Requesting Innocent Spouse Relief

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The National Taxpayer Advocate posted a blog detailing the impact of the change in the time period for requesting innocent spouse relief as a result of the litigation concerning the regulation under IRC 6015(f). The result of the study regarding the volume of the requests made after the change in the regulation makes clear that opening the time period for requesting relief under (f) from two years to the full period of the statute of limitations on collection has not had a material impact on the number of requests for innocent spouse relief. This information refutes concerns raised by the IRS in the litigation that opening up the time period would open the floodgates of cases seeking 6015 relief. The IRS makes similar floodgate arguments in the equitable tolling cases with similar empirical data to support its claim.

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For those not familiar with the issue, the 1998 Restructuring and Reform Act significantly changed the innocent spouse provisions and created three forms of relief available under subsections (b), (c) and (f) of IRC 6015. The legislation capped the time period for taxpayers to claim relief under (b) and (c) but was silent regarding (f) relief. The IRS promulgated regulations providing a two year period for seeking relief under (f) to match the time period under the other subsections. Low income taxpayer advocates Paul Kohlhoff and Bob Nadler attacked the regulation in the case of Lantz v. Commissioner, 132 T.C. 131 (2009), rev’d, 607 F.3d 479 (7th Cir. 2010). Although they convinced the Tax Court that this provision of the regulation was contrary to the statute, the Seventh Circuit reversed and upheld the regulations. Two other circuits upheld the regulations and cases were pending in other circuits when a letter from numerous members of Congress convinced the IRS to reverse its position and pull the regulation. [As a side note, the IRS issued Rev. Proc. 2013-34 following its change in course but has yet to publish a new regulation despite seeking comments several years ago.]

Since (f) relief is available to individuals who cannot obtain (b) or (c) relief, one of the IRS arguments in support of the two year limit on (f) relief was that it was necessary in order to avoid an end-run around the time limitation and open the door to a high volume of innocent spouse requests. The statistics published in the NTA’s blog suggest that the IRS fears of a high volume of requests due to the expanded time frame have not materialized. The relatively flat number of requests for relief before and after the change in the regulation suggest no need exists for Congress to amend (f) in order to protect the integrity of the innocent spouse statute.

The lack of any material change suggests that most individuals seeking relief do so relatively shortly after learning of their liability for a tax debt they believe they should not owe. My own experience with individuals seeking this relief supports this conclusion. Most of the time these individuals have ended the marriage and they seek to correct the problem as soon as possible. This is not something about which they procrastinate. The receipt of the IRS notice and demand letter individually and the prospect of facing the IRS collection system usually drive them to seek relief as soon as possible.

The post by the NTA also contains statistics concerning the percentages related to granting of innocent spouse relief. These statistics show a recent decline in the number of cases in which the IRS has granted relief. The statistics match the anecdotal concerns of advocates requesting innocent spouse relief. It is not clear if the quality of the requests has gone down, the review has become tougher or some other factor has influenced the rate at which the IRS grants these requests. As with most matters, it does make a difference if the individual is represented. I would be curious if statistics exist showing whether the number of requests from individuals representing themselves have increased or if the decline in acceptance of these requests reflects an across the board decline. My clinic usually gets involved in these cases when the individuals learn of the clinic after filing a Tax Court petition. Finding a way to have qualified individuals seeking this relief to come to clinics at an earlier stage in the process might improve the success rate of those seeking innocent spouse relief.

 

 

Comments

  1. Norman Diamond says:

    “These statistics show a recent decline in the number of cases in which the IRS has granted relief.”

    What counts? When the IRS rejects a request for relief on grounds that the IRS has no records of the spouse having filed any of the returns for which the IRS originally sent dunning letters to both spouses and later the IRS only sent dunning letters to the one spouse whom the IRS has no records of that spouse having filed the returns, but nevertheless the IRS acts as requested by stopping sending dunning letters to the requesting spouse and resumeing sending dunning letters to the other spouse instead, does this count as rejecting relief or granting relief?

    “As with most matters, it does make a difference if the individual is represented.”

    Yeah, no kidding. As always, the IRS doesn’t operate LITCs and has no plans to open LITCs in states where 9 million US citizens reside, and some not-yet-counted number of non resident alien spouses of US citizens reside. Yet again Cook v. Tait is incompatible with today’s IRS.

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