relief.

In 1998, IRS regulations imposed a 2-year deadline for IRC section 6015(f) equitable relief under the premise that each statutory provision should be consistent (Notice 98-61). In Lantz, 132 T.C. 131 (2009), the Tax Court considered the 2-year deadline regulations for IRC section 6015(f) and ruled that the regulations were invalid. On appeal to the 7th Circuit, the Tax Court decision was reversed upholding the validity of the 2-year deadline. In subsequent cases not under the 7th Circuit Court’s jurisdiction, the Tax Court continued to find the regulations with a 2-year deadline invalid.

The IRS then reconsidered the 2-year deadline and issued new guidance. The new guidance said the 2-year deadline no longer applies to requests for equitable relief under IRC section 6015(f). Instead, to be considered for equitable relief, a request must be filed with the IRS within the 10-year statute of limitations under IRC section 6502 for collection of tax, or the 2- or 3-year statute of limitations under IRC section 6511 for credit or refund of tax, as applicable to the specific request (Notice 2011-70). Under transitional rules, the 2-year deadline under prior regulations does not apply to any request for equitable relief filed on or after July 25, 2011 or any request filed prior to July 25, 2011 that is still pending with the IRS as of that date.

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